IT has been widely acknowledged that the financial inclusion initiative of the Central Bank of Nigeria will be largely driven by mobile money. A key reason for financial exclusion is typically the inaccessibility of the unbanked/underbanked, mostly people in the lower strata of the economy, by the financial services providers. Location is a challenge as the unbanked or underbanked are often far removed from the centre of commerce, which tends to lower their participation in economic transactions.
Thus, a combination of low demand for financial services and prohibitive costs without commensurate returns dissuades financial services providers such as banks, insurance, and pension administrators from establishing physical presence in these locations.
However, mobile technology and innovations in the financial services industry, coupled with the phenomenal growth in telecoms’ subscriber numbers, have altered this situation. Financial services providers continue to leverage the reach of telecoms networks to provide mobile money services to otherwise inaccessible locations. The recent spate of agreements on mobile money services between financial institutions and telecoms networks, MTN and Diamond Bank, UBA and Airtel, Stanbic IBTC Bank, First Bank, Ecobank and Globacom, will doubtless ramp up the synergy that should lead to further growth in mobile money.
The poster boy of the successful integration of the rural/informal populace into formal banking system via mobile money services is usually Kenya. And rightly so. M-PESA, Kenya’s mobile money system, has been hugely popular and successful in that country. Today, M-PESA has over 40,000 agents and 17 million users (“equivalent to more than two-thirds of the country’s adult population,” according to The Economist magazine) conducting more than two million transactions daily. In 2010, Kenya had just 840 bank branches and 1,510 ATMs to serve a population of 47 million people. M-PESA, with its 40,000 agents, helped to plug the supply hole and provide access to financial services to ordinary Kenyans. Micro finance institutions piggybacked on M-PESA to go deeper into remote areas very quickly without substantial increase in costs. In other countries, a number of financial institutions seemed to have found the right mix to ensure successful deployment of mobile money. Standard Bank (parent bank of Nigeria’s Stanbic IBTC Bank), for instance, has been successful with mobile money in Uganda, Tanzania, and South Africa.
The bank-led mobile money model adopted by Nigeria may be slightly different from Kenya’s telecoms-driven model but the underlying peculiarities are broadly similar. Access, costs, lower economic activities, and partnerships are common threads. The lessons of M-PESA are not lost though as mobile operators like MTN Nigeria are beginning to play more significant roles in mobile money. One of the mobile money pacesetters is the Diamond Y’ello Account, a mobile money product developed by Diamond Bank in partnership with MTN. For instance, since the introduction of the product four months ago the bank has grown its mobile banking customer base by more than 600,000. The bank projects that it would have five million mobile banking customers, double the current size, a year from now.
Among the partnerships positioning themselves to offer mobile banking services in Nigeria, the Diamond Bank/MTN partnership perhaps has the greatest advantage due to MTN’s experience in the sector in countries like South Africa, Ghana, and Kenya.
Even better is the telecommunications giant’s Nigerian footprint. MTN’s reach covers 223 cities and towns, more than 10,000 villages and communities and across many highways in the 36 states and the Federal Capital Territory. Its fibre optic transmission backbone traverses over 10,000 kilometres. CEO, MTN Nigeria, Michael Ikpoki, said the network will focus on meeting the significant market demand for financial services and mobile content with an expected positive impact on data revenue.
The success of Diamond Y’ello Account and other basic mobile money services is expected to lead to the adoption of more sophisticated mobile payment solutions such as bulk mobile payment designed for corporate organizations. This service makes it easier for organizations to send money in bulk to their suppliers, employees or other business partners without the beneficiaries necessarily having to own a bank account. Mobile money providers must not be shy to adapt and replicate what works in other places and must continue to innovate and develop bespoke products and services to excite consumers and boost conversion rate.
Success in conversion rate will largely be determined by how well the mobile money benefits are communicated to the consumers.
Some of the salient benefits to the consumer include security, convenience, accessibility, speed and ease of transaction, competitive charges, access to quality advisory services, and integrity of transactions; the customer literally carries his bank in his pocket or bag wherever he goes. Other not-so-obvious benefits, which are nonetheless important, are better cash flow management by the consumer, enhanced financial planning, and inculcation of sustainable savings habit, which collectively yield options for financial security and comfort in retirement. “Mobile payments, which I perform on my phone, help to reduce my travelling costs,” a farmer in rural Nigeria who uses mobile payment services said.
Mobile money is said to have the potential to galvanize economic activities that will lead to higher socio-economic development, lower cost of transactions and reduction/elimination of cash handling costs, among other benefits. Lower costs will free much-needed funds for the financial services industry to invest in expansion and development. Nigeria’s telecoms subscriber base, put at 131 million as of September 2014 by the Nigerian Communications Commission, the telecoms industry regulator, should play a major role in bringing the unbanked into the formal banking system. With at least more than half of Nigeria’s adult population currently unbanked, according to CBN, mobile banking could be the catalyst that will help quicken the adoption of banking services by this critical segment of the population.
“CBN believes that mobile money and agent framework is the frontier of cashless boom. Mobile money is the next thing expected to transform CBN’s cash-less policy. The apex bank believes that such initiative will aid both telecommunications and banking industries to further serve Nigerians better,” Director, Payment Systems, CBN, Dipo Fatokun, said.
Offshore portfolio managers appear to be similarly persuaded and they are already positioning to take advantage of the expected growth in mobile money. For instance, Carlyle Group, a US-based global alternative asset manager with $203 billion of assets under management across 129 funds and 141 fund of funds vehicles, recently acquired a $147 million (about N27 billion) minority stake in Diamond Bank, partly on the strength that the bank’s new mobile banking service “will help rapidly boost the lender’s customers and profits.”
It is encouraging that the apex bank knows mobile money is the catalyst needed to strengthen its cashless/financial inclusion policy. It is important also that it backs up this knowledge with effective regulation, one that is supportive and will help to effectively reach significant scale in serving unbanked customers.
One of such regulations is the Nigerian Deposit Insurance Commission’s extension of deposit insurance cover of up to N500,000 to mobile money account holders. What this means is that via NDIC’s Pass-Through Insurance, a mobile money account holder is indemnified to the tune of N500,000 in the event that a mobile money service provider becomes insolvent. Many such consumer-centric regulations will need to be instituted to excite stakeholders and engender further uptake.
Mobile payment is a dynamic service; indeed, it has grown beyond the original concept and will continue to throw up new possibilities. As mobile money grows and a large percentage of the population, who ordinarily are shy of banking halls, embraces its benefits, it may not be so hard to imagine a future totally devoid of paper money. The combination of telecoms technology and banking services will certainly usher in a new phase of growth in the financial services industry and the economy in general.
SOURCE: The Guardian (Nigeria)
Apr 23, 2010 26
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