The old phrase Cash is king is one that we all recognise. In most of the world, when they say it, they rarely mean physical, hard cash anymore. They mean money in the bank; in a deposit or savings account. In Nigeria today that’s what a wealthy person or a middle-class social climber understands it to mean, but it’s not what the vast majority of Nigerians think. For the ordinary man on the street, struggling day to day to feed himself and his family, cash is most certainly king, and it’s a problem.
It’s a problem, I emphasise, for all service providers; whether bank, fintech, mobile money, telecoms company or agent network. We often make the mistake of competing with each other, rather than competing with the opponent that is beating all of us: Cash! This is also a problem for government. Cash is inefficient. It’s not sanitary, especially with our heightened sensitivity to the transmission of viruses, and it’s expensive to operate and maintain. But, it is the preferred mechanism of the majority of the people that are most important; the potential customers that currently do not participate in the formal financial system, and many of them that don’t!
Reaching these potential customers, in a way that they value and trust, is perhaps the single most significant challenge that we all face if we are going to grow the overall size of the market and achieve the levels of economic inclusion that we aspire to.
Too often we look at the top end of the existing customer market for an indication of trends but forget that they have had a decade or more of engagement, education and experience. Many were already naturally predisposed to participation. They know and trust the systems that are in place. They are familiar with PoS systems, cards and accounts. Many of them are using more innovative products than are in use by customers in supposedly more mature markets. Nevertheless, serving those populations is increasingly competitive. More and more operators, all competing for the smallest proportion of the market. These are the customers for whom cash is no longer as important, and where we are winning.
The COVID-19 pandemic and the lockdowns showed us is that at a mass-market level, the use case that pulled people to our agent networks was the same cash that we compete with. It became about access when traditional providers were constrained. It was the closure of banking operations and other access points that drove customers to the agents who saw significantly increased demand for cash-in and cash-out services. That tells you something; it tells you that cash is still dominant. We are a long way from the closed loop digital panacea that represents the cheapest, most scalable outcome.
The two groups still constitute less than 50% of the market, and it is the customers for whom a debit card at N1000 is too expensive, and who almost certainly don’t have an agent location close to them, that we need to innovate for and serve. The customers for whom any fixed infrastructure is going to increase the cost of entry to a point that makes it is commercially unviable, and who are inherently suspicious of the formal system generally, not just the financial services sector. Very few providers are targeting this market and so helping to grow the overall size of the pie. Why? Because it’s difficult!
I believe that the only entry point to this is to leverage existing connectivity. To pursue that closed loop digital dream. To remove the barrier to entry and utilise structures that have existing levels of trust established. That is why the role of telecoms infrastructure is so important. It’s not just the infrastructure over which the digital solution is delivered, it’s also the existing platform that is trusted; whether or not it is the telecoms operator providing the financial service, or just delivering it.
At the moment, the structure of the relationship between financial services and telecoms is still evolving. But whatever the ultimate solution is, the customer is going to have to trust it, and building that trust is in the interest of the entire sector, and beyond the capability of any one participant.
One of the key contributors to that trust building process, is the agent. This is something that we’ve learnt a lot about over the last 18 months, activating more than 300,000 of them. The agent themselves have concerns; concerns about the reliability of the infrastructure, and the resolution of disputes over failed transactions. Something that we all need to work on doing better. They have concerns about limits on the fees they can charge for transactions and the commercial viability of the model if customer demand is not sufficient. They are, quite naturally, going to focus on the areas of highest footfall, and maximum potential return; why wouldn’t they? So, we also have to acknowledge that the role of an agent might need to be repurposed, and the role of merchants is going to be increasingly important. How do we design this system so they are champions of it, incentivised to move into the areas that are more challenging and less immediately profitable; focused on building the trust that we need? We need to focus in on this challenge and work together to solve it.
We know that when it is done right, and the product is designed appropriately, customer education works. We can see it in the customers response and attitude towards card systems. Decades of communications and engagements by banks mean that today, ATM’s, POS systems and cards are trusted and accepted. How many of us remember the days when Lagos only had 3 ATM machines? It was just 15 years ago. That means the task in front of us is possible. If we can solve the challenge and beat cash, we have the potential to improve the lives of millions of Nigerians and transform the face of the economy. That is why it is worth doing, and best done together.
• Usoro Usoro is GM, Mobile Financial Services, MTN
