The share of the mobile money market and the value of transactions controlled by MTN Ghana may have helped unravel a picture of what to expect from the Nigerian business when MTN kicks off its payment service bank (PSB) in the next six months.
The Central Bank of Nigeria recently granted approval in principle to MTN Nigeria and Airtel Africa to operate payment service banks (PSBs), with final approval to follow in six months, subject to specific requirements.
Controlling about 85 percent of the mobile money market in Ghana, the MTN subsidiary in the West African country raked in revenues of GH¢ 1.26 billion (N84.97billion) in the nine months through September 2021, according to its financial statements.
While the regulations governing the Nigerian mobile money industry and the level of development in the country’s financial services industry differ from what is available in Ghana, the MTN MoMo business in Ghana is similar to what MTN Nigeria will be able to do in Africa’s largest economy. Although the Nigerian PSB licence doesn’t give room for the operators to do as much as their Ghana counterparts.
Unlike in Ghana, Nigeria’s PSB operators cannot provide lending and insurance products. Also, their interest-bearing assets are limited to government and central bank-issued instruments. Lending, according to market analysts, can be a profitable add-on for digital payments providers and the restrictions on offering insurance and investment products could limit PSBs’ ability to generate expected revenue.
To extrapolate the revenue MTN Nigeria is likely to generate from its mobile money business in Africa’s most populous nation, BusinessDay proceeded to analyze the data by Tellimer, a global technology, information, and data provider, that surveyed mobile money penetration (defined as mobile money users as a percentage of total subscriber base) across various African telcos and markets.
As expected, Safaricom had the highest penetration (71percent), given its dominance and the positive trend for mobile money in Kenya. Airtel Africa had the lowest in Tellimer’s sample, at 20percent, while MTN Group had a penetration of 24 percent overall; however, the rate is much higher in Ghana, at 42 percent, due to MTN Ghana’s first-mover advantage.
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With an assumption that MTN Nigeria will potentially have 30 percent mobile money customer base from its c68.5 million total customers and its network effect of the already existing group of c560,000 agents, analysis of Tellimer’s data shows, the telco giant revenue of cNGN131bn and NGN53bn EBITDA at an assumed EBITDA margin of 40 percent per annum. This is lower than Safaricom M-Pesa’s incremental EBITDA of 47 percent.
A lower margin was projected for MTN Nigeria due to the tougher competition in the country’s financial services industry as the largest economy in Africa is already home to several payments-focused unicorns: Interswitch, Flutterwave, Opay and, most recently, Chipper Cash.
The projection was done using Tellimer’s average revenue per user (ARPU) which ranges between $2.2 and $1.3. The data provider said it assumed ARPU of $1.3 for MTN Nigeria, below the group’s average for H1 21 due to the competition in the market.
There is a high level of competition in the Nigerian payments sector, with banks developing agency banking and an array of fintechs servicing a wide range of clients, Ayobami Omole, Telecoms analyst at Tellimer said.
“This means that it will be very difficult for MTN Nigeria to replicate M-Pesa’s success in Kenya or that of its fellow MTN Group subsidiary in Ghana,” Omole said.
In trying to win over market share, the Lagos-based analyst said there will be tough price competition which will limit potential revenue. “Although, I must say that it is too early to conclude with certainty that the telcos won’t make as much money given the higher population we have in Nigeria.”
When MTN Nigeria and Airtel Africa get the PSB licence in the next six months, the number of financial services providers under the new permit would increase to five. The central bank had in 2019 granted approvals to Hope PSB, Money Master PSB and 9PSB.
Even though the PSBs are expected by the CBN guidelines to operate mostly in the rural areas and unbanked locations, targeting financially excluded persons, with not less than 25 percent financial service touchpoints in such rural areas, the operators’ participation in the industry is expected to bring huge competition to the existing traditional banks.
Having the largest share of the market, MTN Nigeria is expected to rake in the biggest share of the revenue, even though the projection is not expected to match its success in other existing markets.
“The mobile money service will be value accretive for MTN Nigeria because it means beyond voice and data, they can leverage on it to generate more revenue,” Yinka Ademuwagun, Yinka Ademuwagun, investment management analyst at ValuAlliance Asset Mgt said.
