Myopia and the Nigerian banking system

MTN subscribers who usually buy airtime through bank channels by use of USSD or bank apps got a rude shock on Good Friday this year when they found out that Nigeria’s commercial banks (except for Zenith Bank) had decided to shut down the network’s access to their banking channels over a disagreement on revenue sharing on the transactions.

MTN Nigeria is the largest mobile telecoms operator in Nigeria with a customer base of 64 million subscribers and while not all of them have bank accounts, a situation where 10, 20, or 30 million people are thrown into a situation where they find it harder to buy airtime without forewarning that makes it easier to find alternatives is unfortunate.

The controversy over returns on the use of banking channels like the Unstructured Supplementary Service Data and banking apps is said to have been triggered by MTN reducing the commission for the banks from an average of 3.5 percent to a 2.5 percent that the banks found unacceptable enough to resort to blocking trade of MTN airtime in all their channels.

One would imagine that the banks had visualised the likely outcome enough to see that it would compromise the establishment of the cashless system as MTN customers would have to patronise offline airtime trade channels. Sales of SIM cards are presently suspended so this was not going to lead to a migration of customers from the MTN platform to those of rivals like Globacom, Airtel, and 9Mobile.

The banks must understand that they are quite frankly too big to be moving with the shortsightedness associated with petty traders who lack significant weight. An action that has the potential to affect 64 million Nigerians should be discussed, considered, and taken with the gravitas and care it deserves. Nigeria is fragile enough and it’s very disappointing when institutions that we expect to value predictability embrace brinkmanship over a more studied approach that minimises damage.

Banking and telecommunications are critical sectors that are sensitive and it is quite sad to see the banks have taken this route just to maintain their profit levels without paying adequate attention to the big picture.

It is arrogance. The type of arrogance that comes when sustained success becomes a dehumanising experience because the successful do not take the time to study anything other than what’s written in ledgers and bank statements.

That tunnel vision will eventually be costly. It is just the cycle of life. The nature of the banking sector was quite different in the 80s and the early 90s were characterised by the advent of a new wave of banks headed by younger professionals who prioritised better relationships and working models while their older colleagues and their institutions had gotten sated by their success and lapsed into sloth-like patterns.

Ordinarily, one would be tempted to call for better government oversight but the existence of Ministers of Digital Economy who triggered a nationwide suspension of SIM card sales for very flimsy reasons stops us from believing in the government’s ability to handle processes with the required vision and appropriateness. There’s really no point in pushing for the involvement of those with a penchant for spectacularly unproductive actions when you just want a measured approach to solve a problem with. To put it bluntly, what should ordinarily have been a commercial matter, that could be firmly dealt with by robust commercial dispute resolution mechanisms, has now been propped up by the intervention of a government minister.

The banks clearly believe that they have a certain amount of leverage and have acted as a cartel of sorts to force one company to align with their will. Proper negotiations do not happen when one side feels it has the power to drown the other at will so the leverage issues must be sorted out if we’re to get a solution that’s fair and works for everyone. Innovation and disruption thrive when these types of inflection events are allowed to play out. Mr. Pantami’s intervention has only kicked the can down the road. As an example, fintech startups like Carbon were used by MTN subscribers to buy airtime when the traditional banks barred access and Nigerians must explore all other options of online airtime sales and banking services to get a situation where the leverage between rivals is spread fairly enough to allow for balanced negotiations that birth outcomes that truly improve things for all sides including the customers.

Carbon started as a digital lender and then acquired a microfinance bank licence that means that Carbon’s customers are afforded additional protection through depositors’ insurance via The Nigerian Deposit Insurance Corporation, a federal insurance agency, that protects depositors and guarantees settlement of insured funds when financial institutions are unable to repay deposits. This means that a Carbon wallet is a full-fledged bank account that lets customers perform transactions on the platform as they would with any bank.

Fintech start-ups like Carbon, Kuda, and others have to be brought firmly into the conversation so we can have fewer situations where cartels can nonchalantly decide to restrict 64 million people without as much as a warning.

For all their attempts at embracing technology, this attempt to shut out MTN reveals that Nigeria’s banks are now very much a part of the status quo, seeking to protect what they see as their turf. As such, the newer fintechs are the more natural partners for the telcos going forward, both in terms of adoption of banking services by the unbanked and offering greater value to those already banked.

This shift – and the speed at which it happens – will depend on how quickly these newer companies are able to develop capacity while simultaneously dodging various regulatory and competitive landmines.

Indeed, regulatory risk is probably the single biggest source of risk for new market players in Nigeria today. It is crucial for these new fintechs to proactively engage with regulators to ensure their interests are always protected. In so doing, Nigerian consumers will reap the full benefits of innovation in the finance sector and other sectors.

With the entry of fintechs and telcos into financial services, as well global tech companies like Facebook, the future of banking in Nigeria may have less to do with banks. It is important that regulation leaves that possibility open.

Nwanze is a partner at SBM Intelligence.