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BusinessDay
Nigeria's leading finance and market intelligence news report.

PSB: Why MTN, Airtel Africa unlikely to replicate mobile money success in Nigeria

The high level of competition in Nigeria’s financial services industry following banks’ development of agency banking and an array of Fintechs servicing a wideEndurance Okafor
range of clients are some of the reasons why MTN and Airtel Africa are unlikely to replicate mobile money success in Nigeria, BusinessDay findings show.

The mobile money regulation in Nigeria which differs from other established markets like Ghana, where MTN and Airtel Africa have reported success stories, is another factor that may restrict operators’ performance, according to analysts.

While MTN MoMo business and AirtelTigo in Ghana are similar to what the two telcos can do in Nigeria, the payment service bank (PSB) permit by the Central Bank of Nigeria (CBN) does not 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.

“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,” Ayobami Omole, Telecoms analyst at Tellimer 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.”

The Central Bank of Nigeria recently granted approval in principle to MTN Nigeria and Airtel Africa to operate payment service banks, with final approval to follow in six months, subject to specific requirements.

The share of the mobile money market and the value of transactions controlled by MTN Ghana, for example, may have helped unravel a picture of what to expect from the Nigerian business when MTN kicks off its payment service bank in the next two quarters.

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.

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.

Read also: Ghana mobile money revenue offers clues to MTN Nigeria’s PSB expectation

As expected, Safaricom had the highest penetration (71%), 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.

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.

According to BusinessDay estimates, Airtel, Nigeria’s second-largest telco by number of subscribers, could make an additional $405 million a year from mobile money operations in Nigeria, more than the $401 million it made in total mobile money revenues last year.

Why PSB is a catalyst for Nigeria’s financial inclusion growth

The existing customer base, infrastructure and high mobile phone penetration rate in Nigeria are some of the reasons for the nod for Telcos to partake in deepening Nigeria’s financial inclusion rate.

While Nigeria’s commercial bank branches (per 100,000 adults) in Nigeria was 4.30 as of 2018, mobile phone subscribers per 100 people stood at 99.07. For comparison, the world average in 2020 based on 144 countries was 113.12 subscribers per 100 people.

Analysis of the data by FBNQuest revealed that Nigeria’s total active bank accounts were about 111.5 million as of September 2020. This pales in comparison to the 205 million active subscriber lines for network operators in the same period.

Access Bank, Nigeria’s largest bank by assets and customer base, disclosed in its H1 ’21 presentation that it had 42 million customers. This is significantly less than MTN Nigeria’s over 69 million subscribers in the same period. Also, given their reach, GSM operators have a larger pool of MoMo agents on their platform.

On its nine-month conference call, MTN Nigeria disclosed that it had increased its agent network by 234,000 agents to about 630,000 agents this year. In comparison, First Bank’s agent network, which is the largest among the banks, was around 117,000 agents as of H1 ’21.

A lower financial exclusion rate in Nigeria could slow the country’s poverty rate as access to credit and insurance puts them at an economic advantage.

Although Nigeria’s poverty profile for 2021 has not yet been released the World Bank’s estimate put the number of poor people at 90 million, or 45 percent of the population, an increase from the pre-pandemic levels.

But in Kenya, the East Africa country where eight in 10 adult population are financially included, the number of people estimated to be living on less than $2 dollars per day in 2021 stood at 26.3 percent.

The use of the mobile money-led financial inclusion model has been adopted by many countries that previously suffered high financial exclusion rates because it is one of the easiest ways to include the unbanked segment that are mostly in the rural communities and other vulnerable groups in the economy.

In the case of Kenya, Ghana and many other African countries, with the use of mobile phone numbers which are used in place of a bank account, citizens of the countries are allowed to carry out financial transactions like payment, savings, credit, insurance and among others.

The same is expected to happen in Nigeria through the PSB licence.

Largely driven by mobile technology, Kenya’s financial inclusion expanded from a low base of 26.7 percent a decade ago to 83 percent in 2020. The East African country is one of the world’s leaders in mobile money services. Telecom’s operator Safaricom pioneered its M-Pesa service 12 years ago to cater for Kenyans without access to the formal banking network.

The success story of mobile money in deepening financial inclusion is also evident in countries like Ghana, Ethiopia and others.

While Nigeria went late to the party as the Central Bank only gave an official nod to telecoms and other non-financial companies to offer financial services in 2018, the payment service bank by the regulator would enable players to offer financial services while deepening the country’s financial inclusion rate.

The permit will allow the companies to among other things; maintain savings accounts and accept deposits from individuals and small businesses, which is covered by the deposit insurance scheme; carry out payments and remittance (including cross-border personal remittance) services through various channels within Nigeria; issue debit and prepaid cards, and operate an electronic purse or wallet.

The Central Bank gave its first set of licences to three players in August 2020, two years after it received applications.

Before now, only banks and licensed financial institutions were allowed to provide financial services (bank-led financial inclusion model). Although telecom operators and other fintech companies indicated interest to operate in the market, the CBN policy would not allow them.

The regulator eventually shifted because of the increasing rate of financially excluded people in Nigeria and the lack of progress in getting banks to provide financial services to people living in areas that lack access.

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