Momo, SmartCash to disrupt N8trn annual mobile money transactions

The kick-off of MoMo, MTN Nigeria’s payment unit, and Airtel Nigeria’s SmartCash have many operators in the financial services sitting on the edge.

Mobile money transactions in the country rose to N8.06 trillion last year from N3.05 trillion in 2020, according to data from Nigeria Inter-Bank Settlement System Plc.

Both telecommunications companies are not making any secret the size of their ambitions for the payment market. For MoMo, which already has an advantage through its agent network business and has seen it amass over 10 million consumers, transactions are being made at zero fees.

The company would also rely on the expansive agent network already developed by MTN as a result of its Super Agent licence, which it got in 2019. The telco said it currently has over 700,000 banking agents, over 100,000 of which were added in the last quarter.

SmartCash’s parent company Airtel is currently the most valuable company on the Nigerian Exchange Limited.

PSBs are mandated to focus on the underserved areas in the country, given the scarcity of banking services in these places. This is where some experts say banks may have an advantage over telcos.

According to Chris Ogbechie and Lilac Nachum, both researchers at Lagos Business School, Nigerian banks control 94 percent of the banking industry by assets.

However, Ayo Akinwunmi, a corporate banker at FSDH Merchant Bank, told BusinessDay that while competition between the telecom providers and banks is healthy, it should further put the banks on their toes to improve their services delivery, especially in terms of financial inclusion.

“When there is competition, bringing in systems that are better makes the existing ones in operation improve on their service delivery and ensures that customers get more value for their money among a wider range of options. The ultimate objective is to deepen financial inclusion and to make products and services more affordable for a wider population,” Akinwunmi said.

The telecom providers say the idea is to bring financial products closer to rural households and businesses, leveraging faster channels like mobile services and digitalisation to make banking services available and affordable to those only able to access them at rates lower than what their rich urban peers can afford.

The forerunner of payment service banks (PSBs) were initially units in traditional banking systems providing basic banking services to meet the needs of the retail end of legacy banking until the emergence of fintech firms, and now MoMo and SmartCash into the scene disrupted how banking has long been conducted.

While it might be too early to predict the merging of fintechs who are providing payment services as a result of the pace MoMo and SmartCash will run following the final approval of their licences, “everybody has a place and roles they play within the financial system to deepen the financial inclusion by making it more accessible,” Akinwunmi said.

“As more operators are licensed to bring in innovative products to the market, it makes the consumers enjoy more value as well as it provides them with a range of choices and alternatives to choose from,” he added.

If developed, experts say, the PSBs as a banking model have the potential of quickening the pace of capital inflow into the largely informal rural economy and could help bring transformation as well as sophistication to the space on a scale so high that it will no longer be easy to tell the difference between the economies of cities and villages.

It could also deepen the penetration of insurance, pension, mortgage, mobile money, and non-interest banking products among rural communities.

With 35.9 percent (38.1 million) of the total adult population which lack access to financial services, according to a 2020 survey by Enhancing Financial Innovation & Access, a Nigeria-focused advocacy group supported by Bill & Melinda Gates Foundation, this will help scale up the number of unbanked persons in Nigeria.

Read also: Explainer – Mobile money vs PSBs: Where’s the difference?

As reported by Ernst and Young, 50 percent of banks lag when it comes to upgrading their outdated IT systems. However, Akinwunmi said the banks are complementary as they are also investing in technologies to deliver their services in a cost-effective manner.

“There are services the banks can offer that PSBs cannot offset; they just need to figure out how to do better what they are doing and reach out to the less advantaged people when it comes to banking services,” Akinwunmi said.

Contrary to the widespread belief that banks are late to innovation, Isaac Kamuta, the group head of payment, cash management, and client access at Ecobank, who spoke at a fintech breakfast series event in April, believes that banks are innovative.

According to him, fintechs can choose partners that will help them scale and when they are expanding, they should pursue collaboration.

He said: “This would help avoid working in silos in every country they move to, instead they just enable their services in these countries.
“Part of the reason fintechs have been able to move very fast is that they are not as heavily regulated as banks. This heavy regulation is the reason banks have thousands of compliance officers and spend billions on compliance, which ultimately makes them slow.”

How PSBs work

PSBs are empowered to drive financial inclusion by extending small deposit and withdrawal services from individuals and small businesses, carrying out payment and remittance services within Nigeria, issue debit and prepaid cards, operate electronic purses, and other activities prescribed by the Central Bank of Nigeria.

They are to operate dominantly in the rural areas and unbanked areas, with the financially excluded as target and have no fewer than 25 percent financial service outlets in those locations.

There must be a direct synergy with card scheme operators but the cards issued in that process are not fit for conducting foreign currency transactions, setting up Automated Teller Machine points within such locations, and run Point of Sale services.

With the use of banking agents, PSBs will run their services, leverage e-channels to bring service to customers, establish customer care units at their head offices as well as in coordinating centres, and deploy agent networks after receiving an endorsement from the CBN.

The coordinating centres will help PSBs oversee and control the operations of service outlets and banking agents, adopt technology-powered systems and comply with best practices on data storage, security, and integrity.