The Central Bank of Nigeria (CBN) may have missed the 2020 target of 80 percent for financial inclusion, but it stands a better chance of meeting the 2024 target as MTN gets a licence to operate as a payment service bank (PSB), according to experts.
Telecommunication companies (telcos) have long been projected as critical enablers of financial inclusion following their success in countries such as Kenya and India. Thus, many experts are excited about the inclusion of telcos in financial services in Nigeria.
After more than four years of initiating talks, the CBN announced last Monday that it had approved the licence application of MTN. The apex bank had already issued three PSB licences in 2021 to 9Mobile, Globacom, and Unified Payments. Among the telcos, only 9Mobile is operating with its licence as 9PSB.
Airtel is yet to receive a final licence approval, although it got the Approval-in-Principle (AIP) alongside MTN last year. MTN, however, had a head start as it got a Super Agent licence in 2019, which allowed it to build the largest mobile agent network in Nigeria. It currently has over 770,000 agents in the country.
Airtel, on the other hand, only got its Super Agent licence in November 2021, less than two months after the AIP. Hence, the second-largest telecom operator may still be preoccupied with building out a robust agent network to ease the deployment of its Airtel Pay service once it is approved by the CBN.
Kalu Aja, a personal finance expert, says the new MTN licence means more revenue for the telco, more productivity for users, more revenue for Federal Inland Revenue Service, more jobs, and more competition for banks.
The PSB licence enables Africa’s largest mobile network operator, MTN, to accept deposits from individuals and small businesses, carry out payment and remittance services within Nigeria, issue debit and prepaid cards, operate electronic purses, and other activities prescribed by the CBN.
PSBs are also expected to have not less than 50 percent physical access points in rural areas. In essence, the CBN expects MTN and other PSBs to have significant ground operations in rural communities where the burden of financial inclusion is most acute.
The MTN Mobile Money (MoMo) comes with all the features. MoMo is described as a secure electronic service that enables MTN Mobile Money wallet holders to store funds, send and receive money, make payments and do a number of other transactions simply using their mobile phone.
“Thinking about MoMo in rural areas and payments for agricultural produce through it,” said Sakwe Njioh, CEO of Morari, an agritech that supplies fresh produce from vetted farms. “This will be lit as more than 80 percent of food vendors and farmers don’t have accounts.”
According to data from Enhancing Financial Innovation and Access (EFInA), 38.1 million of Nigeria’s 106 million (18 years and above) adults or 36 percent of Nigerians remain completely financially excluded.
The CBN set a target of 95 percent financial inclusion by 2024. While millions of people own a bank account, they are unable to access other banking services. For example, less than five percent of the adult population have a pension or insurance cover.
Financial inclusion in Nigeria has become a shifting target for the authorities as efforts to include millions of people have yielded very little results. In 2012, the CBN pledged to reduce the number of people without access to financial services from 46.3 percent in 2010 to 20 percent by 2020. Hence, the number of Nigerians included in the formal sector was expected to increase from 36.3 percent in 2010 to 70 percent by 2020.
To achieve the goal, the apex bank chose a bank-led financial inclusion, which meant that banks were the major drivers of financial inclusion in the country. However, traditional banks have not been able to reach rural people due to several reasons such as the high cost of operating bank branches, onerous and bureaucratic onboarding procedures, and lack of identity documents to open bank accounts.
The CBN, in an attempt to remedy the situation, initiated the agent banking network alongside the banks in 2018. The financial regulator also adopted mobile money and gave financial institutions a blank cheque to operate in the space.
The GSMA noted in a report that the mobile money licensing framework restricted mobile network operators from delivering financial services directly, instead they were only able to provide their infrastructure to third-party financial services providers, limiting both incentive and impact.
The PSB model the CBN also unveiled in 2018 was copied heavily from India’s Payment Banks model. Like Nigeria, the Indian model restricts lending (either directly or in partnership), underwriting insurance, or dealing in foreign exchange, except to swap international remittances in foreign currencies to the local currency.
“With the restrictions on product offerings, it is possible that PSBs in Nigeria will face the same challenges as PBs did in India,” GSMA said. “Of the 11 PBs that were granted licences in principle in India in 2015, only six have survived and three are now profitable after approximately three years in operation.”
But the suitability of telcos to tackle financial inclusion is not in doubt. The majority of Nigerians who are unbanked live in rural areas. They are also mostly young people and women, and the northern region accounts for the most population, as well as people with low literacy.
The GSMA, however, noted that 61 percent of unbanked people have a mobile phone, which is an indication of the enormous potential of reaching underbanked segments through mobile financial inclusion.
Victor Asemota, growth partner at AnD who has worked on several MTN projects, believes the licence is first beneficial to MTN as a telecom operator.
“MTN will make your PSB account ground zero for selling all of its services and more. It will also need it to pay others who work for them and distribute for them. The biggest headache we had with VTU at some point was helping with reconciliation reports. It was a nightmare,” he said.
He sees MTN unifying transactions using its platform. During the unveiling of the telco’s new logo, Adia Sowho, chief marketing officer, said MTN was exploring collaboration with an open API that could be accessed by innovators, including fintech companies and other financial services players.
The telco has already secured different partnerships with fintech companies in Nigeria.
But for Adewale Adetugbo, a telecoms expert, MTN’s success in financial inclusion depends on how it is able to convince the unbanked to use MoMo instead of what they are already used to.
“Apart from MTN being ‘big’, why would Iya Modina use them instead of what she uses today? What can MTN do that others can’t?” Adetugbo asked.
Tosin Eniolorunda, CEO of TeamApt, also doesn’t see fintech companies losing ground to MTN in the long run.