With the licence granted to MTN Nigeria Communications Plc to operate as a payment service bank (PSB), fintech companies and deposit money banks are seen facing increased competition.
It has taken MTN, Africa’s largest telecommunication operator, nearly five years to finally get the Central Bank of Nigeria (CBN) to approve its application to become a PSB.
While the journey came to a head on April 11, 2022, following the CBN’s approval, there is trepidation among fintech companies and banks on the nature of competition MTN is about to unleash.
MTN has said it will communicate to the apex bank when it will formally commence the Mobile Money (MoMo) service.
The MoMo service will run as a separate business from the telecom operations of the group. MTN Group said it expects to complete the separation by the end of the first half of 2022. To achieve this, a recent report noted that MTN is working with advisers at JPMorgan Chase & Co.
More than three years after it was granted a Super-Agent licence by the CBN, MTN says it has approximately 770,000 registered MoMo agents in Nigeria, making it the largest agent operator in the country.
The closest rival, OPay, which has deployed mobile money services since 2019, had nearly 400,000 agents as of 2021. Other competitors like First Bank, Paga and TeamApt count over 100,000, 120,000 and 150,000 respectively.
In 2021, Nedbank Group Ltd estimated that MoMo could already be the largest unicorn company in Africa worth about $6 billion.
“Hold onto your fintechs folks. The real monsters are coming. I operate in 9 different countries in Africa where Mobile Money absolutely dominates. Totally dominates.
As in, people don’t really use anything else. @MTNGhana had $99B TPV in 2022. Nigeria will make this look small,” tweeted Jason Njoku, co-founder/CEO of Irokotv and an active investor in many tech companies.
MTN controls about 85 percent of the mobile money market in Ghana. The MTN subsidiary in the West African country raked in GH¢ 1.26 billion (N84.97 billion) in the nine months through September 2021, according to its financial statements.
Last month, the telco’s MoMo overtook Safaricom’s MPesa as the largest mobile money service in Africa.
PSB is a category of banks with smaller-scale operations and the absence of credit risk and foreign exchange operations. In Nigeria, a PSB is allowed 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. Only a few banks have an extensive network of branches in rural places in Nigeria.
Fintech companies also utilise banking agents to reach people in rural areas but very few have physical outlets due to the cost implications.
However, telcos like MTN Nigeria would not only make use of agents, they also have a physical presence in many rural communities.
Victor Asemota, growth partner at AnD, suggests that mobile money for telcos is a form of survival.
“The cost of distributing airtime is daunting and they keep squeezing the channels for profit but there is a limit as those channels are also businesses themselves with real costs. Doing it directly to the customer and owning their store of value removes friction and costs,” Asemota said.
According to him, launching mobile payments enables telcos to convert all their users by giving them hefty bonuses for mobile payments top-ups, which the users cannot refuse. This swiftly becomes the standard mode of payment for airtime and from there other use cases.
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“The reason a customer will choose a store of value over others is utility and ease of use. If I can do more types of transactions with MoMo, I will end up leaving more money there. It is even more interesting that the license in Nigeria is really a banking license. Everything is a game,” Asemota said.
The licence may give MTN banking capabilities but there are restrictions. PSBs in Nigeria cannot grant any form of loans, advances, or guarantees, accept foreign exchange (forex) deposits or deal in forex except selling forex realised from inbound cross-border personal remittances to authorised forex dealers.
“I don’t think MTN Nigeria will get the same level/ratio of market share as they did in Ghana,” said Jesse Ghansah, founder and CEO of Float Cash, a Ghana-based fintech company.
Tayo Oviosu, founder and CEO of Paga Group, also suggests that markets react differently. For example, Safaricom, which has seen tremendous success in East Africa, with presence in nine countries in that region, attempted to deploy MPesa in India but had to bid farewell to the country despite the enormous potential for mobile banking.
“Get ready for a marketing blitz but with all due respect, Nigeria is not Kenya or Ghana or other countries with poor banking infrastructure,” Oviosu said.
Apart from the restrictions on PSBs in Nigeria, experts also say MoMo will be tested by the high level of insecurity, particularly in the cyber space where Mobile vectored scams have risen by over 600 percent.
There is also the National Identification Number (NIN) barrier. Currently, less than 80 million unique SIM cards are linked to the NIN.
There are about 72.7 million lines that are shutdown. MTN will also need to address merchant adoption of mobile banking.
So far, individual adoption dominates transaction volume. At the recent launch of Visa Innovation Studio in Nairobi, Aida Diarra, senior vice-president, and group country manager at Visa, Sub-Saharan Africa region, noted that cash transactions dominate over 90 percent of transactions.
“Startups shouldn’t be afraid of this as MTN will create new markets for them. This is just a new store of value with a player that not only has reach, they understand why uptime is important and have teams managing infrastructure 24/7. This is not your average bank or switch,” Asemota said.
