• Thursday, March 28, 2024
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BusinessDay

Nigeria’s mobile money: All motion, little movement

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In 2007, mobile money was born for the first time in Africa, to provide financial services to the over 80 percent of the Kenya’s population who were excluded from the formal financial sector.

The innovation which came in the form of M-Pesa allowed the growing mobile phone population in Kenya to access financial services at the click of few buttons. By so doing, it eliminated the need to first visit a bank branch to do simple tasks such as open bank accounts, make payments, transfer money, receive money and access loans.

The mobile money market size is estimated to grow from $21.15 billion in 2016 to $112.29 billion by 2021, at an estimated compound annual growth rate (CAGR) of 39.64 percent from 2016 to 2021. According to GSMA, sub-Saharan Africa is the global leader in mobile money, accounting for almost half of all registered customers globally. In 2017, mobile money transactions within the region reached $19.9 billion, 63 percent of global figure.

Although, western and central African countries dominated registered accounts, Nigeria was absent from the top three countries consisting of Cameroon, Cote d’Ivoire and Ghana.

Nigeria does have huge potential given the huge given the large population. The country is the leader in active mobile phones in Africa with over 155 million lines according to recent data. The total active subscription and total active internet subscription in Nigeria also hit 145 million and over 98 million respectively in the fourth quarter of 2017.

The authorities also seem to be paying attention to the market. Data from Nigerian Inter-Bank Settlement System (NIBSS) show that there are 21 mobile money operators licensed by the Central Bank of Nigeria (CBN).

Despite the potential and the regulators interest going as far back as 2015, in growing the market, mobile money transactions accounts for just 1.01 percent of the total e-payment transactions in Nigeria. A top UN official at a recent tech summit in Kigali disclosed that mobile money penetration was only one percent in Nigeria meaning that majority of the 155 million phone users in Nigeria are yet to buy into the innovation.

Nigeria does possess some of the conditions that could help mobile money services to thrive. The National Switch Service under the CBN since 2011, for example, serves as the gateway for payment services in the country. CBN guideline provides that every bank route their payment through the switch. Kenya just recently adopted a National Switch Service.

There is some growth being recorded, to be sure. In 2017 for instance, volume of transaction grew to N1.1 trillion compared to N756 billion recorded in 2016. But growth in transaction does not necessarily mean adoption is growing at same rate.

For some stakeholders, a major challenge for mobile money adoption in Nigeria is the regulatory model in operation. The CBN model requires it to define the role of every player in the entire value chain. The Kenyan model is also similar in that it is also led by the Central Bank of Kenya. However, unlike the CBN, the Kenyan central bank allows even non-banks players such as mobile network operators (MNOs) to provide mobile money services.

Ghana started out like the CBN – allowing only banks and deposit-taking financial institutions to provide the service while MNOs acted as agents making available the platforms. When that proved problematic, the Bank of Ghana upgraded its rules in 2015 to accommodate non-bank entities under the supervision of the apex bank.

Commenting on the growth of the market in Ghana, a senior official of GSMA, in an interview reemphasised the role regulation played with the introduction of a new set of rules by the central bank. Between 2012 and 2017, activity rates grew from seven percent to over 70 percent.

In an article published in BusinessDay, Ibukun Taiwo and Olayinka David-West stated that “Mobile money usually struggles in markets where mobile network operators are prohibited from participating. In such markets, to see any measure of significant traction, considerable amount of resources have to be invested in a dominant player. It is either you get behind the dominant player or allow multiple independent players to participate.”

In essence, Nigeria central bank would need to evolve its framework in order to open up the sector to non-bank entities.