Why we pioneered USSD payment in Nigeria – E-Tranzact boss

Niyi Toluwalope,managing director and CEO of E-Tranzact

NIYI TOLUWALOPE, managing director and CEO of E-Tranzact, one of the leading switching companies in Nigeria in this exclusive interview with BusinessDay’s FRANK ELEANYA revealed why the company pioneered the Unstructured Supplementary Service Data (USSD) payment in the country and the first mobile money transaction in Nigeria.    

Tell us about your background

I started out as an accountant at PricewaterhouseCoopers (PwC), joining the audit and advisory team back then. I worked on a couple of privatization deals which I was asked to oversee. I also did some advisory work in PwC, like the purchase of Starcomms; I actually led that transaction. The work I did at that time was what picked my interest in core corporate finance and investment banking. On some of the transaction we worked on I partnered with some of the investment banks at the time. I marveled at their approach, metrics and the quality of the stuff they were talking about. I started researching how to get into that world. I went for MBA at the University of Virginia and graduated as a Dean’s scholar. I joined investment banking quickly at Citi Group, in their mergers and acquisition department where I worked for 12 years. After that I got an opportunity to go to London and head the alternative business focusing on Africa. But I wanted to stay back in Europe so I went to join JP Morgan’s investment banking team. I was there for a couple of years and moved to Credit Suisse with focus on power (energy). My father is a professor and his specialty is in power systems, so I had always known a lot about Nigerian Electric Power Authority (NEPA). I had the intention to raise a fund that I will invest in power sector. But the power sector in Nigeria is a different dinosaur; it is beyond fund raising.

I came back to Nigeria in 2010-2011 and had a small stint with the Honeywell Group. I was advising them on the sale of their investment in Airtel at that time. At $10 million, it was the biggest transaction in telecommunications in Nigeria. I worked on that transaction with one of the shareholders who owned 20 per cent of the business.

Shortly after, I was approached by Capital Alliance who is an investor in E-Tranzact. They had an investment and they needed a chief of finance (CFO) to come and do. I had the requisite background for financial accounting, corporate finance, investment banking, and private equity. Also my big 4 PwC background; as a chartered accountant, was what they needed because they have been in investment for a while and they needed a CFO that will guide them to exit. In private equity you invest for a while and you exit. That was what they wanted.

I knew nothing about fintech then. One of my key strength growing up was being a fast learner, once I understand the dynamics. I am a numbers person; if can always see it in everything and if can tell the numbers story I can easily tell a great story and the strategy becomes clearer. Those were the things that have gotten me to where I am today.

Joining E-Tranzact in the early stages, we struggled a bit with profitability. This was largely because we were doing so many products, being a very innovative business. I felt that we were not optimizing our ability to sell them properly and dominate the market. One of the things we did quickly was to streamline our products and look at what was profitable and what wasn’t. We focused on that and things started to change. Our remittance business, mobile banking business, corporate banking business everything transformed into profitability over the last couple of years.

What specific problem was E-Transact created to solve?

Electronic payment; at that time – around 2002 to 2003 – Nigeria was heavily cash dependent. Suddenly the influx of telcos and mobile phone created new opportunities. Based on the issuance projections, it was expected that about 20 million people within the next five years will have mobile telephones. At that time also, if you looked at the number of bank accounts it was probably less than 20 million. Hence, the expectation was that mobile telephones were going to grow quick. But the country was still heavily cash dependent and if we wanted to move transactions to digital, mobile might be the best way to do so. So we began to think and develop a solution around mobile money and mobile banking. That was what E-Tranzact was founded on, to leverage on the growth potential of mobile phones, mobile subscribers and create solutions that can allow them use their mobile phones and devices to do transactions.

Tell us about your first electronic product

Our first product was mobile and it was largely SMS based. Look at the challenges we had then when we all started using mobile phones. I send you an SMS today and you can only get it the next day. I remember some of the patents the founders gave the Central Bank of Nigeria (CBN). They did the transaction there and nobody got the SMS, but the next day they received it.

You need infrastructure to be right for these solutions to really grow and perform. When you travel abroad and you are buying something at the till, you just swipe your card and cashier gets it. If you card is going to be declined, it will be done immediately and if it is going to be successful, it is immediately. You don’t see “approval”, “resending” “authentication” etc that you spent almost 2 minutes making a transaction. It is all based on infrastructure. Even though things have significantly improved but we are still far away. The backbone we need is still not there so we still need a lot of investment from government, telcos and people like us, into infrastructure to ensure seamless and convenient payment flow and through.

So we started a mobile SMS based. At the time not a lot of people bought into the story. There is a Nigerian culture which is still prevalent today; we have that need to feel cash. A lot of it has to do with trust. If you are making a payment to the average person out there, he wants to take that money or give you that money while he is looking at you in the eye so there will be no stories. For instance, if I am I did a transfer and told you I have done it, you can tell me you did not receive it or I tell you it’s done even though I didn’t do it. There are trust issues that hinder the growth of digital payments. However, this is an innovation hub; we are market leaders in innovation. That can be verified.

Over time our development team realized that we can actually build apps that rely on data to do this. So the apps and the data made it easier to provide the solutions rather than relying strictly on SMS. There is a school of thought that sometimes SMS is not secure. Gradually, SMS side of things is in decline, that today it is only for notification of credit and debit alert. But it is still a big business. Transactions however have evolved into smartphones using the apps. The people who can afford smartphone apps, sadly, are just two per cent of the market while the bulk of the market is still using Nokia 3310 and black screen phones – feature phones. That was the market we were trying to break into. We realized that the people who can afford smarpthones probably already have bank accounts, and they do bank transactions.

What is the other innovation you created?

The other innovative thing that came was the USSD (Unstructured Supplementary Service Data) which includes the *389* and the *737*. That innovation started from here in 2012.

How did it happen?

We were having a conversation. Steve Jobs, when he created iPod he was just passing by and saw the Discman people were using. He thought, “Why can’t you create a solution that on two to three clicks you can hear the music?” That was the birth of the iPod. That was what we thought about here, why can’t we make payment just “*” this, press Enter”, with fewer clicks. We started from here, register, debit your account and recharge your phone with airtime, it started right here. When that came out it created a direct access to get the other hundreds of millions of Nigerians that did not have smartphones to be able to have USSD streams they can build transactions on. Look at how that has evolved over time; practically every bank has a USSD stream and we power switching transactions for all the banks. The fastest growing channel today is the USSD. I have clients that started in December 2018, doing 35,000 transactions a day on that channel; today they are doing 78,000 transactions a day. It has more than doubled because everybody is doing it. It is so easy the CBN has even pegged it to N20, 000 once and N100, 000 a day. Before now, people who wanted to transfer N100, 000 could send it once. But today you have to do it five times. So it is increasing transaction activity and also security. If you want to do more we can profile you to do a lot more. That is bringing a lot more people into the banking sector. Today, loans are done by USSD. These are all the cumulative things that have built what everybody is driving now.

What was the relationship with banks back then being a non-bank entity coming into a space they dominated? How has the relationship evolved over the years?

Yes we are a non-bank financial institution giving a license switch by CBN. Nevertheless, we are the only CBN entity with about 6 to 7 licenses. We have a switch license which is the entry we have here and in the banks that allows you to move money from your account in GTBank to another account in First Bank, for instance. It also allows people to send money from abroad or through Western Union directly into your account or your wallet using our PocketMoni.

Back then no one knew anything about switching. All the transaction that happened was, print out a statement send it to National Clearing Service (NCS) which is now NIBSS, who disburses the money to the different bank and send a message to the customer. That is why in those days it takes two to three days for money to clear. A switch allows you to send money directly to someone who gets instant value without money actually moving. To achieve that you needed the banks.

One of the entry strategies we had was to buy all the equipment that the banks will need. We say to them, “this is what you want to do, take it we sell it free. Use it for three months, if you like it, pay us.” The rest is history.

You have to be bold to crack the market. Look at the records today, in 2018, there were about 800 to 900 million individual inter-bank transactions, this year the target is about 2 billion because the growth is there. Already, this year we have done about – year-to-date- 400 million in the first four to five months, which is already about half of what was done last year. I believe we should exceed the target as an industry.

Talk to us about PocketMoni and how the name was originated?

One of our major focus as a brand here is financial inclusion. The focus has always been on the 20 to 30 million bank accounts – but those guys are already banked. They understand electronic payment. They are the ones that are doing all these transactions I am talking to you about. There is data that we always use here when we do our strategy and our focus. There are about 180 to 200 million Nigerians and we have about 40 million bank accounts. When we streamline it, a couple of Nigerians have two to three bank accounts which make up the 40 million. By the time you add it up, and look at the BVN; one BVN can have about 5 accounts – you might get about 20 to 25 million authentic BVN accounts which also brings the number of people that are actually banked to 20 to 25 million.

So what happens to the about 160 to 150 million Nigerians? You have net-number after streamlining, about 90 to 100 million people in the country without an account. Let’s assume that all those that have mobile phones have bank accounts. So if you take 25 million from 90 million you have 65 million. This 65 million people have mobile phones and they are making calls; to do that you need to put hand in your pocket and buy airtime. That means they are making money. Why are they not banked?

They don’t trust the banks or the banks do not have the infrastructure in the area or the people are not educated enough. On the other hand they do contributions, esusu and ajo because there is always one person in that rural community they trust. They can give the person their money and expect to get it back. They understand the trust issue and the fiduciary relationship in the person they see all the time.

Hence those who have exemplified themselves as a trusted entity within the community can become banks. You just need to find a solution that enables that person function as a bank in the rural areas. That is where the ETranzact agent bank comes in. We find those kinds of people, train them, equip them with the solution where they can collect cash and have it as electronic float. They can pay out cash from their e-wallet as well, and three they can do transactions for those rural people. They can then recruit everybody in that community to own a wallet. So they do not need to call the agent all the time for transactions. The only thing is you can come to them and say take N5,000 cash and load in your e-wallet or you can even do it yourself. That is what a PocketMoni came out to achieve.

We got our mobile money license in 2011 but we started providing mobile money since 2005. CBN did not have a clue then. One of the examples we like to give, is the World Bank assisted project where some of the executives here went to Kano State and they faced the cattle rearers and traders. We were presenting this e-wallet that day and one Alhaji stood up and said “So you can put money in this wallet and I will travel and nobody knows there is money in it? And when I get there I can use it?” All of us said “Yes”. The man brought out N200, 000 cash and said, “Put this in the wallet.” We signed him up immediately. He was probably one of the first people we had back then.

Today we have about 15,000 agents and 3-4 million registered users on the PocketMoni app. Activity can be a bit low sometimes; you still need a larger agent network to create transaction activity and the specific location where people can go and fund their wallets. What wakes us up every day is “How do we make wallet funding easier?”

Unlike MPesa in Kenya through Safaricom – Central Bank in Kenya does not cover that – they could use airtime to move your wallet as cash. In Nigeria there is a regulation that forbids that because the Central Bank has to control financial inclusion. If that is not there you need to think of other ways to fund the wallets. We have created several ways to achieve that but much of it still flows from the population that is banked. With their cards, they can fund their PocketMoni today and from there can transfer to any other PocketMoni account or to any bank account in the country. We need to have agents every length and breathe of the community to keep activities flowing more regularly.

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