Why Only Fintech by Mobile Network Operators Can Disrupt Nigeria’s Financial Sector

The increasing usage of mobile phones and the growing middle class has not only created huge opportunities in the financial sector in Africa, it has led to the development of financial technology (fintech) and the emergence of fintech provider. The term “fintech” refers to this new financial industry that relies on innovative technologies and business models to give financial services outside the traditional financial sector. Lending, payments, and cross-border transfers are some of the segments most highly affected by this development. Other traditional financial segments, such as wealth management, have also experienced high penetration of fintech entrants.

According to Ecobank at the 2018 Africa Tech summit in Kigali, fintech is boosting financial inclusion across Africa. Over 80% of Africans have mobile phones, but only around one-quarter (28%) of them have a bank account. But mobile banking and e-wallets are helping mobile phone users without a bank account to get access to financial services, offering a range of alternative payment methods as well as lending and savings services. This has boosted the overall financial inclusion rate to 34%, and it is growing each day.

Fintech providers are fueling the emergence of new solutions and products that better address customers need by increasing accessibility, speed, and convenience. They are bringing increased competition and efficiency to the traditional financial sector. But according to a World Bank research despite the rapid increase in the number of fintech providers in Africa, so far, the level of disruption seems to have been low.

The low level of disruption is mainly because a bank account is needed to perform many of the fintech services, and the complementary relationship between the services provided by many fintech providers and traditional banks. Most fintech companies complement rather than substitute for traditional banking, bringing alternative sources of external finance to consumers and SMEs.

It would be hard to imagine these fintech companies overtaking banks or disrupting the banking sector. With the exceptions of Mobile Networks Operators (MNOs) who provide fintech service, most fintech providers as we have it are SMEs or startups without access to a client base, client trust, capital, licenses, and a robust global infrastructure. These fintech providers are more of partners and enablers of traditional bankers rather than disruptors and competitors.

Even though fintech providers increasingly push innovative financial solutions into the market they still have to compete with traditional financial service providers. Traditional financial service providers are realizing the need to take advantage of fintech capabilities to grow business, retain existing customers, and attract new ones, some of whom were previously unbanked; and as customer expectations regarding financial services are increasing due to innovative fintech services, they simply copy and improve an already proven fintech solution developed by a fintech providers to meet their costumer’s expectations.

They are very much aware of their power over fintech providers in the financial space. For instance, in 2017, Kenyan banks launched PesaLink, a mobile and electronic money transaction service to rival the M-Pesa service. PesaLink has partnered with over 40 banks in the country and spread to more than 10 countries with about 30 million users.

Under this circumstances there are limits to the growth of fintech providers and most providers are left with few or no option than to collaborate with banks who in recent times have been pouring increasing amount of investments into the fintech sector through acquisitions, investment funds, incubators, and accelerators.

MNOs on the contrary, use fintech models different from those of most other providers. The fintech model being used by MNOs operating in Africa such as the M-Pesa model makes possible peer-to-peer transactions with mobile devices, without the need for a bank account and do not rely on bank networks. They have easy access to funds, large network infrastructures, and millions of mobile subscribers who are easily being converted to financial service consumers. They have proven to be a major force in the continent’s financial sector being majorly responsible for the much celebrated and talked about disruption in the African financial space.

Safaricom a Vodacom backed fintech provider and offering services, including mPesa – a mobile money – to  mobile network subscribers, recorded a huge success in East African countries of Uganda, Kenya and Tanzania where there are now more mobile money accounts than bank accounts, and more than 40 percent of their adult population have mobile money accounts. Orange, Airtel and MTN have also recorded similar successes in West African countries of Ghana (more than 40 percent of adult population own accounts), Ivory Coast, Mali and Senegal.

Unfortunately, the success of by MNOs in the financial sector and their disruptive potentials are viewed by traditional bankers and financial regulators in some African countries as a threat to the financial sector and are not being given licensed to operate fintech services in these countries. one of such country is Nigeria where only 31,426,091 bank bank account owners.

My LinkedIn Post on the potentials of NMOs in Nigeria:

According to CBN, there were 43,959,282 bank accounts in Nigeria own by 31,426,091 customers by Dec. 2017. This is about 16% of the country’s population.  According to NCC, there were 145 million active mobile subscriptions in Nigeria by the end of 2017. Most Nigerians have more than one subscription, with an average of 2 subscriptions to 1 subscriber.

This means about 72.5 million Nigerians (37% of the country’s population) have active mobile phone lines.  So if more than 100 years of banking could only capture 16% of the country’s population and 17 years of mobile telephony captured 37% of the population, telecommunication companies sure have the better capacity to provide financial services to more Nigerians.

The country’s 72.5 million mobile phone lines can become 72.5 million mobile money accounts. Imagine Nigeria having 72.5 million Nigeria having access to financial services in the next 2 year. This will surely improve the standard of living in the country.

The FG needs to intervene and push CBN to work with NCC, as CBN is too conservative and reluctant to take advantages of the well-spread telecommunication infrastructure in the country to improve banking.

My LinkedIn post criticizing the financial inclusion policy of the Central Bank Nigeria (CBN):

The new restrictions on USSD transactions by the CBN due to fraud is a dumb and backward move. The USSD channel was hugely dropping transaction cost, and CBN’s move will effectively truncate the progress we have made with USDD in Nigeria. CBN keeps suppressing advancement in financial services in Nigeria using general restrictions as a security measure, anytime there is a security challenge.

The CBN lacks the capacity to create simple secured systems, so setting up restrictions is their lazy way out. Restrictions don’t increase access to financial services, nobody wants to pass through the eye of a needle to use any service. CBN is hurting the system. With CBN it has always been the case of killing the patient instead of the disease.

This is a reason why Nigeria is far behind in mobile money services in Africa despite low in financial inclusion. The CBN has refused to allow the telco industry drive mobile money in the country, insisting on driving the sector through Banks, though it is a common knowledge that African countries (Ghana, Senegal, Kenya, Tanzania, Mali, Ivory Coast, Burkina Faso, Uganda, etc.) that have recorded successes with mobile money all have their mobile money industry driven by telco namely Orange, MTN, Airtel and Safaricom.

During the Africa Payments Innovation Summit held in Nairobi in March this years, Daniel Monehin, Mastercard’s executive vice-president of remittances, said trust between banks and MNOs is shaky. Why would banks and NMOs have trust issues?

Ike.S Anison, an Electronic Payments and Cards Consultant in a comment to my LinkedIn post above where I criticized the financial inclusion policy of the Central Bank Nigeria (CBN), wrote “it’s all about control. Safaricom is bigger than any bank in Kenya using any kind of metrics. CBN and the banks do not want the same thing to happen here in Nigeria. They are afraid of a scenario where MTN becomes the biggest bank in Nigeria.”

This may not be far from the truth. In 2017 when Zenith reported a 2.067 billion US Dollar gross earning – the highest in the Nigerian financial sector that year, Safaricom reported a total revenue of 2.121 billion US Dollar. This information is indeed enough to scare Nigerians banks. For instance, Kenyan banks which petitioned regulators to prevent M-Pesa’s launch in 2007, in 2012 estimated they were losing up to $22 million annually in commissions to mobile money providers such as M-Pesa and Airtel.

Traditional Banks are already partnering with MNOs to be better positioned against the perceived MNOs domination in the fintech space. Equity Bank, through its subsidiary Finserve Africa Limited, registered a mobile virtual network operator (MVNO) called Equitel using the Airtel Kenya network as its carrier the bank the first financial institution in Africa to offer a full banking suite through an MVNO.

It is important to note financial inclusion growth in Kenya is mainly due to government effort and that Safaricom started in 1993 as a department of the former state-owned telecommunications company, Kenya Post and Telecommunication Corporation (now Telkom Kenya). In 1997, with the aim to provide micro-loans to the unbanked population in the country. the Kenya government partnered with Vodafone Kenya Limited and Safaricom Limited was incorporated as a private limited liability company with Vodafone Kenya Limited holding 40% ownership. The Government of Kenya presently owns 35 percent of Safaricom.

For a disruptive change that will rapidly give more Nigerians access to financial services, the Nigerian government must embrace an MNO-led fintech model encouraging public-private partnership and even bank-MNO partnership. The government must allow MNOs in the country to offer fintech services to their networks of subscribers.


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