Nigeria mobile money revolution is being thwarted by CBN regulations
Nigeria's mobile money revolution is being thwarted by CBN regulations
In Ghana, it would be a "anomaly" for a supermarket, small store, or business merchant to conduct transactions without utilizing a mobile money service. Daniel, a TechCabal colleague who recently visited Ghana, stated the same thing during a recent meeting.
Ghana was the first country to introduce mobile money in 2009. However, it took some time to gain traction due to the Bank of Ghana's restrictive Branchless Banking policy.
In 2014, new guidelines on agents and electronic money were released, allowing network operators to operate mobile money services under the supervision of the banking regulator.
Since then, players such as MTN have made significant investments in mobile money operations, with great success. In January 2017, the telecommunications behemoth launched its MoMo service. By January 2019, the service had grown to over 100,000 merchants.
Mobile money services and financial inclusion have both increased in popularity across the country. According to the Bank of Ghana's March 2020 Summary of Economic and Financial Data, the country had 14.7 million active mobile money accounts and 235,000 active agents.
On the other hand, the success of M-Pesa in East African countries, particularly Kenya, is a cardinal point. Safaricom's mobile money service has made a significant contribution to the city's financial inclusion rate.
Ethiopia's government is betting on a mobile money service operated by the state-owned network operator Ethio Telecom to boost financial inclusion among low-income groups. Within a week, the service grew to over 1 million registered users, 4 million within a month, and 6 million within two months.
Despite having Africa's largest unbanked population, Nigeria has not seen the same exponential growth in mobile money adoption as other regional peers and lags behind in terms of penetration.
Chasing financial inclusion
Financial inclusion for Nigeria's 200 million citizens has been a long-standing priority of President Muhammadu Buhari's administration and the central bank's leadership under Governor Godwin Emefiele. Nonetheless, it is an elusive goal.
Nigeria has a sizable population that does not have access to financial services. In 2017, despite contributing 2.6 percent to the global population, it was home to 3.4 percent of the world's unbanked people.
Although some progress has been made over the last decade toward bringing more Nigerians into the formal financial system, according to a report by EFinA, the figures remain troubling.
By 2020, over 36% of the adult population (or 38 million adults) would be unbanked, as the central bank fell short of its national financial inclusion target of 80%. Additionally, slightly more than 40 million Nigerian adults out of an estimated 105.5 million have bank verification numbers (BVNs), a critical metric for determining how many people have access to financial services.
The CBN has taken several measures to promote financial inclusion, including the establishment of special Payment Services Banks (PSBs) in 2018.
However, the central bank has shown reluctance to adopt a framework that has been shown to significantly increase financial inclusion in a number of African countries: telecoms-driven mobile money services.
Payment service banks, not mobile money operators
The CBN announced a new regime in 2018 that would allow non-financial companies to apply for mobile banking licenses as PSBs or Mobile Money Operators (MMOs).
Mobile network operators are permitted to provide financial services to millions of unbanked Nigerians under the guidelines. They may do so, however, only as payment service banks and through a separate subsidiary from their core operations.
Payment service banks are comparable to community banks. While they operate similarly to traditional banks, their license is limited to the purpose of increasing financial inclusion, and the regulator prohibits them from engaging in credit risk or foreign exchange transactions.
Only three companies (including mobile operators 9mobile and Globacom) have been granted PSB licenses more than two years after the CBN's announcement. MTN and Airtel, the country's other two network operators, are still awaiting regulatory approval to launch their Payment Service Banks. Although the former launched a money transfer agent network in 2019.
The lack of progress on licenses – particularly for two telcos with significant mobile money experience in other markets in Sub-Saharan Africa – calls into question the central bank's commitment to truly broadening financial services access in the country.
According to some industry insiders, the issue stems from lobbying by traditional financial institutions wary of telco-led mobile money services. Banks believe that if network operators are permitted to offer standalone financial services, they will claim their territory.
According to one unnamed telecom industry expert, the "big banks are fighting back behind the scenes to ensure telcos don't come to eat."
Will telcos ever lead?
In Nigeria, banks, technology, and financial services companies dominate the mobile money landscape. In contrast to Kenya and Ghana, telecoms operators are not permitted to apply directly for mobile money licenses, but are instead limited to providing network infrastructure for mobile money operators to use.
The regulatory framework is one of the primary reasons for Nigeria's relatively slow adoption of mobile money. As of 2019, the country had slightly more than 15 million mobile money accounts, compared to nearly 60 million in Kenya, which has a population of less than 55 million.
Fintech companies in Nigeria have made significant strides in advancing financial inclusion. Through their agent networks and mobile payment infrastructure, companies such as Paga and Teamapt democratize access to financial services.
However, telecom companies are better positioned to expand mobile money services than banks and fintechs due to their larger subscriber bases, available infrastructure, and larger agent networks. MTN and Airtel agents are visible in nearly every corner of the country selling recharge cards.
“The telecommunications industry possesses the infrastructure and resources necessary to accelerate financial inclusion across the country. If you truly want to expand the use of mobile technology for financial services, the final mile is through network operators,” the expert explained.
There have been calls for a more liberal regulatory framework led by telecommunications companies. If the CBN's latest mobile money regulatory framework, published on July 9, is any indication, network operators will continue to play a secondary role in Nigeria's mobile money space under the current administration.
The new framework reiterates the banking regulator's long-standing position that Nigeria will not adopt a model in which telecommunications companies drive mobile money services.
“The Central Bank of Nigeria recognizes the critical role of Mobile Network Operators in the operation of mobile money services and the critical infrastructure they provide. However, the telco-led model (in which an MNO serves as the primary initiator) will not be operational in Nigeria,” the 40-page document states.
