Why Nigerian SMEs, fintechs should be bothered about the new Mobile Money Regulations
Why Nigerian SMEs, fintechs should be bothered about the new Mobile Money Regulations
The Central Bank of Nigeria (CBN) published its Framework and Guidelines for Mobile Money Services in Nigeria on July 9, 2021. This comes on the heels of a recent wave of regulations aimed at enhancing financial inclusion in the payments systems sector.
CBN revised its National Financial Inclusion Strategy (PDF) in 2018 to reflect its new objective of reducing financial exclusion to 20% by 2020. Additionally, it revealed a significant shift toward mobile money and agent banking.
Interestingly, the CBN last updated the regulations governing mobile money in 2015. With a target year of 2020, it is almost certain that these new guidelines will undergo significant changes.
In with the new, out with the old. Or not?
One thing has always been clear: Nigeria does not operate a mobile money model led by telcos. In contrast to other African countries such as Ghana and Kenya, the government operates under both bank-led and non-bank-led models.
In essence, Mobile Money Operators may only be banks or licensed corporate entities (MMOs). Previously, the non-bank-led model excluded only deposit money banks and telecommunications companies. This exception, however, has been expanded to include national primary mortgage banks, national microfinance banks, and telecommunications subsidiaries.
Apart from that, the new regulations allow MMOs to operate savings wallets, issue electronic money, recruit and manage agents, engage in card acquiring, and engage in any other activity permitted by the CBN. These provisions were already included in the circular for New Licence Categorisations for the Nigerian Payments System (PDF).
However, these regulations codify and provide additional insight into the wallet system's operation, investment operations, and interest distribution. For instance, we now know that all savings should be invested in Nigerian Treasury Bills. Additionally, we know that fees and charges for managing these investments cannot exceed 10%.
MMOs are prohibited under these new regulations.
- make loans, advances, or assurances (directly or indirectly),
- Accept deposits in foreign currency,
- Foreign exchange dealings
- Underwrite insurance policies,
- Accept any closed-scheme electronic value (for example, airtime) as a deposit or payment method.
- Create a subsidiary, or
- any other activities that are not specifically prohibited by the guidelines.
Additional introductions include the following:
- Customers no longer have the option of escalating complaints to CBN if they are dissatisfied with the resolution of a dispute.
- Audited annual returns must now be transmitted within three months of the fiscal year's end, or March 31st.
- Wallet transaction and balance limits have already been specified in a 2017 circular.
Previous guidelines on know-your-customer (KYC), Unstructured Supplementary Service Data (USSD) codes, and interoperability through the Nigeria Inter-Bank Settlement System (NIBBS) remain in effect.
What does this mean for fintechs and telcos?
Fintechs in the Mobile Money space, such as Paga and Opay, can now offer interest-bearing savings wallets.
Paga and Opay, to their credit, already provide these services through their Transactions Savings Wallet and Owealth products, respectively.
However, if they are unable to accept foreign currency deposits, Paga's international remittance model may be jeopardized. They may only sell foreign currencies derived from inbound cross-border remittances to authorised forex dealers under these new regulations.
The remaining restrictions are identical to those imposed on Payment Service Banks (PSBs). And, as Techpoint Africa's interview with Trium Networks CEO Adedeji Olowe revealed, they protect traditional banks from the competition that MMOs and PSBs would otherwise provide.
According to Inclusion Times, the CBN is expected to prioritize MMOs in the upcoming final open banking framework. Banks, particularly microfinance institutions, will be able to access their customers' records for lending purposes through open banking.
For telcos, the CBN's persistent refusal to include them in the mobile money space is an intriguing move.
It becomes even more intriguing when the role of telcos as MMOs in other African countries is considered. For example, Safaricom's M-Pesa helped increase access to financial services in Kenya. As of December 2018, M-Pesa had a user base of 25.57 million.
Telcos in Nigeria can only obtain a PSB license and are subject to the same restrictions as MMOs. Currently, only 9mobile and Glo have been granted the license.
Ironically, these restrictions appear to work against the CBN's strategy of financial inclusion, which aims to bank the unbanked. With a limitation on the services that these MMOs and PSBs can provide, the goal of becoming alternatives is only partially achieved.
At this point, it is worth considering a statement contained in Nigeria's financial inclusion strategy document. Following a reference to Ghana's 72 percent increase in mobile money users during the first year of provider-neutral regulations, the statement reads as follows:
“Nigeria can also significantly increase mobile money penetration by opening the field to additional players, particularly non-banks that can offer payment and other financial services while also regulating healthy competition in light of the Nigerian context and historical performance.”
What is the context in Nigeria? What are the criteria for defining healthy competition in terms of financial services access?
Is financial inclusion a myth?
The CBN's target of a 20% reduction in financial exclusion by 2020 appears far-fetched.
According to EFInA's Access to Financial Services in Nigeria 2020 Survey (a2f) (PDF), the country's financial exclusion rate is 35.9 percent — one of the highest in Africa. Additionally, it predicts that a 20% rate may not be possible until 2030.
The survey identifies institutional exclusion, affordability, access, insufficient/irregular income, and low awareness as the primary barriers to financial inclusion.
Essentially, people complained about banks being too far away from their homes, the high cost of banking, and negative experiences with traditional banks, which resulted in them closing their accounts. 51% of the 27,938 respondents were unemployed or had irregular income.
According to a 2015 World Bank report on global financial inclusion, 59% of the 150,000 respondents stated that they did not have a bank account due to a lack of funds. Another reason was that individuals relied on family members who already had accounts.
Nigeria's unemployment rate is currently 33.3 percent, or 23.2 million people. At 22.8 percent, the country's underemployment rate — people who work fewer than 20 hours per week — is also high.
It is reasonable to conclude that a low rate of financial inclusion is primarily due to a scarcity of funds. While access to banking services is critical, EFInA's survey reveals that it accounts for only 31% of the total.
Nigeria has a total adult population of 106 million people aged 18 and over. Around 70 million of these people live in rural areas.
Individuals living in rural areas would prefer to avoid the inconvenience of traveling to a bank located several miles from their homes. They will be unable to access loans or international remittances under the new regulations, as MMOs and PSBs in their area are prohibited from lending or accepting foreign currency deposits.
The survey also raises the issue of population growth. While the percentage of financially excluded adults decreased slightly between 2018 and 2020, the actual number increased from 36.6 million to 38.1 million, as population growth continues to outpace the rate of financial inclusion growth.
While the issue of financial inclusion in Nigeria encompasses access to bank accounts, payments, loans, insurance, remittance, and pension products — the majority of which MMOs are unable to provide — it extends beyond that.
