New money opens vista of opportunities to unbanked

Hope for Nigeria's unbanked, under-banked 

Mobile money solutions will play a major role in integrating Nigeria’s huge informal economy which is driven by small scale farmers, traders, craftsmen and other types of small and medium sized businesses, into the formal economy. This is because the major infrastructure for mobile money services, which is the mobile phone, is within the reach of under-banked and unbanked Nigerians. Mobile phones are far more pervasive and accessible than traditional bank branches, Automated Teller Machines (ATMs), Point of Sales (PoS) terminals and the internet, all essential channels for financial services distribution. Reinforcing this, the Mobile Marketing Association (MMA) report of July 2011, put the level of mobile phone penetration in Nigeria at 50 percent, with over 90 million people, out of 167 million Nigerians, owning mobile phones. Coming a distant second, internet penetration in the country is 28.43 percent, according to International Telecommunications Union (ITU), with 45.9 million Nigerians accessing the internet in 2010. As at June 2011, the penetration of PoS terminals was a mere 13 Point of Service terminals per 100,000 adults, according to the Central Bank of Nigeria (CBN), which hopes to scale it up to 2,200 PoS units per 100, 000 adults by the end of 2015.

All these demonstrate the potential of mobile phones as a distribution channel for financial services in the country. Truly so, Enhancing Financial Innovation & Access (EFInA), an organisation committed to deepening financial inclusion in the country, indicated that 56.5 million adults (66.6 percent of the adult population) own mobile phones, disregarding use of multiple mobile phone lines by individuals, in its research. It further disclosed that 25.3 million adults who own mobile phones are unbanked and can become banked through affordable, secure and convenient mobile money solutions. Also, 63.5 percent of Nigeria’s adult males and 76.8 percent of adult females are unbanked, while 78.8 percent of the country’s rural populations are largely unbanked. In the main, there are 59.3 million adults who are unbanked due to irregular income, unemployment and distance to the bank branch, according to the EFInA report.

Across Africa, the adoption and usage of mobile payment solutions to bring financial services to the under-banked and unbanked is gaining currency. The continent has had several successful mobile money deployments driven by financial institutions such as Standard Bank and Commercial Bank of Africa in South Africa, Ghana, Uganda and Kenya, with Nigeria, a very important market in terms of volume, in its embryonic stage. In countries where it is fully operational, mobile money is bringing financial services to people without easy access to traditional banking channels, as well as people with very small deposits and loans which are unprofitable for banks using traditional delivery models. Mobile devices have also reduced transaction costs by 50 to 70 percent in these countries, making basic financial transactions such as funds transfers and utility bills payment more accessible to a vast population.

Endeva, a German developmental organization, in its 2010 report stated that mobile money has fostered financial inclusion in Kenya. The organization disclosed that prior to the introduction of M-Pesa in Kenya in 2006, as a joint venture between Safaricom and Vodafone, banking transactions were expensive and many people did not have bank accounts. However, by the spring of 2010, over 9.5 million Kenyans use their mobile phones to conduct basic financial transactions such as payments for groceries in supermarkets or to transfer money to their families. This is because M-Pesa is fast, easy, no account required and, most importantly, cheap. Presently the most successful mobile money deployment with over 700 million domestic and international money transfer transactions, M-Pesa accounted for $130m in revenues to Safaricom in the 2010 financial year.

Nigeria with an estimated population of 167 million people, 25.4 million bank accounts and over 90 million mobile phone subscribers has launched mobile payment services with the potential to become Africa’s biggest mobile money market. The compelling need of millions of unbanked Nigerians is expected to drive the country’s mobile money volume to surpass Kenya’s celebrated 9.5 million M-pesa subscribers among its 39 million people, in coming years. Currently, in Nigeria, 23.8 million adults choose to save money at home, 12.9 million adults use informal societies, while 6.7 million adults use village associations, according to EFInA.

However, creating a functional mobile-money model can be complicated, especially in a country like Nigeria, calling for collaboration from two distinct domains, telephony and banking, as well as for partnerships with a variety of players such as agents, some unfamiliar, to manage cash collections and disbursements and promote adoption. As such, licensed mobile operators in the country, with the right technology, agent network, risk management process and customer service, will not only capture the opportunity in the market but also have unique know-how that would be valuable in other emerging and frontiers markets, either through strategic alliances or direct investment.

In general, the unbanked in Nigeria, even the lowest-income segments actively use informal financial services. Without access to traditional banks, many turn to their families or communities or to pawn shops when they need credit. Nearly 90 percent keep money at home, with a household member, a friend, or a village savings club. Some buy assets, such as cows or chickens, as a store of value. These informal channels tend to be unreliable and expensive. With its peculiar low transaction cost, reliability and convenience of usage, mobile money will be an attractive savings medium to people in the low income bracket that need to save small amounts of money on a frequent basis. However, they also need to know that they can get their money in very little time and very close by.