Nigeria’s banks stand to gain more from mobile money than MTN

Original Story Published by: David Whitehouse, www.theafricareport.com
Photo Source: REUTERS/Afolabi Sotunde

(Above) A woman walks past an advertising poster for MTN telecommunication company along a street in Lagos, Nigeria

MTN Nigeria, which runs the country’s biggest mobile phone network, won a licence from the country’s central bank in July to provide financial services. But replicating the success of MTN’s mobile money offer in east Africa will be a big ask

The company’s Yello Digital Financial Services unit will provide access to simple money transfers and other financial services.

The potential seems huge: fewer than 6% of Nigerians use their phones for mobile money transactions, compared with 73% of Kenyans.

According to GSMA, which represents mobile operators worldwide, Nigeria, Ethiopia and Egypt are Africa’s three “mobile money sleeping giants”. The three countries could add over 110 million new mobile money accounts in the next five years, GSMA says.

In Nigeria, the banks and the regulators will hold the upper hand in managing take-up.

• MTN has been granted a payments license and not a license to make loans as they do in other markets, notes Erik Renander, a fund manager at the HI EMIM Africa Opportunities Fund in London. “The banks in Nigeria are working together with the central bank to limit the success of MTN money.”

Mobile money requires heavy, long-term operational investments before it becomes profitable.

• MTN is obliged by its license to do the expensive spadework of accessing unbanked customers in Nigeria’s rural areas, Renander says.
• Data on these customers will be fed into the banking system, helping banks grow their customer base.

MTN, then, could simply find itself putting in the sweat for banks and potential customers who both find it too expensive to establish a relationship with each other.

• “The central bank is protective of the local Nigerian banking industry and will be careful that a foreign owned telecom company is not going to hurt the profitability of the banks,” Renander argues.
• Still, the banks are to some extent underestimating the likely popularity of MTN’s offer, he says.
• “MTN is the most functional, dependable thing in Nigeria. The country runs on MTN.”

Cash in hand

Researchers led by Olayinka David-West at the Lagos Business School have argued that mobile money operators in Nigeria have tended to treat the potential market as a generic whole, paying insufficient attention to different customer segments. That’s one reason why  a profitable model for mobile money in Nigeria has yet to emerge, the paper published in March argues.