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Banking the unbanked with mobile payments

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By Babajide Komolafe

Baba Segun operates a thriving vulcaniser business located in the Kirkiri axis of Apapa. Though he has little education, he enjoys patronage from every segment of the society. This he attributes to two factors, namely his vulcanising skills and his mobile phone. “My phone is    my number one equipment”, he said, adding, “It determines how many jobs I get everyday”.    Though he could barely read or write, Baba Segun easily operates the mobile phone. “I have to force myself to learn how to use it”, he said.

Mobile Money
Mobile Money

Despite the level of business patronage, Baba Segun however does not have a bank account. When asked why? He responded, “What do I need a bank account for? Is it to collect the small money we charge for our job or to buy equipment? He asked.    “I collect my money in cash and I also pay cash for whatever I need”, he concluded.

Baba Segun represents millions of Nigerians who have a mobile phone but does not have a bank account.    The Biometric Verification Number (BVN) enrolment revealed that there    are about 25 million Nigerians with bank accounts. But statistics from the Nigeria Communication Commission (NCC) shows that there are about 148 million mobile phone subscribers.

This indicates that over between 90 million to 100 million Nigerians with mobile phones don’t have bank accounts and also do not have access to financial services.

They are regarded as unbanked or financially excluded.    According to the 2014 Access to Financial Service Survey, 36.9million of Nigerian adults representing 39.5 percent out of 93.5 percent adult population were excluded from financial services. In addition, 57.9 percent of these were women.  But Tunde Kuponiyi and his colleagues in the Committee of E-Banking Industry Heads (CeBIH) believes that these unbanked Nigerians can be attracted to enjoy  banking and other financial services through mobile payments, which is the use of mobile phones to conduct financial transactions.

How to achieve this was the focus of the 2015 annual retreat of CeBIH held in Uyo, Akwa Ibom state. The theme of the retreat was “Mobile  Payments for Financial Inclusion in Nigeria – Prospects & Challenges”.  In a bid to attract the likes of Baba Segun into the financial system, financial experts led by the Central Bank of Nigeria (CBN), in 2012 crafted a strategy called National Financial Inclusion Strategy. The strategy was aimed at reducing      the percentage of adult Nigerians that do not have access to Financial Services from 46.3 per cent in 2010 to 20.0 percent    in 2020.

Welcoming participants to the retreat, Kuponiyi highlighted the potential of mobile phones to enhancing financial inclusion. He said, “The good thing about the mobile phone and in fact any device that has internet connectivity is that it can be used as a payment device and this is what will significantly enhance inclusion not only as store of value but also as a payment platform.

Mobile Payment and financial inclusion 

As part of efforts to achieve the National Financial inclusion Strategy goal, the CBN in 2011 licensed 21 companies to offer mobile payment services. Furthermore the CBN introduced agency banking, which allows banks and mobile payment operators (MPOs) to render services through third parties in various locations.    But these measures are yet to bear the desired fruit in terms massive attraction of the unbanked population into the financial sector.

“By all accounts there are less than 5,000 active agents across the country while the 21 Mobile Money operators who have been unable to scale, consequently only 47 percent of Nigerians have access to financial services within 5km”, noted Mr. Mike Ogbalu,    Divisional Chief Executive Officer, Interswitch Financial Inclusion Services.

He added that this is because, “availability/visibility of mobile payment operators/agents and awareness of bottom-of-pyramid (BOP) financial services is still very low. Agent value proposition remains weak and unattractive.    High cost of effective agent network rollout remains a challenge to most service providers while most providers have short term investment focus.

He noted that with 95 percent of financial services concentrated in the urban areas, the existing financial services infrastructure is grossly inadequate to change the Nigerian Financial Services Landscape.

Making mobile payment work

To address these challenges, Governor of Akwa Ibom, Mr. Emmanuel Udom, stressed the need for sound policy framework, innovation and awareness. “Beyond a sound regulatory framework, we cannot drive the adoption of electronic banking without the right technology, the right standard, and above all, a sustained and robust awareness of the Nigerian public,” he said in his address to participants.

This however requires a lot of capital. To make significant impact in the area of attracting the unbanked, mobile payment operators need to    invest more. This, according to Mr. Jimoh Musa, Deputy Director, Banking and Payment System Department, CBN, is why the apex bank has decided to increase the capital base of  MPOs. “All mobile operators must raise capital base to N2 billion.    We have realised that the key success factor to mobile money is agent network.    However it takes money to build agent network. It takes N100,000 for an agent outlet to be properly set up”.

One of the highlights of the retreat was a presentation on “The Digital Financial Marathon:    Kenya’s evolution towards a digital financial ecosystem”, by Eric Muriuki Njagi, General Manager, Commercial Bank of Africa (CBA). The presentation cited the experience of CBA in the use of mobile payment services to generate savings and extend loans to millions of Kenyans. It also cited the experience of Kenya in the use of mobile payment to drive financial inclusion. The success factors, according to Njagi are:    Identity authentication; Distribution facilitating legislation, Interoperability, Alignment of need/ Opportunity to capability”.

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