Over the last few years, talks and initiatives around financial inclusion and reaching the unbanked have increased. As Fintech continues to gain a foothold and shape the financial services industry, it has become quite clear how important that “excluded” group of potential users is.
According to a 2016 Ericsson report, about 47% of Nigerians are unbanked. Depending on where you get your population stats from, the number is anywhere between 70 million and 100 million people who don’t have any bank account. The data released by the CBN – on the NIBSS website – puts the current number of BVN holders at just over 33 million. Going by that number, we can assume, quite confidently, that the 47% on the Ericsson report is rather wildly optimistic. There’s way more unbanked people than that.
Mobile banking is an innovative workaround for societies where you have a high cell phone adoption rate vs a high under/un-banked population. Financial services get driven by the telcos – who already have the necessary distribution, and the banks act as secondary drivers or partners in the model. It’s the just about the same model that has worked beautifully in Eastern Africa – with Safaricom’s M-Pesa in Kenya as case study. Basically, telcos add a layer of innovation on the basic services they already provide – calls and text, and provide ways for subscribers to be able to perform simple financial services like – transfer credit, apply for loans, transfer money, pay bills, etc.
By design, banks could never hope to achieve the level of distribution that telcos can. They are primed to operate in city centres and cater to locations with enough viable users to warrant setting up infrastructure there. Before building an office, staffing it up and setting up other necessary operational infrastructure, it has to make financial sense to do so. In most rural/unbanked areas, the volume of financial transactions may not warrant setting up a full-scale bank there. (It’s why agent banking has been set up to create a low-cost way of reaching such people anyway.) But telcos don’t necessarily have that problem; or theirs is easier to solve in the long term because of the uniqueness of their service. It’s easier to sell communication than sell traditional banking. Starting at ground zero for both situations, people are more likely to get phones to communicate than open a bank account. It’s why the distribution rate for bank will continue to lag that of telcos.
As part of its National Financial Inclusion strategy launched in October of 2012, the Central Bank of Nigeria, in February of 2013, issued out a guideline document to regulate agent banking, with the goal to, among other things, expedite financial inclusion via the agency of the banks. (The CBN wants the exclusion rate to be at 20% by 2020.) The banks were to use the guideline as a blueprint in instituting and conducting financial services to geared towards the unbanked in Nigeria. When you look at the scenario in Nigeria squarely, you’ll see that the recipe for a successful mobile money story is abundant: there is a registered high phone diffusion – The NCC puts the number of active GSM subscribers at 148 million as at March 2018 and there’s a high number of unbanked people. But why does it seem like the initiatives initiated so far haven’t been as successful as they should have been?
1. Bank-led Approach: The initiatives put forward so far by the CBN to achieve higher financial inclusion have mostly been set up in such a way that banks are the primary drivers. The agent banking initiative basically institutes third-party agent networks representing the banks in underbanked areas. These agent networks set up outlets in said areas, and are supposed to provide financial services like bill payments, BVN, cash deposits, withdrawals and fund transfer, among others. Gaining traction has been a problem and things haven’t quite worked out well. It’s the reason the CBN, in 2015, tweaked things up a notch and introduced the Regulatory Framework for licensing Super Agents in Nigeria. These Super Agents were to take on agent management as their core business and provide a shared Agent Network to all Financial Services Providers, while these providers focus on their core business of providing financial services. However, Nigeria is still far behind at 16.6 active financial access points per 100,000 adults with only 3,567 mobile money agent locations and 48 Deposit money bank (DMB) agent locations according to FSP Maps 2015.1
2. Pricing of Agent Services: Despite guidelines set up by the CBN to regulate the charges for various agent services, the experience is that customers often get charged higher than the regulation stipulates at the agent locations. Agents may be able to come up with tenable reasons for the discrepancies in pricing at their locations, I suppose, but it hasn’t helped the financial inclusion agenda along on its way, nevertheless. In October 2017, EFInA conducted a Financial Services Agents Survey which revealed that 45.1% of the agents surveyed set the prices they charge customers.
A Way Forward…
Back in the early 2000s, as mobile phone adoption soared in Nigeria, it was commonplace to find people leveraging on the telco infrastructure to send money to people. A classic case was university students having their guardians send them airtime which they then traded for physical cash from the phone booth operators and recharge card sellers located across the campuses. This is perhaps the earliest form of mobile banking that worked in Nigeria, with the phone booth operators, as a group, acting as the makeshift agency banking infrastructure.
It increasingly seems apparent that the way forward is to allow telcos drive this process after all. They clearly already have the necessary distribution density. The upsurge in USSD banking is a step in the right direction. Allowing people to perform basic financial transactions via USSD will very likely go on to tip the scale as regards financial inclusion.
The CBN will need to find a way to initiate regulations that strengthen the telco-led course to financial inclusion, as it might well prove to be the best course to achieving the 20% exclusivity by 2020 target. Regulations around KYC and spend limits will have to evolve in a way that it doesn’t impede signups and growth.
Also, as more people come online, it makes sense to take the telco route to bring them into the financial inclusion programme. And with the rise of Fintech services and companies, it will be even easier to ride the wave and let banks latch on as partners, instead of drivers, to achieve the goal. Admittedly, the agent banking networks have a crucial role to play still – sensitization, much needed outlet points in some regions, etc. The CBN will have to institute policies and regulations that help these agents onboard users faster without the bottlenecks that currently impedes their work – one of which is the Know Your Customer policy. Is it possible that we can pull the data the telcos already have on the users (via SIM registrations) and reference that instead? Given all the issues that require fixing, it looks like policies that lets the process ride on the telco infrastructure is the way to go.