Bye bye traditional banking ? a groundbreaking move for the Nigerian Fintech space   

7 March 2022: Up until now, having a cellular phone and owning a bank account were two separate things, but all this is about to change, if the mission and vision of  Mobile Network Operators (MNOs) is successful, having a mobile phone could mean owning a bank account without needing traditional banks.

According to McKinsey “Banking in Nigeria remains an attractive sector, with over $9 billion in value pools, but despite high levels of competition, the vast majority of consumers are underserved,”. 

Last year, the Central Bank of Nigeria (CBN) approved Airtel and MTN, to operate payment service banks (PSB) to serve customers better. 9mobile and Globacom were similarly granted approvals two years ago.

These approvals will definitely bring in a lot of disruption throughout the fintech value chain-from payments to lending and investments.

At the moment, the excitement for fintech in Africa is palpable. Of the $4.9 billion in total estimated funding to African startups, the fintech vertical accounts for nearly $3 billion, with Nigeria as the top funding destination. From crypto startups to neo-banks, the movement of money aided by digital technology in Nigeria attracts attention from different quarters. Stakeholders, including MNOs, seek to derive their share of the sector’s rapidly expanding value.

The potential for true financial inclusion

Granting MNOs a license to operate payment banks deepens financial inclusion in Nigeria. Over 38 million adults in Nigeria still do not have access to banking services, with ‘women, youth, rural dwellers Micro-, Small and Medium-sized Enterprises (MSMEs) and Northern Nigeria’ being the most disproportionately excluded demographics, according to the CBN.

Whilst the recently launched e-naira has been presented as a critical enabler for financial inclusion, telco-led banks seem better positioned to achieve this. MNOs can leverage their vast connectedness across the country (including their availability in many remote areas), financial muscle, experience serving the masses, and access to comprehensive user data.

Nigerian mobile network operators have a massive agent network that they continue to grow and leverage for financial services. For example, MTN has over 515,000 agents across Nigeria; combined with their massive data and reach, mobile operators, are better equipped to handle the distribution of financial services to the financially excluded.

To illustrate: With telco-provided banking services, residents of a remote village without bank branches can open financial accounts, send and receive money via their mobile phones, whilst relying on telco agents to deposit or withdraw cash.

A new phase for fintech

Empowered by this license, Nigeria’s biggest telecom operators, with their large user base, sit on a trove of data that could help them hit the ground running. Over 185 million mobile subscriptions in Nigeria, and MNOs possess rich data on these subscribers- from location to granular details about their consumption habits. This includes how they use financial services because banks and fintech companies heavily rely on telco services such as mobile internet, SMS and USSD to connect with their customers. Therefore, these new PSBs ostensibly have vast amounts of useful insights they can mine for advantage.

No doubt, if the telco-led banks achieve mass adoption, they could pose a significant challenger to some incumbents, including fintech startups. Agency banking and mobile money businesses seem the most critically threatened as they will likely be in direct competition with telco-led banks while unlikely to have the same resources. However, one advantage incumbents could have over MNOs is niche expertise, experience and knowledge of financial services.

Regardless, MNOs will be in a prime position to control value-added offerings such as microcredit or insurance. Already, some lenders rely on telco data as an alternative credit scoring means, indicating the level of insight MNOs possess and the potential when viewed through a financial services lens.

The MNO-operated mobile money service in Kenya showcases a good example. Safaricom has leveraged its success to create products such as M-Pesa Global, an international remittance service, M-Shwari, a savings and loan facility, and Fuliza, an overdraft service.

Ultimately, the jury is out on whether these recent CBN approvals will make a difference. How well the payment service banks can drive country-wide adoption will determine how disruptive telco-led banking will be for fintech in Nigeria. If their current footprint in the telecoms market is anything to go by, Airtel and MTN could be poised to usher in a new phase for financial technology in the country.

Source: Business Insider Africa

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