Nigeria – shaping up to become the next big M-money market

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This week saw Orange announce the roll-out of its M-money service into Mali (Orange Money) and Zain saying that it will soon launch a service (Zap) to compete with Safaricom’s m-Pesa. But the really huge market for M-money will be Nigeria if operators can get it right. Although Nigerian banks are among the more energetic on the continent, there is still plenty of potential writes Emmanuel Okoegwale.

The ability to pay for goods and services without having to carry cash or cards has universal appeal. In Africa it is being driven by the need to reduce the risk of theft. The mobile is ideal because it is cheap and ubiquitous and can authenticate the payer and payee and record the transaction.

The mobile payment industry will change the way consumers interact with financial services and make payments. Mobile financial services will include consumer accounts information, updates, alerts, bill payments, person to person transactions and remittances.

In Nigeria where electricity and transportation are unreliable, the mobile phone is a driving force for change – and not just for voice calls. Mobile phones can address one of the biggest cost barriers in the value chain.

The success of M-pesa in Kenya (over 2 million users) has demonstrated the strong compelling need for a platform that can empower Africans to make transaction cashless and without need to visit a Bank. Nigeria’s seeming slow uptake of mobile payment presents a huge opportunity that can revolutionize the payment world, create new set of mobile entrepreneurs and new Business models in a market of 54 million mobile subscribers and an addressable market of 140 million people.

The mobile phone is a powerful channel for developing business. The Banks have so far been unable to win youth segment accounts because they are approaching them via traditional channel and not what they always have with them, the mobile phone. The youth segment will most likely adopt mobile payment faster than the older segment because they are early adopters of technology and the good news is that they constitute a large segment in the mobile subscription pyramid in Nigeria and still largely unbanked or under-banked. Simple arithmetic from total subscriber base in Nigeria, shows that 54 million mobile subscription base is twice the Bank account holders of about 24 million, this clearly shows a huge 30 million people out there with mobile phones but without a Bank account.

Nigeria financial industry players seeks elusive mobile technologies and standards but slow progress is being made towards achieving interoperable and transparent standards for mobile payments. The process is complicated by the large number of stakeholders involved, in addition to the challenge of integrating various business models and technology layers into one platform. Even the term ‘mobile payments’ has different definitions. Some Banks currently offering mobile banking are erroneously classifying their service as mobile payment even when the subscribers cannot do more than check account balance or transfer money between self account in same Bank.

Mobile operators are known not to be very adept in providing core payment and financial services, hence there is need for cross industry collaborations like what we have seen in the Glo / First bank cash card and the MTN / UBA x-change cards. These collaborations are paying off in the mobile banking arena in the partnership between South Africa’s MTN and Standard Bank.

In South Africa, MTN, launched a SIM-based m-banking service with Standard Bank in a 50:50 joint venture, MTN MobileMoney. The Y’ello Bank, as it is often referred to after MTN’s pan-regional Y’ello branding campaign, operates as a separate division of Standard Bank, and as such is regulated under Standard Bank’s banking licence which brings compliance and interoperability to the rest of the payment infrastructure.

Many Nigerian Banks are evaluating different mobile payment systems from offshore providers but they are yet to learn from Africa’s own painful experiences in wap Banking. Offshore transfer of WAP banking technology was a disaster because an Internet-based technology was applied to the mobile phone, resulting in an experience that was slow, unreliable and costly for consumers in a continent with expensive mobile internet cost, poor coverage, hand set limitations and inadequate customer education. Simpler technologies would have achieved more. However, to be fair, this was before most of the mobile operators started implementing data network upgrades.

SMS text messages will continue to be the dominant channel for mobile payments, although take-up of WAP, USSD and near field communications (NFC) contactless services will also grow. NFC technology seems to be attracting attention of players in Nigeria because of its ease of use and the European Hype but they are not factoring the end user into the plan at this early stage. The main draw back for NFC is that users will require acquiring NFC enabled handsets and that will be a major obstacle in a economy where income per head is low and average Hand set replacement rate is four years. Near sound Data transfer technology of the likes of Tag attitude of France are clear gap bridging measures not requiring any form of new hand set acquisition from the end user and it is immediately compatible with all Phone models.

Already, informal exchanges of Mobile Airtime locally in Nigeria accounts for over 5 percent of airtime purchases and banks might start losing market share if people found it more convenient to move money around and repay their debts, send little amounts to friends and relatives via this informal channel for small value payments.

Mobile payment is not a problem of technology. It is the management of the ecosystems of players like Banks which lack the technology, telcos industry non collaborative positions and inadequate understanding of financial matters and lastly, regulations which does not take into consideration, the speed of technology innovation that will hinder the growth of the sector that is already striving underground though not illegally but informally.

Correction on Issue 438: Michael Joseph, CEO, Safaricom writes:Your article on The Top-10 Fastest Growing Mobile Operators in Africa and Middle East you comment “We note with some amusement that the table on p54 of Safaricom’s March 08 IPO prospectus shows Telkom Kenya as having 2% of the mobile market as at Dec 07 – quite an achievement, given that its Orange mobile service did not launch until September 08!” Please note that Telkom Kenya did claim to have about 200,000 CDMA customers on their so-called “fixed” CDMA system. However this was a completely mobile system at the time despite the lack of a mobile license!