- Authorisation to offer mobile money services direct to customers opens up a wealth of expansion opportunities for Nigeria's mobile network operators.
- Nigeria is the biggest single market in both of MTN's and Airtel's African footprints, so entering the fast-growing MFS space will add considerable value to any MFS unit spin-offs.
- Digital-first banks will need to consider new strategies to either counter or leverage this new-found competition, but the greatest opportunities could come through collaboration.
MTN Nigeria and Airtel Nigeria have been advised by the Central Bank of Nigeria (CBN) that their applications for formal mobile banking licences have been granted conditional approval. To date, the telcos have only been able to participate in the country's vibrant e-payments system through indirect means; this has left them unable to derive significant earnings from mobile money users in Africa's largest smartphones market. Gaining direct access to Nigeria's mobile financial services (MFS) market would be a massive revenue diversification opportunity and add considerable lustre to both operators' plans to spin-off or list their pan-African MFS businesses.
At present, MTN's MoMoPay and Airtel Money-branded offerings in Nigeria are simplified versions of their more complex counterparts in other African markets, only being permitted to transfer money from peer to peer on behalf of licensed mobile money operators (MMOs) mostly owned by Nigeria's banks. A full banking licence would enable MTN and Airtel to take full ownership of mobile money accounts and offer a more complex MFS suite, including insurance packages, mortgages and other types of loans. On the retailing side, the relationship between customer, mobile payments provider and retailer would be greatly simplified, incurring lower costs and faster processing times.
Nigeria supported 175.7mn active mobile subscriptions at the end of June 2021, according to the Nigerian Communications Commission (NCC), of which MTN accounted for 39.2% and Airtel 28.8% of the market. Mobile money take-up for both companies is limited at present, with MTN claiming that less than 9% of its 68.9mn subscribers were using mobile money services as of mid-2021; Airtel's engagement rate is thought to be much lower, around 2% of its user base. Usage rates are typically much higher in other markets where both operators are able to provide MFS offerings direct to users.
Africa's Largest Untapped Mobile Money Market
Nigeria: Mobile Connections By Technology, 2019-2030
f = Fitch Solutions forecast. Source: Fitch Solutions, NCC
Although basic MFS services, utilising messaging technology, are possible over ageing 2G cellular networks, more complex banking offerings require data-optimised connectivity and a touch-screen user interface that only 3G/4G-enabled smartphones can provide. Low-cost devices are ubiquitous in Nigeria, particularly in the largest cities and business centres, and the transition from 3G to 4G over the next 10 years will see more citizens gaining access to the requisite technology.
Nigeria's government has long resisted allowing mobile operators to have a direct involvement in the e-payments system, partly to limit risks from depending on foreign-controlled entities and perceived weaknesses in mobile device security, but mostly as a means of protecting its large and diversified domestic banking sector from the predations of operator-controlled MFS offerings. A complex inter-bank electronic interchange system was set up to facilitate utility and social security payments directly to citizens' bank accounts, enabling banks to accept payments via mobile devices. However, this still required citizens to register with a physical bank, essentially keeping rural, low-income and undocumented citizens from participating.
With full mobile banking, a subscriber's mobile account will fill these criteria and with millions more citizens now eligible to join the e-payments market, the country will benefit from increased cashflow (and increased visibility for tax-collection purposes), increased income from value-added taxes and increased spending through online channels as more retailers - particularly start-ups - will move to mobile payments.
Surging Mobile Payment Usage A Positive For Telcos
Nigeria: Mobile Payment Metrics, 2017-2019
Source: Central Bank of Nigeria, Fitch Solutions
The CBN reports that 315.7mn individual mobile money transactions were recorded in 2019, up from 86.2mn in 2018; these had a total value of NGN4.372trn (2018: NGN1.830trn). The bank has not maintained records since the start of the Covid-19 outbreak in early 2020, but anecdotal reports from MTN and digital-only banks note a significant surge in demand for mobile money services during the pandemic.
CBN does not systematically track numbers of mobile wallets in use, but its annual report notes that 15.2mn m-wallets were in active use in 2019, up from 8.5mn the previous year.
Although Nigerian banks have a well-established hold over the mobile payments market through e-wallets, a growing number of digital-only start-ups have grown rapidly and now dominate the market. The largest is Paga, which claimed 17mn unique m-wallets in early 2021, well ahead of nearest rival Opay's 10mn users. With 6mn users, MTN is no laggard but still has a lot of ground to make up.
The telcos will be hoping that their richer MFS solutions ecosystem, combined with their low-cost pan-African remittances footprint, will give them an edge over their competitors, particularly in underbanked rural areas where the digital-only players have limited visibility and relevance. This will be a unique selling point MTN and Airtel would do well to leverage when carving-out their MFS businesses as spin-offs or for listing. In April 2021, Mastercard and TPG Holdings invested USD300mn in Airtel Africa's mobile money unit, valuing it at USD2.65bn. MTN, which is contemplating options for its MoMoPay unit, could easily expect to match or surpass that on a like-for-like investment basis, with the underlying value likely to be boosted significantly if it can sell a spin-off or listing on the expectations of direct access to Africa's largest and most vibrant MFS market.
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