Zaire may once have been the location for Muhammed Ali and George Foreman’s renowned 1974 “Rumble in the Jungle” boxing fight, but it is now Nigeria that is the setting for some of the latest African rumblings, as banks and telecoms companies join forces to open new channels for retail banking customers. And, although today’s efforts may be more collaborative than combative, there is everything to play for as banks work to reduce costs and reach new customers, such as the unbanked populations living in rural areas.
While Nigerian banks have largely kept their heads down and focused on industry consolidation, mobile operators have taken the lead in promoting mobile payments. These operators – in particular the country’s number one and two – have been fighting to make their handsets an essential part of the payments process. According to figures from data company Wireless Intelligence (a venture between the GSM Association and Ovum), average revenue per user for Nigeria’s leading mobile operator, MTN, was €14.12 in the second quarter of 2006. “That reflects the kind of competitive pressure facing the market,” says Kabir Kumar, microfinance analyst, Consultative Group to Assist the Poor, World Bank.
“Typically, operators see banking as a larger basket of value-added services that they can use to keep customers interested in their brand,” adds Mr Kumar.
Banks step up
The banks are no longer sitting back and letting these operators dominate, however. Some are forming partnerships, such as First Bank’s link-up with Nigeria’s second biggest mobile operator Globacom. The partners introduced the GloFirst card in conjunction with switching company Interswitch last September. The prepaid debit card allows users who do not have bank accounts to perform electronic transactions via the Glo Mobile network.
Globacom’s chief operating officer, Mohamed Jameel, said at the launch of GloFirst, that the card could be used for making purchases on the internet and in shops, supermarkets, petrol stations, hotels and restaurants where cash card payments are accepted. GloFirst can be used to withdraw money, check card balances, print mini statements, change personal identification numbers and transfer money to another cash card or bank account. It can also be used to send and receive funds.
Mobile solutions
First Inland Bank, which was formed in 2006 as a result of a merger between First Atlantic Bank, Inland Bank Nigeria, IMB International Bank and NUB International Bank, is also active in this market with its FlashMeCash product. This allows account holders to send and receive money using their phone and to download recharge vouchers online. Once a consumer requests a payment via FlashMeCash, they receive a text message on their mobile phone, which they take, with their ID, to any First Inland Bank branch to receive payment.
Zenith Bank’s Zenith MobileLink is also a success in this area, using SMS technology to enable customers to carry out transactions via a GSM handset.
An application that could take off is mobile micropayments. “There is a large informal economy in Nigeria, where entrepreneurs and consumers interact on a daily basis using cash for transactions,” says Daryl Berg, African general manager at ACI Worldwide. “This is not ideal due to the high crime rate and the inconvenience factor, and all of these people carry mobile phones.”
There are several other projects in the pipeline. For example, the International Finance Corporation has an ongoing rural telephone project with MTN in Nigeria, which will eventually include a mobile banking (m-banking) service.
Taking the lead
However, in Nigeria it makes sense to let operators take the lead. “They have some familiarity with handling small-value payments because many of their customers are pre-paid customers,” says Gareth Lodge, analyst, European payments, at TowerGroup. “So, when it comes to airtime purchases, they have some technological experience in building and managing this business.
“And because so much of the market in Nigeria is targeted at the unbanked, it’s often small values that we’re talking about,” he says.
Sajid Rahman, regional head of personal banking, west Africa, at Standard Chartered Bank, says: “Sometimes it’s a push service, sometimes a pull service. Consumers demand it because they have exposure to what is happening across the banking industry. And banks want to push it because, for them, it’s an added distribution channel. And mobile phone companies? Well, they want to help the banks because it helps their business. So everyone is part of this development phase.”
Nigeria’s GSM operators have grown their businesses rapidly in recent years, and the combined growth has resulted in a sharp increase in tele-density that is set to continue growing. As the organisers of this year’s GSM>3G West Africa show highlight: “Nigeria is on track for exceptional market growth, which is forecast to make it the continent’s largest GSM market in 2007, thanks to its large population benefiting from a relatively high spending power.”
Mobile penetration is high – there were an estimated 26.6 million phones in Nigeria in 2006. However, with a population of 140 million, the market is by no means saturated. And these are figures that banks can only dream of. “There are only around 200 ATMs in the whole country, so in some ways mobiles are just a more practical way of reaching out to customers,” says Mr Lodge.
Slices of the pie
Globacom’s rise has been extraordinary in the past couple of years. Launched in 2003, Nigeria’s second biggest operator says it now has nine million customers. It is marketing an innovative brand identity characterised by a range of services, including m-banking, and is now gearing up to launch its 3G network. “Globacom connects several different banks through the switch rather than through the bank themselves,” says Mr Lodge.
MTN, which has a 36.23% market share, provides phone services across the country’s 36 states and the Federal Capital Territory. It says that its signal reached an estimated 80.9% of the country’s population living in about 58.33% of the country’s land mass in October 2006.
This infrastructure provides the key to m-banking development in the country, with mobile operators driving the battle to expand the service. However, although all large urban areas have good network access, some of the more remote parts of the country are still not connected.
There are many reasons to be optimistic about the potential of m-banking in Nigeria. The falling cost of handsets is encouraging usage of mobile technology, which in turn is driving a desire for convenient services such as m-banking.
The percentage of unbanked customers is high and geographic bank branch penetration is low. “If you extrapolate from the large population and the low branch penetration, you’re talking of a high market potential for m-banking,” says Mr Kumar. “And it’s the kind of customers – the unbanked, in particular – who are the strongest business proposition when it comes to m-banking because it’s hard for banks to reach them using traditional channels.”
“Banks and switches, such as Interswitch and NIBSS, are investing significantly in card payment technology,” says Mr Berg. “The mobile channel will be an extension of the investment that the providers of electronic payment services will be able to leverage through their infrastructure to provide services such as mobile banking and micropayments.”
Mr Lodge says: “Also, [the mobile channel] is not reliant solely on a single operator’s infrastructure. The infrastructure has been underpinned by the match of one of the national switches, Interswitch, and that will aid adoption.”
Hurdles remain
Although Nigeria is a good location for a spot of technology leap-frogging, obstacles to progress remain. “Banks need to look at how they can bring out more services and options quickly,” says Mr Rahman. Negotiating relationships between banks and telcos is something that takes time. The cost of handsets, although falling, is still beyond the reach of some citizens. And other obstacles, such as access to infrastructure and reliable sources of energy, hamper growth.
Adding financial applications to a mobile phone raises the need for security. Like all other GSM providers, Glo Mobile uses Sim card technology to ensure the security of transactions made via a mobile handset. Handset suppliers are looking at ways of increasing security for value-added services such as payments. Biometric technology – which has had only a limited level of success in other banking channels – could be a possibility.
However, as Carl-Henric Svanberg, CEO and president at Ericsson, points out: “Fingerprint solutions are expensive and have a limitation: roughly 1% of the world’s population cannot produce a fingerprint because their thumbs are too flat. Voice recognition is another possibility. In this, we see ourselves as a supporter with software and security systems.”
Catching up
As the dust starts settling on the newly consolidated Nigerian banking sector, it will be interesting to see how m-banking takes shape. The mobile operators have had a head start and it seems likely that there will be more partnerships between large banks and operators to cross-sell services.
Regulatory issues still need to be ironed out, says Mr Kumar. “We know the Nigerian government is keen to put its stamp on this. M-banking is part of a group of ways to do banking that involves electronic channels. But ultimately it’s about e-money, and
e-money brings a set of regulatory and policy questions with which many regulators are grappling. They will need to develop an enabling environment, and can learn from the different models of m-banking and from the m-commerce pioneers such as South Africa and the Philippines,” he says.
According to Mr Rahman: “Five years from now, this will open up different avenues for banks in terms of getting people through the door. It will act as a retention strategy for the bank and this can, in turn, help the revenue stream.”
By providing a virtual network and gradually extending services to the previously unbanked, Nigerian banks should be able to build their customer base, thereby becoming more efficient. In turn, this virtuous circle could feed into the wider economic environment, so that as the country’s financial services industry gets stronger, so too does its economy.
