By John Omachonu, Business Day Online
The pilot scheme of the cashless policy currently being experimented in Lagos is facing some challenges. The e-payment policy is aimed at reducing cost of cash management by banks, and consequently, reducing lending rates. The direct implication is that it will lead to financial inclusion.
For Nigeria to achieve its vision of 20:2020, all hands must be on deck. A major derivative of this policy – mobile money services – appears to have taken off too with the launch of the service by a number of institutions. Their efforts are expected to make the policy a success.
BusinessDay investigations have revealed that overall, 73 percent of adult Nigerians have no formal or informal access to finance and therefore are excluded from access to credit facilities. In fact, according to the Central Bank of Nigeria (CBN) the unbanked money in the informal sector is estimated at a staggering N1.2 trillion.
Mobile banking is the person-to-person payment through the mobile phone or the use of mobile phones to conduct financial transactions. It is the latest electronic banking innovation and a revolution changing the lives of millions across the globe.
It also refers to the various components required to deliver mobile payment to the banking and non-banking community, with the overriding vision of achieving a nationally utilised and internationally recognised payment systems.
First Bank of Nigeria, UBA/Afripay, GTBank, MobileMoney, Stanbic IBTC, and Ecobank have the licenses to partner telecommunications companies to bring about the desired mobile banking. Others are Fortis MFB, Pagatech, Paycom, Chams, E-Tranzact, FET (Funds Electronic Transfer), Monitiz, Parkway, Corporeti Services, Eartholeum, and M-Kudi.
Their efforts are expected to expand and deepen formal banking in Nigeria by drawing the unbanked or under-banked into the formal financial services sector, while also enabling the economy to shift to more efficient and reliable modes of financial transactions.
For a country with an estimated population of over 150 million and, which curiously, has less than 22 million bank accounts, such policies are not only good but are necessary. BusinessDay investigations revealed that about 74 percent of the adult Nigerian population have never been banked, while 85 percent of adult females are completely unbanked. On the other hand, 61 percent of the unbanked would like to have a bank account, according to the Central Bank of Nigeria (CBN).
The development has impacted negatively on the country’s economic growth and development because access to financial services, and indeed overall financial development, is crucial to economic growth and poverty reduction. The lack of access to formal financial services limits market exchanges, increases risk and limits opportunities to save. Without formal financial services, households rely on informal services that are associated with high transaction costs. Thus, increasing access to formal financial services to the majority of households remains an important policy goal, not just in Nigeria, but in all emerging markets.
Many have expressed doubts about Nigeria’s readiness for a cashless economy, mainly due to the unavailability of requisite infrastructure and low literacy levels, while others have also argued that ongoing reforms have generated ample momentum to leverage on all forms of e-payment, especially mobile payment to enhance financial inclusion and facilitate Nigeria’s transformation from cash-based to a cashless economy.
Mitchell Elegbe, Interswitch Group’s CEO and managing director, said there was no alternative to cashless policy if the economy is to achieve its desired aim of being among the top 20 economies by the year 2020.
Elegbe reiterated that the high unbanked situation poses a challenge to the policy, while calling for democratisation of the policy to enable majority of Nigerians use it, particularly mobile banking. The need for different types of cards either for debit or credit, according to him, is necessary for the success of the policy.
Head of Personal and Business Banking at Stanbic IBTC Bank, Obinnia Abajue, during a recent Mobile Money Roundtable, argued that the adoption of mobile money services in Nigeria would enhance economic planning by unraveling the country’s actual Gross Domestic Product (GDP) matrix, with a reduction in the cost of cash handling as well as cost of funds, besides being convenient and secure.
Abajue stated: “Government and banks have been at the forefront of efforts seeking to channel the huge funds in the informal sector through the formal banking system to bolster economic development.
Mobile money will fast track this harmonisation and identify economically active people previously in the shadows of the huge informal cash economy, enabling them to have access to credit facilities.”
“Mobile money,” he stressed, “will bring about transparency, improved remittances and economic activities across various sectors of the economy, both in urban and rural areas. To achieve this, it is imperative for the regulators, licensed operators and other stakeholders to embark on an awareness campaign to educate Nigerians about the benefits of mobile money. This will drive its acceptance, and subsequently unravel its enormous benefits to the economy.”
Across Africa, mobile banking is projected to become a $22 billion industry by 2015, according to Juniper Research, a consultancy outfit, buoyed by soaring cell-phone use and growing financial services demand. Correspondingly, mobile network operators will earn $7.8billion in direct and indirect revenues from serving a projected 364 million low income, unbanked people in about 147 countries who are projected to use financial services by 2012.
Valentine Obi, managing director of E-Transact International Limited, stated that Nigeria should take a cue from Europe if the country hopes to maximise benefits derivable from e-payment, while anchoring his position on the enormous opportunities embedded in the huge customer base which a cashless economy engenders.
“It reduces cost of operation; it increases customer satisfaction because you can render personalised service. When transactions are electronic, they are easier to track and document. For government, it helps in the area of taxation, budgeting, planning, accountability and improved government services. All payments are made easier with mobile payment system. For instance, you can pay your utility bills through your mobile phone. With PHCN top up system of electricity payment, it is going to be a lot easier in a couple of months when you can actually pick up your mobile phone and pay for electricity bills especially for those using top up meter,” he stated.
Other services to be powered through this platform include accounts information and updates, alerts, bill payments, person-to-person transactions and remittances. In addition, even people without formal identification documents are availed basic services just by providing a name and a phone number.
Indeed, Africa boasts of the world’s most successful mobile payment system. Though mobile money was first introduced in the Philippines in 2001, Kenya’s M-Pesa continues to be the most successful mobile money deployment globally with over 700 million domestic and international money transfer transactions, accounting for $130 million revenues in 2010 financial year. A joint venture between Vodafone and Safaricom, M-Pesa transformed Kenya’s entire economic system. Its pervasiveness and wide acceptance has made Safaricom the biggest mobile money operator in East Africa. Today, the service provides mobile banking facilities to more than 70percent of the country’s adult population (14 million people) that use their mobile phones to pay taxi fares, wages of field workers, utility bills, get money out of ATMs without owning an ATM card or a traditional bank account. Standard Bank Group, to which Stanbic IBTC belongs, currently operates mobile money services in various markets in Africa, including Ghana, Uganda, Kenya and South Africa. Nigeria, with an estimated population of over 150 million people, over 20 million bank accounts and almost 90 million mobile phone subscribers is on the threshold of deploying mobile money with the potential to become Africa’s biggest mobile money market, in spite of late adoption of mobile business.
Financial inclusion and cashless settlements in all transactions will definitely play a significant role in shaping Nigeria’s economy in the near future. In deed, Stanbic IBTC Bank recently came out with an alternative banking service platform known as “e.susu.” The platform, which enables the unbanked and underbanked make financial transactions, represents a good example of how low-cost approaches that use modern technology can effectively expand the financial services landscape.
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