A country measuring nearly 925,000 square kilometres – twice the size of California and nearly four times bigger than the UK – Nigeria, in theory, is ripe for mobile banking, which promises to bring bank services to rural areas and raise prosperity across the board.
Nigeria, as one of the continent’s leading economies, hopes to lead Africa on a technological revolution in payments that can see it catch up with Kenya and other emerging-market rivals.
It is teeming with banks: there are around 23 banking institutions operating in the country, many of which have 100 to 600 branches.
Given the lack of financial penetration in Nigeria, most analysts expect banks to rapidly expand their branch networks to capitalize upon pent-up demand. However, the revolution in banking technology suggests the pace of branch expansion could be moderated if mobile money takes off, say bullish observers.
What’s more, according to digital evangelizers, replacing a physical presence with a secure online service could dramatically increase the efficiency of the banking sector in the country, and reduce the cost of maintaining branches, challenged by infrastructure costs.
In sum, hopes are running high that mobile banking will take off in Nigeria.
“Whoever cracks the conundrum of secure nationwide full-service mobile or internet banking in Nigeria will be discovering a goldmine,” says Charles Weller, Nigeria country head at Deutsche Bank.
“Nigeria can make a quantum leap and move beyond Europe and the US if the moment is managed in the right way.” But that appears to be a big if.
In fact, if it had been better managed, Nigeria could arguably have achieved this goal. “A decade – even five years – ago we had a clean slate,” says Weller. “If the regulator had pulled all the banks and leading mobile network providers into a room and told them to combine their forces to develop a national service, we most likely would have it up and running.”
That didn’t happen. Instead, banks have each gone their own way, leading to a patchwork of smaller, less-efficient and less-secure systems that are wholly lacking in interoperability. Payments can usually only be made between people using the same bank.
According to Chai Chang, manager of payments, policy and oversight at the Central Bank of Nigeria, there are 5.7 million mobile-money users in Nigeria, making around 6.85 million transactions worth an aggregate N74.26 billion since inception.
Around 15% of the population in Nigeria has a bank account, a figure that excludes most poorer Nigerians, especially those living in rural areas.
However, Nigerians have evolved their own method for transporting money quickly around the country: people in cities buy credit for mobile phones on a card and then reveal the pin number, which they text to family members in the country who then sell the phone credit locally, at a discount.
“There are no official statistics for this trend but I would guess a third of money transfers among the unbanked population in Nigeria are made this way,” says Weller.
This simple and secure system, outside banking but inside the telecoms network, has prepared Nigerians for the concept of mobile banking. And while it remains more expensive to make mobile payments in Nigeria, people have proven themselves willing to pay for it.
“It seems the hidden costs associated with the hassle of alternative forms of payment is outweighed by the convenience and very transparent cost of simple mobile payments – particularly to the target market who previously may not have held bank accounts,” says Sachin Shah, head of cash management at Standard Bank Group.
It is a country that loves gadgets. Says Weller: “When the latest phones, pads and gadgets are released in the west on Wednesday, they will be in Nigeria by Friday.”
For middle- and upper-class Nigerians, that means the latest and newest iPads and smart phones. But even those on $1 a day have a phone and find sufficient funding for credit and to keep it charged, he says.
Rolling out a single system across the country will take time, given the country’s sprawling geography, diversity and infrastructure deficit.
The biggest challenge is security. All countries developing online or mobile payments face this hurdle but it is particularly daunting in Nigeria, a country Transparency International considers one of the most corrupt in the world.
“Security is being driven primarily by the telecoms companies and banks, and it is very much at the front of people’s minds,” says Shah. “The levels of comfort are high, but technology is evolving constantly. The challenge is for security systems to keep pace – not just in Nigeria, but everywhere.”
Compared with many other African countries, “Nigeria has really taken the bull by the horns,” says Shah. “Where cash is still dominant, the central bank identified the change it wanted to make to a more cashless economy and has pushed harder than many of its peers elsewhere.”
Predicts Weller: “There will be a radically different mobile-payments environment within the next five to seven years, which will have a dramatic effect on the amount of cash in circulation and the way people transact.”