News Column

The Power of Mobile Money

June 18, 2014

Obinna Chima and Nume Ekeghe

Obinna Chima and Nume Ekeghe write that mobile money has the potential to give millions of people access to payments, fund transfer services and also for accessing a broader range of financial services.

"I subscribed to mobile banking and when I noticed that my bank wanted to relocate from Creek Road, Apapa, Lagos and with money transfer on that platform very effective, I was not perturbed. This is so because I don't need to go to the banking hall to send money to someone again," a visibly excited customer of GTBank, Mr. Bonny Oriarehu said.

Also, Mr. Femi Ogundimu, a customer of Diamond Bank Plc that uses mobile banking services revealed that the banking platform is cost efficient, convenient and user friendly.

"The interface is fantastic, it is very friendly to use Even if you did not go to school you would be able to use it," Ogundimu added.

Just like these bank customers, globally, mobile money is becoming a powerful tool for building more inclusive, stable, and secure financial sectors. The potential of mobile technology to improve people's lives is growing exponentially.

Mobile banking has been described as an innovation that lowers trading costs, transaction time and allows for immediate financial transfers (credits and debits) by both formal and informal sectors.

It has the potential to drive financial inclusion by providing efficient transaction options and greater reach.

Mobile money is also a tool for economic growth and development, if fully explored. It enables monetary transactions to be done on mobile phones through text messaging.

The Central Bank of Nigeria (CBN) had introduced mobile money services to provide basic financial services and create payment access especially to Nigerians without bank accounts, as well as to help drive financial inclusion in the country.

16 banks and other financial institutions were licenced to establish the services all over the states in August 2011 by the CBN.

Low level of awareness A recent survey that showed that 37 per cent of Nigerians are not aware of mobile money and as such, do not use the payment platform, is worrisome.

According to the report by Philip Consulting, out of the remaining 63 per cent respondents that knew about mobile money, 31 per cent were between the ages of 26 and 35 and constituted the majority.

Also, 15 per cent were between 36 and 45 years, 10 per cent between 18 and 25 years, five per cent between 46 and 55 years and one per cent each for the under 18 and over 55 years age group.

"The result of this survey demonstrates that although most of the respondents know about mobile money, adoption of its services is low because many of them are not registered and thus do not use the service," it stated.

Also, another survey by the NOI Polls had also attributed the slow pace of adopting the mobile money services to the low public awareness on the payment transfer system.

As a result of this, experts have stressed the need for improved awareness. In addition, banks and other mobile money operators have also been advised to significantly increase their investment in mobile money technology so as to encourage more users of that means of money transfer.

A Lagos-based research and consulting firm, Ciuci Consulting, in a separate report showed that Safaricom invested over $30 million into M-Pesa, Vodacom spent $25 million, while MTN Uganda invested about $10 million in its initial investment in that space.

The report noted that what is crucial to mobile-money success is the willingness of the business to make significant upfront investments and patiently wait for impact at scale.

"In the past, successful mobile-money companies have committed more funds than expected to make mobile money move. Mobile banking is not simple; it requires a thorough, careful understanding of customers and agents, as well as a willingness to invest in the buy-in of both these groups.

"If companies are not willing to invest and stay committed, it becomes difficult to grow and develop the industry," it noted.

The report stated that in a country of over 160 million people, with an adult population of about 87.8 million, the banking sector could only boast of 22 million bank accounts, while more than 50 million people that have mobile phones lack access to basic banking services.

It also noted that a lot of low-income earners save and transfer money either through friends, families or through informal society, saying that such transactions are always associated with costs and are highly susceptible to theft.

"A critical examination of the success story of Kenya's M-Pesa money-transfer service, which inspired many recent deployments around the world, reveals there are three critical success factors to implement after a provider has launched its deployment and starts to face execution problems," the report stated.

On its part, the Financial Derivatives Company Limited (FDC) noted that borrowing from Kenya's story, mobile banking remains the most feasible means to create a successful cashless economy.

It added: "The major grey area according to the central bank is the ability to control the platform and the anticipated effect on monetary policy since consumers do not need bank accounts in order to use mobile banking services.

"The mobile banking platform in some sense creates another 'bank' which may be difficult to regulate. Therefore, the CBN may be unwilling to adopt the mobile banking platform under the cashless policy model."

Nevertheless, in spite of the seeming apathy to the mobile banking, there are indications that the platform is gaining traction as the total value of mobile payments in the country amounted to N271 billion for 25 million transactions as at end of May 2014.

A former Deputy Governor of the CBN, Mr. Tunde Lemo, who disclosed this recently, added hat the number of mobile agents stood at 65,000 in the period under review.

But the Director, Banking and Payment System, CBN, Mr. Dipo Fatokun, listed inadequate capital outlay on the part of mobile money operators as top on the list as part of the challenges affecting the growth of the sector. He said there is need for higher investment on agent network's marketing than initially forecasted.

Fatokun also highlighted power, telecommunications network, among others as some other challenges.

The operators are also said to be battling with the problem of lack of widespread agent network.

Speaking on the safety of the platform, another customer of GTBank, Mary Atoki said: "It has two levels of passwords, unlike the internet banking where you have to carry your tokens around. What you do is log in your username and password, for transfers you have another password you already have like an ATM pin so when you need to transfer and other forms of debit."

Insurance coverage for mobile money The Nigeria Deposit Insurance Corporation (NDIC) has said it is considering extending deposit insurance coverage to mobile banking subscribers between N200, 000 and N500,000.

Alternatively, the NDIC said in a situation where a bank fails, the insured mobile account could be transferred to another sound bank.

According to the Managing Director, NDIC, Alhaji Umaru Ibrahim, the move would further engender public confidence in the system thereby promoting financial stability.

He disclosed that the NDIC framework for extending deposit insurance to individual customers of mobile payment services is being finalised.

"The NDIC is equally actively involved in promoting financial literacy and supporting agent banking and non-interest/Islamic banking as strategies for attaining financial inclusion in the country in order to improve the economic well being of the people who have been excluded in the formal financial system," the NDIC boss added.

Furthermore, he stated that a predominantly cash-based economy is not good for the system, saying that the corporation is supporting the cashless policy of the Central Bank of Nigeria.

"The NDIC as a deposit insurer provides a unique role of enhancing financial inclusion by encouraging mobile financial services. There is a link between deposit insurance system and financial inclusion.

"Deposit insurance is vital to financial inclusion because the poor need assurance that their deposits are safe and available at all times they have need for them," he explained.

The NDIC chief said the mobile payment initiative presented new challenges part of which include the safety and security of the individual customers' funds in the digital and new virtual environment.

Ibrahim noted that the transaction volume and value of mobile payments stood at 14,947,600 and N139,605,299,991.60 respectively as at December 31, 2013.

Banks' preparedness To the Executive Director, Lagos and South-west Directorate, Fidelity Bank Plc, Mr. IK Mbagwu, once a lot of the banks finalise the process of offering mobile banking services, the adoption of the platform will significantly grow.

Mbagwu insisted that mobile money, which is also expected to support the cashless policy, was yet to gain traction because most of firms that were granted licence have not started offering the service.

He explained: "It is like everything else. When something is coming out, there is always some inertia. People who are used to doing things in a certain way will always find it difficult to switch.

"However, as you persuade people and as you begin to introduce new ways and people see that it is easier, they would switch. It is a matter of time. We are one of the banks for example, that is establishing mobile money or mobile payment.

"We got our in-principle licence from the central bank late last year. We are now in the process of getting the final approval. We have put the technology and the infrastructure in place and we have a few things to tweak before we launch commercially," he added.

Mbagwu argued that financial inclusion would be a prerequisite for cashless, saying that if the country does not attract a lot more people into the banking system, it will be difficult to for the cashless policy to thrive.

"So, for many people, the mobile payment/ mobile money/mobile banking are all part of the financial services system, part of the prerequisite for going cashless and also part of the prerequisite for financial inclusion.

"I think rather than saying cashless is the ultimate goal, the ultimate goal is financial inclusion. That will enable us to properly measure the economy," he added.

On his part, the Deputy Managing Director, Diamond Bank Plc, Mr. Uzoma Dozie described mobile banking as the future of the Nigerian banking system.

Dozie pointed out that the country presently has more mobile devices, adding that people are becoming more confident with technological appliances.

He explained: "Today we have leapfrogged a lot of things. If you look back at when the mobile telecommunication companies first started in Nigeria, the short messages (SMS) uptake was one of the fastest they have seen in the world.

Dozie stated: "In Diamond Bank, we are driving a lot of innovation and resources into our mobile banking because we believe that, that is the most cost effective, most accessible and most convenient medium for people to do their banking, their borrowing and also make payment.

"In fact with mobile banking platform, you can buy an airline ticket from anywhere in Nigeria or anywhere in the world. All you need to do is to type in the airline and destination on your phone and make the payment easily. So in terms of person-to person transaction, you will find out that it is the most effective means of banking."

But the Registrar, Chartered Institute of Bankers of Nigeria (CIBN), Dr. Uju Ugubunka urged banks to make usage of the platform simple so as to make its adoption easy.

According Ugubunka, payment and banking are expected to be driven by simplicity.

He explained: "By the time we complicate them, it becomes a challenge, especially to the target group. So whatever we are trying to do, we must factor in the issue of people understanding what they are supposed to do and how they are supposed to do it.

"Using smart phones, most people do not understand it and that is what we are using to drive mobile banking. How many people within the target group can afford smart phones and use them effectively?"

Ugubunka also stressed the need to take the awareness to the rural areas. Therefore, as the country prepares for the nationwide rollout of the cashless policy, there is need for the central bank and operators in the payment system to create more awareness on mobile money service to encourage more adoption of this form of banking channel.

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Source: AllAfrica

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