A REPORT on financial technology (fintech) published in February’s Moody’s Credit Outlook suggests Nigerian consumers are increasingly using electronic payment platforms, rather than cheques and ATM transactions.
The report draws on banking sector data published by Nigeria’s National Bureau of Statistics (NBS), which showed that Nigerian banks were investing in their IT infrastructure, strengthening e-platform security to reduce risks such as cloning and identity theft as well as enhancing customer experiences.
Akintunde Majekodunmi, vice president and banking analyst at Moody’s, tells African Law & Business (ALB), ‘While the cost of Nigerian banks investing in their IT infrastructure and strengthening their e-platform security will weigh on the already-high cost-to-income ratios for most of them, the approach is credit positive as more clients are migrating to e-platforms, boosting the banks’ revenue from e-business.’
That, he says, will help banks save on branch expansion costs, reduce the square footage of their branches and engage cheaper branch models such as agency banking.
Fintech was a major theme of ALB’s 2017 Special Report on Investment in Africa, with commentators eager to describe the various forms of providers, accessed by smartphone, for small businesses and individuals alike.
As Bukola Iji, a partner at Nigerian firm SPA Ajibade & Co, told ALB previously, ‘All the banks in Nigeria have internet banking software and customers that have activated the service can conduct ordinary financial transactions like paying for utility bills, taxes, checking balances and statements, transferring money to same bank accounts or other banks locally and internationally via their personal computers, mobile phones or tablets, after activating it through payment cards linked to their accounts.’
The NBS report indicated that the volume of cheques declined 16 percent in 2017, while e-payment channels such as point of sales rose 89 percent, internet payments rose 82 percent and instant payments by online real-time bank account number based interbank credit transfer system rose 102 percent. The value of cheque payments declined by 22 percent, while the value of mobile payments increased by 43 percent.
The Moody’s report showed Nigeria’s five largest banks’ revenue from e-business grew strongly between 2014 and 2016 and the e-business contribution to total fee and commission income increased to 31 percent in 2016 from 23 percent in 2015. Majekodunmi said that the continued widespread use of e-channels would allow Nigerian banks to expand their products beyond current transactional products and increase client transaction volume.
Hogan Lovells’ London financial institutions sector senior associate Oliver Irons notes that the growth of such services by Nigerian banks was, in part, due to regulatory concerns: ‘In recent years the Central Bank of Nigeria has taken steps to establish a regulatory framework for mobile money and e-payments which is clearly helping to encourage the move away from the use of cash and ATMs which currently dominate in Nigeria.’
He adds: ‘In contrast to large parts of East Africa where the take up of mobile payment services such as M-Pesa has been rapid and widespread, the development of mobile and e-payment solutions in West Africa and other parts of the continent have been reliant on established local banks, rather than more innovative telecoms companies.’
Iji previously explained that mobile money is not as popular in Nigeria as the CBN had not given telecommunications companies, who have the spread of coverage, and the consumers, licenses to run such products independently of banks.
She added: ‘The telecommunications companies want to lead mobile money payments without a banking license, and the CBN, as the financial regulator, [had been] walking a tightrope between allowing a telecoms-led or bank-led mobile payments system.’
Irons adds that concerns around privacy, fraud and a perceived lack of the necessary law and regulation to tackle the risks inherent with e-commerce also appear to have been a brake on the move toward a cashless economy, concluding: ‘Increased investment from Nigerian banks in this area is a welcome step that should help to accelerate the growth of the e-payments market.’
The enthusiasm for fintech in Africa is strong, with technology providers and mobile phone platforms increasingly working closely together to offer access to financial services.
Orange announced a new partnership in February 2018 with technology provider Apigate, to provide a streamlined and efficient method of accessing customers via a single entry point across regions, enabling the delivery of new services such as mobile payment, communication, and identity, while also working with Nokia to develop the roll-out 4G upgrades to African telecommunications networks, ahead of the proposed launch of 4G mobile services in the region.
With over 60 million Nigerians reportedly unbanked even though they have mobile telephones, only a combination of mobile money and e-platforms can arguably guarantee the inclusion of more consumers, with Iji predicting that ultimately, ‘more banks will collaborate with telecommunications companies to deliver the required services and improve financial inclusion.’