I was recently in Nigeria, researching the state of financial inclusion in this country. While Nigeria is still in nascent stages of mobile money, I was impressed by the great willingness and energy to adapt and innovate. There certainly is no lack of interesting ideas, which inspired me to write this post.
I’ll start with some background.
The ultimate goal of the “Financial Services for the Poor” team at the Bill & Melinda Gates Foundation is financial inclusion – enabling everyone on the planet to have access to safe and reliable financial services. It is an ambitious endeavor, considering that in excess of 2.5 billion people on the planet are excluded from such services today. The financial services I’m talking about range from basic account management and payments to insurance, savings and loans.
The excluded people tend to be extremely poor and have thus been overlooked by traditional financial service providers such as banks. In many African and south-east Asian countries, cash is still king.
The key enabling technology to help achieve the financial inclusion goal is the mobile phone. It is a fact that a very large proportion of the financial excluded population does have access to mobile phones, making it natural to think of “mobile money” as just another use of the mobile phone – like making a call. The well-known and documented example of mobile money is M-PESA in Kenya.
Another great example is the success of bKash in Bangladesh. In both cases, these companies have overcome the many hurdles of deploying mobile money and making it a business for them.
Indeed, and this is of great importance, financial inclusion is not a charity affair – it must be a sustainable business. And while these two examples are great, there are many other countries where success is still far off because of the many hurdles in the way.
In this post, I want to focus on one particular hurdle for financial inclusion: access to mobile money. I will use the example of Nigeria I have visited recently and am thus more knowledgeable about the situation there. It is similar to that of many other countries.
In order for mobile money to work, it is necessary for people to have access to locations where cash can be exchanged for electronic or digital value, and vice-versa. In the developed economies, this is of course the domain of bank branches and ATMs. The problem though is that the financially excluded people we are looking to empower live in rural areas far from the cities, where the nearest bank branch or ATM could be hours of days walking or driving away. The equivalent of a bank branch in a mobile money economy is an “Agent” – typically a small shop owner that provides cash-in/cash-out (CICO) services among other goods,
such as scratch cards for mobile phone airtime. It is estimated that 100,000 of such agents would be necessary in Nigeria to provide a sufficiently dense CICO network covering the entire population.
Now, who can provide mobile money services? In the case of Nigeria, there are 18 companies which have the necessary licenses. These companies are either emanation of banks, or standalone and often startup companies. Currently, telcos are not permitted to provide mobile money services. Each of these providers is seeking to build their own CICO network. The largest agent network is estimated to be 7,000, while the total number of agents across all providers is estimated to be 16,000 - far below the financial inclusion goal of 100,000. In addition, these networks are more concentrated in large cities, far away from the rural population.
Looking at this very fragmented situation, one can easily understand the market dynamic – each mobile money provider is looking to build their own business in this rather fierce competitive environment. But, looking at it from the financial inclusion perspective, it’s very far from success.
One possible trajectory is for one or a few of these players to grow into the next M-PESA or bKash and exponentially grow the agent network on their own. This trajectory could be made more solid if the large telcos in the market are allowed as well to provide mobile money services, possibly then at the expense of the smaller players
Another possible trajectory could come from answering the question: is there value in considering a shared agent network, serving all the players on the market and, at the same time, serving the financial inclusion goal? Coming from a long career at SWIFT – a shared utility in the banking sector – I understand deeply how utilities work and I look very positively at this idea of a shared agent network.
Building a dense, 100,000 strong, CICO agent network in Nigeria is deep, sustained infrastructure work akin to building a physical highway. Each and every agent needs to be –
- Found, verified and enrolled
- Equipped with the right tools to provide the service (at minimum a smart phone)
- Upgraded with premises security
- Educated to understand how to provide the service
- Supported by a readily reachable support hotline
- Supported by a readily available and controlled supply of cash (for cash-out)
There is a lot of merit considering the agent network to be in the collaborative rather than competitive space. Every mobile money provider needs to have these capabilities, but having them doesn’t, in the medium and long term, offer a true competitive advantage. It may be counter-intuitive, as it is natural in the short-term to think of infrastructure as a key competitive asset and key business enabler. The longer term economics of infrastructure favor sharing because the cost of maintenance and improvement of infrastructures accumulate over time and drag the margins down. This is true in the digital world as it has been true in many large projects in the brick & mortar world (think highways for instance).
I mentioned SWIFT earlier, because it is a good illustration of digital infrastructure. In a different domain and for different capabilities, the banks around the world have followed the same reasoning: why spend time and resources in building, over and over again, something that ultimately will become a commodity (in this case – a secure, reliable, world-wide inter-bank network). SWIFT celebrated their 40th anniversary in 2013, demonstrating how a shared utility can be a strategic tool.
So, a shared agent network could provide, in Nigeria, a strategic resource enabling the industry to save costs by rationalizing infrastructure and allowing each and every player to compete in the value-added services space (to name a few – end user pricing, service levels, additional services such as savings, insurance and loans).
It makes sense. However, it is a novel concept and as such needs much better understanding – questions of governance (who owns the shared network), economic and business models (how to price the shared network services), and reliability and safety of the network are all to be examined. It seems that the industry in Nigeria is willing to go a step further in refining this concept, and I certainly look favorably in participating in these exploratory efforts.
Ultimately, financial inclusion needs to be the business of all the stakeholders in the industry – all hands are needed on deck. And as my colleague Vincent Kiyingi of Pride Microfinance in Uganda says very vocally in this video (see clip from 5min 10 sec): “If cash is king, then the king is dead!”