Nigerian Mobile money at five: Still teething?

JULY 25,2014.



Just five years after the Regulatory Framework for Mobile Payment Services by the Central Bank of Nigeria (CBN) came in force, mobile money/agent banking, also known as digital finance, is yet to take-off effectively in Nigeria. CHIJIOKE NELSON presents issues raised by a new report.

A REPORT recently found that only 0.01 per cent of Nigerians has mobile money account. But critics were also quick to note that regulation in the country prohibits telecommunications from taking the lead in the roll out of digital finance as obtainable in other parts of the continent, alleging that the lack of progress was due to their lack of involvement. However, financial institutions like EcoBank, and FirstBank, as well as third party providers like Paga, which were identified as leading the charge, were also plagued by some fundamental issues.

  But a new report on the deepening of the mobile payment and agent network in the country has again charged authorities to prioritise to regulatory certainty, reliable technology and strategic approaches from providers to ensure

quality of the agent networks and mobile money services are being delivered.

 The study tagged the “Agent Network Accelerator- Nigeria Country Report,” undertaken by MicroSave, through the Helix Institute of Digital Finance, a world-class institution providing operational training for digital finance practitioners, had identified regulation as currently prohibiting telecommunications from leading the services, which are needed in the business model, that now resulted in substandard partnerships that do not yield quality or value for customers.

 For example, the Senior Analyst at MicroSave, Joyce Murithi, while presenting the report, noted that at present, only non-telecommunications companies can lead in Nigeria, with current players not presenting alluring business cases (high volumes of transactions) that are capable of enticing telecommunications involvement. This is compounded by regulator uncertainty where telecoms still think the rules of play may change, and therefore are not pressured to make deals.

This resulted in Mobile Payment Operators (MPOs) pushing the Mobile Network Operators (MNOs) into substandard relationships that are expensive for the MPOs and offer poor quality service, impeding mass market adoption.

It also pointed out that technology, is still not reliable enough to inspire market confidence, hence providers need to provide more clearly defined anchor product(s), with strategies for managing, designing, and growing their channels to deliver.

  Still, it acknowledged that there are myriad of operational issues with agent network management that mostly stem from ill-defined management strategies, advocating that growth now needs to focus on quality of the service, clarity of the communication and directed at onboarding more customers.

  MicroSave is an international financial inclusion consulting firm with 15 years of experience, operating in 10 offices around the world, eight of which are in developing countries, with the mission to strengthen the capacity of institutions to deliver market-led, scalable financial services to all the people through guiding policy, facilitating partnerships to develop enabling eco-systems; comprehensive, customized strategic advice; and actionable, on-site operational assistance. They have worked to design and implement a variety of  financial inclusion models.

 Through the financial support of the Bill and Melinda Gates Foundation, MicroSave is currently conducting a four-year research project focused in eight countries- Kenya, Nigeria, Tanzania, Uganda, Bangladesh, India, Indonesia and Pakistan, as part of the Agent Network Accelerator (ANA) Project.

 The research focuses on operational determinants of success in agent network management like the quality of provider support; agent and agency demographics; core agency operations; liquidity management; and business model viability. The management teams of 10 providers were interviewed in-depth and a total of 43 agent interviews were conducted in three research locations- Lagos, Abuja and Port Harcourt, with selected leading providers- EcoBank, Paga and FirstBank. Approximately, half of the agent interviews were conducted in rural areas and the other half in urban areas.

But the Association of Licensed Mobile Payment Operators (ALMPO)- an umbrella body of all licensed mobile payment operators in Nigeria, represented by its Secretary, Peace Chikwendu, said the group sees the presentation of the report as a welcome development and in tandem with the association’s main objective.

 According to her, ALMPO seeks to create a voice for the industry in order to build, influence and shape policies, government legislations, build standards within the frameworks that will provide stability and growth to the mobile money environment and contribute to the economy of the mobile payment initiative in Nigeria.

“It is gratifying to note that the agenda of the launch of the report covers a wide range of very interesting items relating to insights on practices in agent network management from three leading stakeholders in Nigeria, collected using sophisticated qualitative analytical techniques.

  “The insights collected is to allow mobile payment operators to benchmark themselves against global metrics, learn from best practices and optimise implementation using practical checklists and other tools.

“Our efforts at the national level, be it research and/or development, is never enough. In a spirit of true cooperation with the ‘Agent Network Accelerator Project’, we in Nigeria need to join in other action-oriented efforts to attack and solve the problems that beset development of the cash-less policy in Nigeria,” she said.

The Head of Digital Financial Services, MicroSave Africa, Mike McCaffrey and Marketing and Communications Manager, Helix Institute of Digital Finance, Annabel Lee, had also noted that the ironic finding of the report was that the issue is not a lack of initiative by providers, but that they are doing so much that they do not have the bandwidth to it strategically.

 “Providers have jumped to try to scale quickly without first sitting and designing processes, structuring management, and giving clarity to their value proposition. Once these tasks have been completed, the focus becomes scale, and here telecommunications companies have a big advantage because they already have more customers, large marketing teams and budgets, and extensive experience in network development and distribution.

 “However, scale is not the primary problem in Nigeria right now, it is the lack of strategic clarity that results from skipping this first developmental stage, which we term as the ‘launchpad stage’. On the product front, providers are engaged in programmes in rural Nigeria, they are offering bill pay opportunities in urban areas, airtime top-ups on the handset, and advertising other payments on national television. 

“However, robust market research and sophisticated customer segmentation has not been done to ensure that products are positioned for the right customers. This is leading to market confusion, where the average Nigerian is still very unsure what digital finance is, and how it solves a pressing problem for them,” they said.

For Murithi, the approaches need to be sequenced correctly, as Nigerians need to first focus on quality and clarity, which is a depth strategy before moving on to a breadth strategy.

  She noted that there are low levels of awareness, not just among low income, but also educated citizens, adding that the Mobile Payment Operators (MPO) agents would be pleased to welcome competition either from similar or different providers as it validates and legitimises mobile money services in their communities.

Last year, the Central Bank of Nigeria (CBN) said about 67,494 agents had been registered by MPOs, but the Gates Foundation did a census of financial service touch points last year and found only 3,275 mobile money agents five per cent, indicating extremely high levels of inactivity in agent networks.  However, the Helix reserach confirmed that agents are reporting very low revenues, are frustrated with the lack of quality of provider support, and unclear how they are supposed to communicate the growing numbers of products to customers. Obviously, the dissatisfied or dormant agents, together with the high levels of system down time in Nigeria, are undermining trust in digital financial services.

According to her, regulatory uncertainty is discouraging serious, long-term business deals, and strict limits on Tier 1 transaction levels is increasing the cost of popular use cases. For example, the tier 1 agents have N3000 transactions limit, but in certain situations, a customer may have N6000 to N10,000 transactions. This may mean splitting the transactions into two or three times, with attendant costs implications and sometimes against the regulatory directive.

Core agent operations like agent selection, liquidity management, monitoring and support are still very nascent, with some breaches going unnoticed, while growth has focused more on product proliferation and sheer growth numbers of customers and agents, which is leading to low understanding of the valueproposition and low qualities of service.

 Making a comparison with Bangladesh, she noted that in both countries telecommunications are not leading that drive, while they have about the same market size (Nigeria with a population of 170 million and Bangladesh with 155 million). She however, drew a sharp contrast market predictions.


“In Bangladesh the regulations are set, whereas in Nigeria, players are still speculating and therefore less willing to make commitments.” The same is true of investment in partnerships. “In Bangladesh players like bKash and DBBL invested aggressively, bringing tangible value propositions to telecommunications. The regulator has mentored these relationships, and the relationships have evolved over time,” she added.

 A comparison of the nation’s bank-led model and the third party led showed that in terms of customer base, banks already have number in the millions, while the agents are building from the scratch; brand is known and can be leveraged, while recognition will be grown; funding may be burdened by regulation, yet the brand can facilitate it, while it is hard for the third party, but easy to approve; decision making are beset by lots of bureaucracy- delayed processes development, while it is flexible, agile and risk-taking; mobile money is seen as additive channel to existing product portfolio by banks, but a singular focus by the third party.

Some Know Your Customer details provided during SIM registration are not verified against an accepted identification, hence the amount of inaccurate information in the system must be verified, to ensured that enrollment in higher tiers is not based on the same unverified information.

She noted that in Kenya, at the beginning, agents split transactions to make more commission on transactions, but corrected through monitoring and penalties if found guilty, saying that agents in Nigeria need to be guided and incentivised to drive regular mobile money customers to the banks to upgrade to tier two or three, adding that regulation should also be revised to allow agents to at least initiate higher tier registration.

“Unstable networks are one of the greatest challenges in mobile money service provision in Nigeria. USSD users are the most affected due to unstable platforms and networks. Downtimes, in some cases, occur almost on a daily basis. This has begun to erode trust and demotivate agents (and clients) earlier attracted to mobile money.

“Agents are coping by conducting offline transactions (where agents collect customers’ cash and conduct transactions later when the system is available). This is risky for customers and providers as it can be abused by dishonest agents. Urgent resolution of system challenges is required to build trust among both agents and customers. Providers will need to invest in 24 hour customer support, specifically for agents and mobile money customers, to provide guidance and reassurance during downtimes,” she added.

The report also observed different categories of agents in the field, including those that were tech-savvy- find mobile money as natural and easy thing to get involved with; understand it’s a high-level push for the digital money drive in Nigeria; not really concerned about profitability at the moment and optimistic.

These being upbeat, understand the realities of up and downtimes within technology and networks, with great optimism that things would eventually work and want the business to stay. They also are the strongest of agents in mobile money because of their embrace of technology.

There are also group of agents that are profit oriented. These are not as excited as they were initially- feel they are doing a lot of work with poor remuneration; rarely appreciate that the business is a number game; easily discouraged or give up because of low commissions earned; complaining because higher commission levels is highly dependent on increasing customer numbers, which will take time; potential drop outs in the beginning; and if they survive the start-up, they can easily pull out and venture into other forms of business.

The report also discovered those driven by the power to “enable people” meet their financial needs and saving them from having to travel to far away branches. With the belief of a great chance to serve their community, they are upbeat and understand the potential and significance of the business and the help it brings to communities; look at the bigger picture despite the initial hitches; and focus on the future- therefore are high potential, long term agents.

Listing tips to make effective recruitment of agents and improve, the report suggested that given Nigeria’s level of mobile money awareness, agents should be picked to match the location of target clients and product positioning, mostly shops where customers visit for low/medium ticket size transactions, since customers visit these more frequently. Beside, agent should be located at strategic points where accessibility and trust is built easily for the target customers. It should as well, be at safe and secure location and allow customers to handle transactions easily.

The agents’ age, experience in the business and educational qualification is a proxy to make sound business decisions. Current business activity of the agents would determine amount of interaction with the customers. They should have the capacity, otherwise trained, to manage sufficient float to fulfill required liquidity for smooth transactions.

 At present, the current value proposition communicated to agents emphasises profit. While it is an ultimate objective for all businesses, this is likely to lead to high dormancy rates, as agents are not likely to achieve this soon after deployment in Nigeria’s nascent market.

As agents in Nigeria are non-exclusive, (not limited to serving only banked/registered existing customers from a particular provider), unbanked customers across all networks can enjoy mobile money services from the several providers, hence the value proposition for agents should therefore, centre around the commissions from customer enrollment; an understanding of the path to profitability as transactions increase; cross-selling through increased patronage; ability to be cutting-edge, tech-savvy and a payments’ pioneer, the report noted.

Issues with liquidity management were pointed also, as the report noted that due to the low transaction values and low numbers of customers, agents find they always have sufficient float to meet their customers’ needs, which would shift when people start getting the fundamentals right.

It was also observed that when a customer comes to transact and the agent was without float, customers were not turned away. Agents have developed clever techniques like collecting customer’s cash (with some issuing receipts to confirm transaction) and thereafter rush to the bank to load e-value.

Challenging too is the rebalancing process in banks, where agents queue with the rest of banks’ regular customers. On the other hand, they should have been accorded a preferential treatment.

It noted that effective liquidity management required that providers should develop monitoring strategies that include choosing retail agents that already handle cash; managing agent and customer growth concurrently; the use of master/super agents to provide liquidity management support; giving agents priority service at the banks to speed up re-balancing; technological robustness that ensures accurate real time transactions to happen; diversifying range of services, among other things.

On-site and off-site monitoring of agents ensures that consistent, high quality service is provided to customers, but the report observed that in Nigeria, most agents feel that they do not get enough site visits for resolution of problems on a real time basis, especially from bank-led providers.

“Agent visits are important because they improve our performance and resolve some of the issues we face,” one agent said.

According to McCaffrey, “the great irony of digital finance is that the overall business model depends on large scales of customers and volumes of transactions served by 10s of thousands of agents. However, those who ignite this flame of growth too soon, get caught dashing around to control its burn as its increasing scale compounds small problems until they become crippling issues. 

 “The key to successfully growing big is starting small with a ‘Launchpad Stage,’ which focuses on quality not quantity first. It should involve only a maximum of few hundred agents, with the objective of defining the anchor product, and streamlining all processes and protocols. 

“In a large country like Nigeria, it should have a geographic focus.  It should not include master agents, super agents, or aggregators.  Those are tools for management of networks at scale and bringing them in too early will only leave them lurking around the business model trying to find profits that only come into existence later when scale is introduced.”

 The Kenyan model of the mobile money, popularly known as M-PESA, had a ‘Launchpad Stage’ that seem to be ignored by many.  

“It started in 2005, and lasted for about two years.  It was run as a pilot with only eight agents and about 500 customers, and the focus was on learning and gathering information to improve the quality of the service, and the clarity of the value proposition.  This was an essential process, as they ended up entirely changing their value proposition from a microfinance solution to a person-to-person transfer service. 

“This Launchpad phase allowed them to solve problems while they were still small, and then scale solutions to them strategically as they sequenced in agent infrastructure to support it. Unfortunately skipping the Launchpad Stage, is a common oversight. However, by now many Nigerian providers should have a trove of data they can mine to figure out which products have been used by which customer segments, and use it to complete this first stage of development.   

“Since the Launchpad Stage does not involve scale, banks should be equally apt at completing it successfully as the telecommunications.  Banks, however, have different initial sources of strengths than telecommunications, which they will first want to leverage on.”