With the momentum high on mobile money transfer service globally, Nigeria is set to benefit from this multi-trillion naira industry. However, a number of challenges still needs to be surmounted. CHIMA AKWAJA looks at the obstacles, the unnecessary delays and why the banking and telecom regulators need to work together to drive the implementation.
Today, with just a click of the mobile phone button, calls can be made to anybody with a handset connected to any network around the world. While the mobile phone has served the functions of making and receiving voice call, sending and receiving Short Message Service (SMS), it has as well taken on another function of being a tool for the delivery of money.
One can send money to a friend or family member through the mobile phone network in what is now referred to as Mobile Money Transfer (MMT).
Mobile money transfer is conducted using the mobile telephone network and includes the use of handsets, agents and subscribers. It came up as an alternative and fast way of sending money to recipients from the urban to rural areas most especially those without access to bank accounts. Mobile phones now significantly outnumber ATMs, giving mobile operators a level of reach far greater than money transfer providers and banks.
Mobile operators are therefore uniquely positioned to solve the access problem and drive costs down to levels that open the formal remittance channel to users that would otherwise seek informal methods of remittance. In the developed world, the availability of smart phones, a demand for an integrated lifestyle and a desire for greater convenience is driving increasing interest in mobile money and mobile enabled remittance.
Mobile technology can lower the cost of remittances as it removes the need for physical points of presence and ensures a timely and secure method of transaction. This concept of ‘e-cash’ is extremely attractive to low income users in particular. The World Bank estimates that reducing remittance commission charges by two – to five per cent could increase the flow of formal remittances by 50-70 per cent, which would boost local economies. Reducing the cost of sending each individual remittance encourages the delivery of lower value remittances, at values far less than today’s average transfer of US$200.
The mobile phone is changing how customers conduct their financial activities, leading to an extended reach and increased operational efficiency among financial service providers in emerging markets. In the longer term mobile money services are facilitating the increasing share of digital transactions in emerging markets, where cash transactions still dominate. A growing share of international remittances is being electronically disbursed into mobile money accounts. Mobile phones are also being increasingly used to send remittances.
A mobile money subscriber is a person or business who has registered for a mobile money account. Mobile money accounts comprise accounts from which transactions such as person-to-person transfers or bill payments can be made using a mobile phone. According to Berg Insight, a leading financial technology research agency, a mobile money account does not encompass services limited to information services and simple transactions such as airtime top-ups and transfers between own accounts. It does not include services that use mobile operator billing as a payment source.
Mobile Money Deployments
According to the GSM Association, mobile money services are increasing the availability and access to financial services for lower-income segments of the population, which previously has not been possible to serve profitably. The mobile phone will be the first digital banking channel for a majority of the unbanked populations in many emerging economies like Africa, Latin America and Asia. The number of live mobile money deployments has grown at an explosive rate over the past two years.
In-depth study of the industry indicates that there are currently around 300 mobile money deployments live in emerging markets. Over half of these have been launched by mobile network operators and third party service providers. The remaining deployments have been launched by financial institutions.
The number of mobile money subscribers in emerging markets is forecasted to grow from 133 million users in 2010 at a compound annual growth rate (CAGR) of 40 percent to reach 709 million users in 2015. The total value of mobile money transactions will simultaneously grow at a CAGR of 54 per cent from US$25 billion in 2010 to US$ 215 billion in 2015. Asia-Pacific is expected to become the most important regional market, accounting for more than half of the total user base.
On the other hand, the global remittance market has grown rapidly over the past decade. In 2010, remittances through formal channels amounted to US$440 billion, of which, developing countries received an estimated US$325 billion. The vast majority of these transactions are still cash-to-cash transactions, but the share of digital transactions is steadily increasing. Driven by the development of mobile money systems in emerging markets, experts estimate that US$16 billion worth of international money transfers will be received with mobile phones in 2015.
Similarly, US$5.5 billion worth of international remittances will be sent using mobile phones in 2015. Many new companies have entered the mobile money industry as technology vendors in the past year, including the likes of Ericsson, SAP and Gemalto. For companies like Nokia, the competitive landscape is intense with around 70 vendors competing in the industry, of which many need to reach a critical mass of deployments over the next two years in order to stay in business in the longer term.
Mr. Mark Durrant, Nokia spokesman said the huge interest in mobile payment systems has a simple explanation: with more than four billion mobile phone users and only 1.6 billion bank accounts worldwide, mobile money services represent a big opportunity. The credit-card companies are also getting onboard. MasterCard is also working with Obopay and plans to offer person-to-person money transfer via mobile phones with its MoneySend service in the U.S.
In Africa, mobile money payments have been launched across a dozen networks in Africa with Safaricom, MTN, Airtel, Vodacom, and other making a success of the scheme. Kenya was the first country in Africa to successfully pilot mobile money and turn it to a huge revenue business model through Safaricom mobile network. One of the most successful ones is Vodafone’s M-PESA money transfer service, which now has 7 million customers in Kenya and is also offered in Tanzania and Afghanistan.
MMT Models
There are four types of mobile money models recognised world-wide namely: Operator-Led Model, Bank-Led Model, Collaboration Model and Peer-to-Peer Model. In the Operator-Led Model, the operator could provide an independent mobile wallet from the user mobile account (airtime). Mobile network operator handles the interfacing with the banking network to provide advanced mobile payment service in banked and under-banked environment.
In the Bank-Led Model, a bank deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (PoS) acceptance capability. Mobile network operator are used as a simple carrier, they bring their experience to provide Quality of service (QoS) assurance.
Collaboration Model: This model involves collaboration among banks, mobile operators and a trusted third party. And the fourth one, Peer-to-Peer Model: The mobile payment service provider acts independently from financial institutions and mobile network operators to provide mobile payment.
The level of consolidation among technology vendors serving mobile network operators (MNOs) and third party service providers is high, with around 75 per cent of mobile money deployments running on the platforms of five leading vendors. In contrast, the landscape among vendors providing financial institutions is highly fragmented with no clear leaders. This is the case in Nigeria where the authorities adopted a Bank-Led model.
Mobile Money Players in Nigeria, Mallam Sanusi Lamido Sanusi-led Central Bank of Nigeria (CBN) adopted a Bank-Led approach and early in the year authorised some companies to deploy mobile money services on pilot basis after which a formal licence would be given. So far, CBN has given provisional licence to 11 companies to operate mobile money transfer in the country. The mobile money firms are: Fortis Mobile Money, UBA/Afripay, GTBank Mobile Money, Pagatech, eTranzact, Monetise, Eartholeum, Paycom, FET, Ecobank and Kudi. The apex bank has further plans to licence four more operating companies.
The operating licence allows the companies to provide products such as electronic payments through mobile phones. Already, eight operators given approval-in–principle by the CBN are currently undergoing pilot while about four to five others now have their applications being processed by the apex bank.
Regulatory Challenges
Mr. Henry, Nwawuba, Managing Director/Chief executive officer, Fortis Mobile Money, one of the licensed companies said they are awaiting directives from the apex bank. It has not been smooth sailing for the operating companies. The CBN came out with a regulatory framework in 2009, which it later revised in 2010 and asked operators to conduct pilots in first quarter of 2011.
Mr. Gaias Emokpae, CBN’s Director of Banking and Payment Systems, said the CBN has started collaboration with the NCC to see how the scheme can help in achieving the CBN’s financial inclusion target where banking services will be provided to people in the rural areas who hitherto are not in the mainstream of formal banking system. He said the CBN would licence only those that have displayed the capacity during the pilot to operate mobile payment system in the country. He said they have also been engaging in various levels of collaboration with the NCC as mobile industry regulator to ensure the success of the scheme”, he said.
Absence of Telecom Regulatory Framework
Regulation continues to be the most challenging issue for operators wanting to be involved in mobile money. In countries where mobile money service is Operator-led, each country’s telecom regulator usually comes out with a framework. But here in Nigeria, it is the CBN that is directing affairs. CBN is working together with the Nigerian Communications Commission to look at areas where mobile network operators (MNO) come in.
But officials of the NCC are intimating that the mobile money operators would still need to come for registration with the telecom regulator. The NCC which is expected to design the regulatory framework on the technology and mode of interoperability to be adopted by the operators for seamless operations, is yet to come out with the guidelines. To arrive at an acceptable guideline, the NCC is expected to consult with mobile network operators, value added service providers and mobile money operators before releasing a regulatory framework.
Dr. Eugene Juwah, the Executive Vice Chairman of NCC, said that critical success factors for mobile payment actualisation revolve around the integrity and security of the end-to-end transition during a payment transaction process. According to him, “The chain of transaction must be secured from initiation to authentication. Therefore, confidentiality and integrity of the data transition are critical factors in mobile payment”.
Juwah noted that it is possible for hackers to intercept transactions and alter the intended recipient while the initiator actually receives a confirmation that the transaction was done. Confidentiality of content and data integrity are very critical important factors to be considered particularly how the industry would provide mechanisms that guarantee non-repudiation of transaction by the initiator”, Juwah said.
Other Issues
With the CBN expecting mobile money operators to begin commercial service next month, apart from the technology factors that would form the framework, another critical factor is the Interconnect Rates on which the mobile money service provider, telecom network operator and value added service providers would share their revenue. Without looking at the above issues dispassionately, it may be difficult for a seamless mobile money transaction to go through.
How long it takes the telecom regulator to come up with a framework is another issue. Knowing how the NCC works, it would normally like to have a stakeholder’s consultative forum on an issue, and then appoint an international consultant to examine the issue, looking at countries where mobile money has taken-off, and advising the Nigerian regulator on the best way forward to achieve success.
Mr. Emmanuel Okogwale, Managing Director, Mobile Money Africa says there are still issues on the mobile money agents. Most of the companies licensed are yet to have accredited agents who will reside in urban, semi-urban and rural areas. He said without well trained mobile money agents, the implementation would be hampered as trained agents with the tools and handset are the infrastructure needed to deliver the money to the recipients.
? Already, there are issues of handset type which the telecom regulator has to sort out.? Other issues such as new technologies like mobile wallets which use Near Field communications (NFC) to make payments on the counter and point of sale (PoS) terminals have to be looked at by the regulators. At this year’s GSMA Mobile Money Summit, representatives from banks, operators and payments networks said the next 12 months could be a crucial period for the evolving mobile payments market especially on agreeing on a set of standards and a single standard eco-system.
Almost all the companies issued licences have not operated mobile money services anywhere in the world and thus lacks the expertise. This is why the CBN has faced difficulties implementing it. At the moment in Nigeria, the November implementation date may not materialise as the CBN still has issues to sort out with the mobile money operators. While Nigerians yearn for mobile money services implementation, they may have to wait a little while going by recent developments.