Building a financial system that serves all Nigerians in 2021

Building a financial system that serves all Nigerians in 2021

By Usoro Usoro, GM, Mobile Financial Services, MTN

We have to topple cash from its throne

The old phrase Cash is king is one that we all recognize. In most of the world, when they say it, they rarely mean physical, hard cash anymore. They mean money in the bank; in a deposit or savings account. In Nigeria today that’s what a wealthy person or a middle-class social climber understands it to mean, but it’s not what the vast majority of Nigerians think. For the ordinary man on the street, struggling day to day to feed himself and his family, cash is most certainly king, and it’s a problem.

It’s a problem, I emphasize, for all service providers; whether a bank, fintech, mobile money, telecoms company, or agent network. We often make the mistake of competing with each other, rather than competing with the opponent that is beating all of us: Cash! This is also a problem for the government. Cash is inefficient. It’s not sanitary, especially with our heightened sensitivity to the transmission of viruses, and it’s expensive to operate and maintain. But, it is the preferred mechanism of the majority of the people that are most important; the potential customers that currently do not participate in the formal financial system, and many of them that don’t!

Reaching these potential customers, in a way that they value and trust is perhaps the single most significant challenge that we all face if we are going to grow the overall size of the market and achieve the levels of economic inclusion that we aspire to.

Too often we look at the top end of the existing customer market for an indication of trends but forget that they have had a decade or more of engagement, education and experience. Many were already naturally predisposed to participation. They know and trust the systems that are in place. They are familiar with PoS systems, cards and accounts. Many of them are using more innovative products than are in use by customers in supposedly more mature markets. Nevertheless, serving those populations is increasingly competitive. More and more operators, all competing for the smallest proportion of the market. These are the customers for whom cash is no longer as important, and where we are winning.

The COVID-19 pandemic and the lockdowns showed us is that at a mass-market level, the use case that pulled people to our agent networks was the same cash that we compete with. It became about access when traditional providers were constrained. It was the closure of banking operations and other access points that drove customers to the agents who saw significantly increased demand for cash-in and cash-out services. That tells you something; it tells you that cash is still dominant. We are a long way from the closed-loop digital panacea that represents the cheapest, most scalable outcome.

The two groups still constitute less than 50% of the market, and it is the customers for whom a debit card at N1000 is too expensive, and who almost certainly don’t have an agent location close to them, that we need to innovate for and serve. The customers for whom any fixed infrastructure is going to increase the cost of entry to a point that makes it is commercially unviable, and who are inherently suspicious of the formal system generally, not just the financial services sector. Very few providers are targeting this market and so helping to grow the overall size of the pie. Why? Because it’s difficult!

I believe that the only entry point to this is to leverage existing connectivity. To pursue that closed loop digital dream. To remove the barrier to entry and utilise structures that have existing levels of trust established. That is why the role of telecoms infrastructure is so important. It’s not just the infrastructure over which the digital solution is delivered, it’s also the existing platform that is trusted; whether or not it is the telecoms operator providing the financial service, or just delivering it.

At the moment, the structure of the relationship between financial services and telecoms is still evolving. But whatever the ultimate solution is, the customer is going to have to trust it, and building that trust is in the interest of the entire sector, and beyond the capability of any one participant.

One of the key contributors to that trust building process, is the agent. This is something that we’ve learnt a lot about over the last 18 months, activating more than 300,000 of them. The agent themselves have concerns; concerns about the reliability of the infrastructure, and the resolution of disputes over failed transactions. Something that we all need to work on doing better. They have concerns about limits on the fees they can charge for transactions and the commercial viability of the model if customer demand is not sufficient. They are, quite naturally, going to focus on the areas of highest footfall, and maximum potential return; why wouldn’t they? So, we also have to acknowledge that the role of an agent might need to be repurposed, and the role of merchants is going to be increasingly important. How do we design this system so they are champions of it, incentivised to move into the areas that are more challenging and less immediately profitable; focused on building the trust that we need? We need to focus in on this challenge and work together to solve it.

We know that when it is done right, and the product is designed appropriately, customer education works. We can see it in the customers response and attitude towards card systems. Decades of communications and engagements by banks mean that today, ATM’s, POS systems and cards are trusted and accepted. How many of us remember the days when Lagos only had 3 ATM machines? It was just 15 years ago. That means the task in front of us is possible. If we can solve the challenge and beat cash, we have the potential to improve the lives of millions of Nigerians and transform the face of the economy. That is why it is worth doing, and best done together.

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Our subscribers have sent over 4 billion free SMS

Mohammed Rufai: Interview with This Day

Mohammed Rufai is the Chief Technical Officer at MTN Nigeria, a role he has held for over a year. Prior to that, he served as the Chief Technical Officer for MTN Ghana and also served with MTN Group MANCO as General Manager, Technology in charge of South, East Africa, and Ghana.

Rufai joined MTN Group in 2002 as a graduate of Computer Science from the Abubakar Tafawa Balewa University, Bauchi with certifications from globally acclaimed institutions including Cranfield University, Duke Corporate Education, and the Lagos Business School.

In this interview, he speaks on the state of MTN Nigeria’s network operations since the wake of the COVID-19 outbreak as well as steps the operator has taken to curb the effects of the pandemic on people, organizations, and institutions across the country.

Q. At the onset of the pandemic in Nigeria, MTN announced interventions for its subscribers which included 300 free SMS monthly per customer. This was met with push-back online with critics saying, people wouldn’t use it. What informed the decision to go ahead with this offer?

A. All of the interventions that we have implemented have been designed based on an assessment of the level of impact. When we were considering the SMS intervention, this was at the heart of our thinking, alongside the very real consideration of how to manage the considerable pressure that our network was under from increased demand for digital and data services. We selected free SMS because of these two considerations: first, it would be the intervention that would benefit the widest number of people and the most vulnerable subscribers; and second, it would be something we could offer at a scale that would not unduly threaten the integrity of the network.

The data we are now seeing is clearly validating this. As at Friday, June 26th, more than 52 million Nigerians have sent over 4 billion SMS for free as a result of the intervention. I think you will agree that the impact of that is quite substantial. As we approach the end of the 3-month intervention period, we are on track to even record higher numbers of overall free SMS sent. These numbers should not be surprising because we have far more subscribers on our network that use feature phones than smartphones, and so are unable to access WhatsApp, Facebook, or other messaging services that ride over data services on the network. These subscribers are those that are most vulnerable to the economic shocks that COVID-19 has brought, and as with all of our interventions, these are the communities we have placed most emphasis on. So, while access to free SMS might not be what everyone wants, it is vital to the millions of people who depend on this service as their primary means of communication at this time.

I think it’s also important to emphasise the point about maintaining network stability. In line with global trends, we experienced significantly increased demand for data services during the lockdown and our existing infrastructure came under serious pressure. Because of this, we knew that the network would not be able to manage the surge in use that would come had we dropped data tariffs, and so the decision to provide all subscribers with 300 free SMS per month was done to ensure we could support the maximum number of people, prioritising the most vulnerable, without threatening the network’s integrity, on which millions of Nigerians and businesses were dependent.

Q. Was there any tracking system put in place to monitor the use of these services and how customers responded to each of these? If so, which of the offerings did Nigerians respond to the most i.e. which recorded the most traffic, the Mobile Money, SMS, or Data?

A. Yes, we were able to track the usage of these services, and the numbers that we have seen have validated our approach. The free SMS service witnessed the most engagement by far. As I earlier mentioned, as at 26 June, over 52 million Nigerians had used free SMS, compared to the over 4 million who took advantage of the free data provided to access health websites via mobile. That means that over 75% of our subscribers accessed the SMS intervention at some point during the 3-month validity period.

Q. How have the freebies and the significant volume of usage affected CAPEX?

A. As I have said before, our interventions were specifically designed to ensure that the maximum number of Nigerians could benefit, without putting a high level of strain on the network. Having said that, it is worthy of note that the free SMS utilised so far by customers is valued at over N16 billion, which is a cost solely borne by the company, and which we expect to still go up.

The use of SMS that we have seen is something that we have the network capacity to absorb, but what challenged us was the demand for data. Fortunately, we have invested a lot in building multiple layers of redundancy on the network to manage the surge in consumer demand or significant changes in patterns such as the one we witnessed during the lockdown period. Despite this, we were forced to develop innovative solutions and approaches to rethinking the way we plan for future network demand. That means an enhanced focus on the rollout of infrastructure to support data and digital services, which was already in the pipeline but can now be accelerated.

We have been significantly challenged in the way in which we dimension, service, and maintain our sites. Furthermore, the infrastructure deployed for a certain number of subscribers had to be adjusted to the new realities. But at MTN, we are committed to ensuring that the capacity required is always available. We will also continue to maintain an optimal balance between enhanced access and network stability.

At this juncture, it is also important to acknowledge the support of the Nigerian Communications Commission (NCC) which during the lockdown encouraged accelerated capacity upgrades.

Q. Considering that the world is now seriously gravitating towards digitization of the labor force and remote working is becoming a trend, does this give an insight into what services will be the most demanded from the telecoms industry?

A. Absolutely. Digitization was already taking place, but the speed and intensity with which COVID-19 has accelerated it is unprecedented. While we have been consistently investing to address the growing demand for data and digital services, we had not anticipated it happening almost overnight. The industry across the world has had to adapt to this and find a way to balance the work needed to sustain and expand the network, with social distancing requirements, new remote working protocols, and travel restrictions. Imagine asking an industry to rapidly increase capacity, while fundamentally changing the way that it operates? This is compounded in Nigeria by the scarcity of FX. That’s the transition that we’ve had to manage.

Q. Since we have been talking about MTN supporting the most vulnerable particularly in this peculiar period, what are you doing to reach underserved or unserved areas?

A. Our rural telephony project has gone quite well. We have been at it for quite some time now based on our conviction that all Nigerians, no matter where they are, deserve the benefits of modern telecommunication services. Everyone deserves to be connected. So working with our partners, we have been rolling out low-cost coverage solutions to rural communities. To date, we have deployed about 400 base stations and plan to add more than 2,000 base stations in the next 24 months.

The success of the rural telephony project is perhaps predicated on the amount of innovative thinking that we put into it, the quality of partnerships that we have, and our belief that everyone deserves the benefit of a modern connected life. It is worthy of note that in most of the communities that now have coverage, there are no other mobile operators present there. We take special pride in that, and the transformation the connection has brought to those communities is one of the things that drives us to cover other unserved areas.

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Opinion Piece: Accelerating transition to digital financial services

Opinion Piece: Accelerating transition to digital financial services

By Usoro Usoro

The COVID-19 pandemic and the movement restrictions that are in place to slow its spread have severely impacted economies across the globe and accelerated disruption to traditional business models in a way that few of us could have imagined only a few short months ago. While economies are beginning to open up, it is clear that there will be no full return to normalcy until a vaccine or treatment option is found that reduces the virus’ threat.

In Nigeria, the disruption has been spread across sectors. Food markets and farms have been particularly hard hit as they remained open but faced challenges given the restrictions on people gathering in one place. The transition to home delivery happened almost overnight. We’ve also seen it in other essential service sectors, such as pharmaceuticals and the rise in telemedicine. For us at Yello Digital Financial Services, it has been the demand for cash-in cash-out services at our agents for those struggling to find ATM’s, and transfers to the family for customers without access to digital services.

We recognised very early on in this process that the need for digital financial services would be significant during a lockdown, and moved to offer our customers free transfers through our agent network for the month of April. We saw over 100,000 people send over 1.7 million free transfers during this period. More than 90% of these transactions were below N10,000, a clear demonstration that we were able to meet the needs of the bottom of the pyramid, which is the same constituency government regulation is designed to empower following the passage of the new Finance Act and the increase in the threshold of stampy duty to N10,000 per transaction.

This was possible because, over the last 12 months, MTN has been building a network of mobile agents that support our customers to access and carry out simple transactions. At the end of 2019, we had mobilised 100,000 agents. This accelerated in the first quarter of 2020, hitting 178,000 by the end of March. Our target for 2020 is to expand to 300,000 agents, and we are well on our way to achieve this. In our first year, we focused on the basics. Airtime and transfers, but we began to expand these services in April and are slowly incorporating the ability to deposit and withdraw funds, to pay bills and to distribute products.

Why is this relevant today? Because the shock factor of COVID-19 has acted as an unprecedented catalyst for the transition to full digital financial services. In urban areas, many of the people who were previously reliant on the bank branch made the move to an agent network, or a direct digital service during the lockdown. Traders who were unable to access their physical shops transitioned to selling through platforms like WhatsApp and Instagram, or other social media or online platforms while cashing in and out at agents. Those that were successful will begin to question the value of

continuing to pay the fixed costs for physical space, especially when sales are down and demand is likely to remain deflated.

This acceleration in digital adoption and remote working means that the way people interact with the financial system is going to change fundamentally. It will accelerate the rationalisation of bank branches because their commercial viability at scale is going to accelerate an already slow decline. Customers will still want geographic proximity to be able to cash in or cash out, or to conduct more sophisticated transactions, and increasingly these can be provided by the agents that we are mobilising. The fabric of the financial services ecosystem will no longer be made up of thousands of large branches, but hundreds of thousands, if not millions of small and efficient contact points. This transition was already happening, but the pace of change will now be greater. Click here for the full article