In Nigeria, cash is king.

However, the digital payments industry is on the rise, and two of Africa’s telco (telecommunication) giants, MTN Nigeria, and Airtel Africa are now positioning themselves as key players.

MTN Nigeria is the Nigerian division of the MTN Group, a South African multinational company and Africa’s largest mobile telecommunications operator.

On the other hand, Airtel Africa provides telecommunications and mobile money services to 14 countries across the continent. The company is majority-owned by Indian communications firm, Bharti Airtel.

In late May, the two telco operators announced the commencement of operations by their payments subsidiaries after getting their licenses from the Central Bank of Nigeria (CBN) to run a payment service bank (PSB) in the country.

While MTN Nigeria is diversifying into the payments industry in the country with MoMo Payment Service Bank (MoMo), Airtel Africa is starting out with SmartCash Payment Service Bank Limited (‘SmartCash PSB’).

In separate statements announcing the start of their operations, both telco giants noted that their goal was to drive financial inclusion in the country by 'banking the unbanked'.

This essentially means meeting retail banking needs and focusing on the rural populations that have largely remained uncovered by financial and banking services in the country.

These goals are in line with the CBN’s Financial System Strategy 2020, which is targeted at bringing unbanked consumers under the purview of the banking system as well as promoting electronic payments in the country.

Separately, both telco operations have obtained super-agent licenses which enables them to create agent networks to facilitate financial services provisions.

In what comes as a relatively new territory for the telco firms, how far can they go in disrupting the Nigerian payment industry to drive Nigeria’s financial inclusion dreams?

The Payments Industry in Nigeria

In Nigeria, the use of digital channels for payments has been on the rise.

According to the Nigeria Inter Bank Settlement System (NIBSS), online payments from Point of Sale terminals, instant payments, and mobile channels accounted for payment transactions worth N286.45 trillion in 2021.

In fact, the latest data from the NIBSS shows that cashless transactions rose 44% year-on-year to hit N117.33tn in the first 4 months of 2022.

According to Enhancing Financial Innovation & Access (EFInA), a financial sector deepening (FSD) organization that promotes inclusive finance in Nigeria, 36% of Nigerian adults, or 38 million adults were financially excluded in Nigeria as of the end of 2020.

Moreover, the organization said that Nigeria fell short of its 2012 National Financial Inclusion Strategy targets for 2020. One of which was to make payments accessible to 70% of Nigerian adults by 2020.

The goal, in this regard, was to ensure that at least 70% of excluded Nigerian adults have a transaction account with a regulated financial institution and/or have made an electronic payment through a regulated financial institution.

Nigeria only reached 45% with a shortfall of 25%, the EFInA Access to Financial Services in Nigeria 2020 Survey shows.

Dataphyte, a Nigerian media and research data analytics organization, citing CBN put the total figure of unbanked money in Nigeria between January and November 2021 at N26.17 trillion.

The Rise of Telco PSBs: How Far Can They Go?

According to CBN's Guidelines for the Licensing and Regulation of Payment Service Banks in Nigeria, payment service providers in the country are to "operate mostly in the rural areas and unbanked locations targeting financially excluded persons."

In addition, they are expected to have no less than 25% financial service touch points (locally called kiosks) in these rural areas.

Can Africa's Giant Telcos Disrupt Nigeria's Payments Industry?
Penetration of rural areas with banking and payment services remain a challenge in Nigeria

In a country already seeing the rise of innovative and competitive challenger and digital-only banks, how far can these telecom giants go in their diversification game plan?

Can they truly disrupt the payments industry, embracing more of the unbanked population to help Nigeria actualize her financial inclusion dreams?

Experts who spoke to Finance Magnates believe that the telcos are up to the task, albeit some challenges will stand in their way.

Trevor Goott, Director, Africa & India at Unlimint
Trevor Goott, Director, Africa & India at Unlimint

“Both of these mobile money operators have been ready to disrupt the Nigerian payments [industry] for a while now. The key question to ask is whether or not their mobile customers are ready to move away from the traditional payment methods in Nigeria and move towards new emerging methods offered by the telcos,” Trevor Goott, the Director of Africa & India at Unlimint, a global payments service provider, told Finance Magnates.

On his part, OberonCopeland, the Founder of Very Informed, explained that both operators “already have a large customer base and extensive infrastructure in place.”

Additonally, they are “beginning to offer innovative payment solutions that meet the needs of modern consumers,” he added.

“For example, Airtel's recent partnership with WorldRemit allows customers to send money abroad using their mobile phones. This is a significant departure from the traditional way of sending money, which is often slow and cumbersome,” Copeland further commented.

For the telcos, it is a “long game” ahead, Goot said, adding that changing people’s behaviour takes time.

The Challenges

Moreover, the experts noted that a number of challenges stand in the way for the telco firms.

“The first challenge is to get customer and merchant adoption where the merchant accepts a particular payment method and the customer chooses, trusts, and is happy to pay with that particular payment method,” Goot explained.

To address these issues, Goot noted that the telco companies require significant investment in their “go-to-market” strategies.

“To do this, there needs to be a concerted and focused marketing and education campaign in the marketplace, to educate the merchants and customers,” he said.

However, Daniel Chan, the Chief Technical Officer of Marketplace Fairness, believes that competition from entrenched players, lack of trust among consumers, and dearth of awareness about their services are major barriers the telco firms must surmount.

Speaking further to Finance Magnates, Goot explained that telco operators must differentiate themselves and provide customer-focused solutions that work, that their customers want to use and that are easy to use.

The Unlimit executive explained: “There are 200m + people in the country, and the advantage that a telco has is its virtual reach.

“Every customer in the country, at any location in the country (with mobile network coverage) who has a mobile phone in their hand, has in effect a mobile bank in their hand.”

“The telco operators can use this fact to redefine the industry, by reaching the unbanked, by facilitating a move to a cashless payments system in accordance with CBN policy, and by allowing this to all take place with comfort and convenience as determined by their customers.”

In Nigeria, cash is king.

However, the digital payments industry is on the rise, and two of Africa’s telco (telecommunication) giants, MTN Nigeria, and Airtel Africa are now positioning themselves as key players.

MTN Nigeria is the Nigerian division of the MTN Group, a South African multinational company and Africa’s largest mobile telecommunications operator.

On the other hand, Airtel Africa provides telecommunications and mobile money services to 14 countries across the continent. The company is majority-owned by Indian communications firm, Bharti Airtel.

In late May, the two telco operators announced the commencement of operations by their payments subsidiaries after getting their licenses from the Central Bank of Nigeria (CBN) to run a payment service bank (PSB) in the country.

While MTN Nigeria is diversifying into the payments industry in the country with MoMo Payment Service Bank (MoMo), Airtel Africa is starting out with SmartCash Payment Service Bank Limited (‘SmartCash PSB’).

In separate statements announcing the start of their operations, both telco giants noted that their goal was to drive financial inclusion in the country by 'banking the unbanked'.

This essentially means meeting retail banking needs and focusing on the rural populations that have largely remained uncovered by financial and banking services in the country.

These goals are in line with the CBN’s Financial System Strategy 2020, which is targeted at bringing unbanked consumers under the purview of the banking system as well as promoting electronic payments in the country.

Separately, both telco operations have obtained super-agent licenses which enables them to create agent networks to facilitate financial services provisions.

In what comes as a relatively new territory for the telco firms, how far can they go in disrupting the Nigerian payment industry to drive Nigeria’s financial inclusion dreams?

The Payments Industry in Nigeria

In Nigeria, the use of digital channels for payments has been on the rise.

According to the Nigeria Inter Bank Settlement System (NIBSS), online payments from Point of Sale terminals, instant payments, and mobile channels accounted for payment transactions worth N286.45 trillion in 2021.

In fact, the latest data from the NIBSS shows that cashless transactions rose 44% year-on-year to hit N117.33tn in the first 4 months of 2022.

According to Enhancing Financial Innovation & Access (EFInA), a financial sector deepening (FSD) organization that promotes inclusive finance in Nigeria, 36% of Nigerian adults, or 38 million adults were financially excluded in Nigeria as of the end of 2020.

Moreover, the organization said that Nigeria fell short of its 2012 National Financial Inclusion Strategy targets for 2020. One of which was to make payments accessible to 70% of Nigerian adults by 2020.

The goal, in this regard, was to ensure that at least 70% of excluded Nigerian adults have a transaction account with a regulated financial institution and/or have made an electronic payment through a regulated financial institution.

Nigeria only reached 45% with a shortfall of 25%, the EFInA Access to Financial Services in Nigeria 2020 Survey shows.

Dataphyte, a Nigerian media and research data analytics organization, citing CBN put the total figure of unbanked money in Nigeria between January and November 2021 at N26.17 trillion.

The Rise of Telco PSBs: How Far Can They Go?

According to CBN's Guidelines for the Licensing and Regulation of Payment Service Banks in Nigeria, payment service providers in the country are to "operate mostly in the rural areas and unbanked locations targeting financially excluded persons."

In addition, they are expected to have no less than 25% financial service touch points (locally called kiosks) in these rural areas.

Can Africa's Giant Telcos Disrupt Nigeria's Payments Industry?
Penetration of rural areas with banking and payment services remain a challenge in Nigeria

In a country already seeing the rise of innovative and competitive challenger and digital-only banks, how far can these telecom giants go in their diversification game plan?

Can they truly disrupt the payments industry, embracing more of the unbanked population to help Nigeria actualize her financial inclusion dreams?

Experts who spoke to Finance Magnates believe that the telcos are up to the task, albeit some challenges will stand in their way.

Trevor Goott, Director, Africa & India at Unlimint
Trevor Goott, Director, Africa & India at Unlimint

“Both of these mobile money operators have been ready to disrupt the Nigerian payments [industry] for a while now. The key question to ask is whether or not their mobile customers are ready to move away from the traditional payment methods in Nigeria and move towards new emerging methods offered by the telcos,” Trevor Goott, the Director of Africa & India at Unlimint, a global payments service provider, told Finance Magnates.

On his part, OberonCopeland, the Founder of Very Informed, explained that both operators “already have a large customer base and extensive infrastructure in place.”

Additonally, they are “beginning to offer innovative payment solutions that meet the needs of modern consumers,” he added.

“For example, Airtel's recent partnership with WorldRemit allows customers to send money abroad using their mobile phones. This is a significant departure from the traditional way of sending money, which is often slow and cumbersome,” Copeland further commented.

For the telcos, it is a “long game” ahead, Goot said, adding that changing people’s behaviour takes time.

The Challenges

Moreover, the experts noted that a number of challenges stand in the way for the telco firms.

“The first challenge is to get customer and merchant adoption where the merchant accepts a particular payment method and the customer chooses, trusts, and is happy to pay with that particular payment method,” Goot explained.

To address these issues, Goot noted that the telco companies require significant investment in their “go-to-market” strategies.

“To do this, there needs to be a concerted and focused marketing and education campaign in the marketplace, to educate the merchants and customers,” he said.

However, Daniel Chan, the Chief Technical Officer of Marketplace Fairness, believes that competition from entrenched players, lack of trust among consumers, and dearth of awareness about their services are major barriers the telco firms must surmount.

Speaking further to Finance Magnates, Goot explained that telco operators must differentiate themselves and provide customer-focused solutions that work, that their customers want to use and that are easy to use.

The Unlimit executive explained: “There are 200m + people in the country, and the advantage that a telco has is its virtual reach.

“Every customer in the country, at any location in the country (with mobile network coverage) who has a mobile phone in their hand, has in effect a mobile bank in their hand.”

“The telco operators can use this fact to redefine the industry, by reaching the unbanked, by facilitating a move to a cashless payments system in accordance with CBN policy, and by allowing this to all take place with comfort and convenience as determined by their customers.”