Benchmarking Nigeria’s Mobile Money Regulatory Regime

Mobile money may be at an all-time high, with over a billion transactions currently being processed each day and more than 650 million accounts opened worldwide, but experts say the innovation is yet to reach its full potential as there’s still room to grow. A lot of room.

Indeed, mobile money’s potential is being limited in several regions due to the absence of an enabling regulatory environment.

Evidence shows that regulation is a fundamental pillar that determines mobile money success. A harsh regulatory regime can stifle investment, limit the rollout of new services and raise costs for consumers, all of which can negatively affect adoption and activity rates. It can also discourage new providers from emerging while making business difficult for incumbent providers.

Indeed, continuous assessment of a country’s regulatory regime, to determine how much it enables or inhibits mobile money growth is an important aspect of pushing the financial inclusion agenda. That’s why the recent launch of the GSMA Mobile Money Regulatory Index is a very welcome development.

The GSMA Mobile Money Regulatory Index is an assessment of the effectiveness of regulatory frameworks in creating an enabling environment for a country’s mobile money operations. This was achieved by examining the regulatory frameworks of more than eighty countries across six broad enablers namely: (a) authorisation; (b) consumer protection, © transaction limits, (d) know-your-customer (KYC); (e) agent networks; and (f) investment and infrastructure environment.

We began this year with a series of articles exploring what we called the Nigerian Mobile Money Model. In a bid to determine what a successful mobile money regime would require from us in Nigeria, we benchmarked our mobile money ecosystem against four other ecosystems from Kenya, Ghana, India and Bangladesh, (countries where mobile money deployments range from super successful to moderately successful).

With the release of the Mobile Money Regulatory Index, we can revisit these benchmark markets to see how our ecosystem stacks against these other markets especially along the six enablers.

Authorisation

Refers to the extent of control the central regulator exerts over the operations of mobile money providers. The CBN has regulatory oversight over mobile money and often releases guidelines and frameworks to inform mobile money deployments across the country. Since 2011, telcos have been barred from leading mobile money deployments. In the other benchmark countries (except Bangladesh), telcos are licensed to provide mobile money. This is most likely why Bangladesh and Nigeria are the lowest performers in this section.

Consumer protection

Consumer protection seeks to level the playing field between providers of financial services and consumers of their products and services. By default, the field is tipped in the providers’ favour, which could lead to excessively high interest rates, a dearth of understanding about financial options and insufficient avenues for redress. The CBN’s consumer protection efforts seem to be recognised as reflected by Nigeria’s top ranking, on par with Ghana and Kenya (100 points) while outperforming India and Bangladesh (85 and 72.5 points respectively).

Transaction limits

Refers to the threshold of funds a mobile money account can send or receive within a specified period. In September 2017, the CBN raised the transaction limit on mobile money wallets to 50,000 (for tier-1 accounts), 200,000 (for tier-2) and 5 million (for tier-3). These tiers are delineated based on fulfilled KYC requirements.

This tiered system elevates our ranking on the index, making us the highest performers amidst the other four benchmark markets with 72.8 points. India and Bangladesh are runners-up, with (71.66 and 70.73 respectively).

Know-your-customer (KYC)

Based on anti-money laundering regulations, financial service providers are required to verify the identity of their clients and assess potential risks of illegal intentions for the business relationship.

Again, Nigeria comes out tops with 80 points, at par with only India, and outranking Ghana, Kenya and Bangladesh. It is likely that the CBN’s 3-tiered KYC regime had a role to play in the high score since it enabled citizens to access financial services, in spite of their limited ability to fulfil KYC requirements. Likewise, India’s Aadhar program, which aims to identify every India citizen and resident, had the same effect.

Agent networks

Agents are the fundamental pillars of mobile money distribution, acting as the bridge into a cashlite society which many governments and central banks envision. Nigeria and India perform poorly here, bringing up the rear with 58.33 points and 61.67 points respectively.

It is expected that the launch of SANEF (which aims to create 500,000 agents within the next two years) and the ALTON proposal (to add about 100,000 new agents), would have significant influence on Nigeria’s ranking on the index as this could potentially improve mobile money performance across the country.

Investment and infrastructure environment

Fintech is reportedly Nigeria’s fastest growing segment within the technology startup scene. Nigeria’s potential is still huge, based on a large unbanked population and also high mobile phone penetration. However, the stance of the central regulator influences investor appetite. Other factors determining the health of the investment environment include the taxing regime, interoperability, and ID verification infrastructure which all play into the

Overall score

Nigeria ranks the lowest, among all five benchmark countries with 65.65 points. Ghana is the best performer on the index, with 85.81 points, and Kenya, the second-best performer. Ghana’s high position is not surprising given its recent reforms and impressive progress within the last two years.

In conclusion

The Mobile Money Regulatory Index is an assessment and a decision-aiding tool, to help identify strengths and weaknesses of a country’s mobile money regime. Presently, the index suggests Nigeria is making the right decisions in the areas of consumer protection, KYC and with regards to transaction limits. However, there’s still a lot of work to do with regards to infrastructure and development, mobile money authorisation and agent networks.