Exploring the Supply-side Capabilities of Mobile Money in Nigeria
How ready are mobile money operators to meet market demand?
Despite the overwhelming success of mobile money in most emerging markets, mobile money adoption in Nigeria is yet to attain critical mass even in the presence of 22 licensed mobile money operators.
In Nigeria, existing studies addressing financial inclusion and digital financial services have typically focused on the demand-side barriers and constraints, completely ignoring the supply side dynamics of DFS. This demand-side focus may presuppose the existence of fully functional operators capable of handling demand for mobile money services. We put this theory to the test in one of our recent studies.
We set out to understand the supply-side business models, evaluating the collection of assets, resources and capabilities required to build and deliver DFS sustainably.
Our study collected the requisite data through semi-structured interviews and surveys. Experienced senior executives of the selected mobile money organisations in the country were the participants for the study. Additional sampling considerations were taken with respect to regulatory model (bank-led vs. non-bank led) and location (Lagos vs. Abuja).
Here are some of the highlights of our findings:
First, our study identified three significant resource capabilities of mobile money providers. At the lowest level, physical capabilities such as finance and other acquired resources like technology, people and locations are prevalent and dominant among providers. Higher order dynamic capabilities such as human capital and strategic capabilities are nascent and somewhat underdeveloped.
1. Physical Resources
The most common resources available to all mobile money operators, in varying degrees, are physical resources like technology, finance, people, locations and the range of activities conducted.
The financial resources required for mobile money operations include the statutory capitalization deposit which was raised from N20 million to N2 billion in 2016.
Nonetheless, cautionary investment in the mandatory capitalisation is warranted due to the low demand for DFS. As noted by one executive,
“The capitalisation requirement is too heavy and too premature for the industry…. Compared to an industry like insurance for instance. Ideally, capitalisation would come as business opportunities present itself and as the market shows real potential, then capitalisation necessarily would come. But right now, even if you put money into the businesses and there is no market, the demand side is weak.”
Another aspect is the availability of independent capital or the ability of mobile financial services to attract independent funding (mostly through foreign direct investment (FDI)). So far, 22 percent of MMOs have external investors.
Mobile money services are supported by a requisite information and communications technology (ICT) infrastructure. All the providers we interviewed had made the necessary investments in ICT infrastructure and disaster recovery capabilities, with about one third utilising shared facilities. While some institutions acquire off-the-shelf software licenses from international vendors, others with significant IT capability, build proprietary applications. In accordance with the Mobile Money Guidelines, mobile money operators have acquired one or more security certifications depending on the business need.
C. Location and Distribution
The resources deployed in establishing DFS operations and agent network has resulted in some protectionist behaviours that seem to be working against regulatory efforts for interoperability. According to the CBN guidelines, a licensed DFS operator must register with and connect to the national central switch (NCS) operated by the Nigeria Inter-bank Settlement System (NIBSS) to facilitate inter-scheme operations. In addition, even though the CBN promotes an ecosystem of non-exclusive agents, the desire to share agents is minimal. Hence, interoperability requires not just fulfillment of the technical requirements but should also include consideration of agent and customer acquisition costs and the implications to the industry.
“The issue is, I’ve spent this much money acquiring these customers, you know, why should I just open them up to everybody? The cost of activating agents and making these agents interested in the business is huge. So in actuality what you are doing by creating this system where you are allowing competitors to see other competitors’ data, is you are essentially disincentivizing from building first and you are hurting those of us who have invested millions of dollars to go and build. Essentially, the hard work we have done here over the last four years is that agent network.”
2. Human Capital
The competence of human capital resources extends beyond people to include the collection of competencies and capabilities that are either internally sourced or delivered through partnerships. In general, the distinction between banking and payments requires a new breed of payments professionals that are somewhat scarce. With majority of the industry talent emerging from the banking industry, the development of payments systems professionals needs development through capacity building initiatives like on-the-job training and knowledge transfer.
3. Strategic Resources
A. Are MMOs strategic?
The lure of mobile money was driven by the demand gap and financial inclusion. In 2010, 46.3 percent of Nigerian adults were categorized as unbanked. Hence for early mobile monkey licensors, the business prospect seemed obviously easy. The analogy of “if I build it, they will come” under which these operators rushed to acquire licenses was not supported by any evidence and a concerted strategy. Almost a decade into the mobile money licensing regime, there is no differentiation among operators who are now trying to develop strategies addressing market segments (women, youths,) with unique value propositions.
B. Culture eats strategy for lunch
Culture is a key capability categorized as strategic to the success of an MMO. Culture encompasses the collection of norms and beliefs guiding the organisations and their business activities. Peter Drucker’s notion of the importance of culture and the mastery to building competitive advantage around culture is also evident in these nascent MMOs or established bank-led MMOs that imbibe the culture of the bank.
C. Unfair Advantages
Even though the aim of our study was not to compare bank-led and non-bank led DFS initiatives, the evidence presented shows bank-led institutions not only have more resources but also enjoy more operational advantages than their non-bank peers. For one, they have a built in first mover’s advantage since they have higher brand value and name recognition which they leverage in marketing activities. This reinforces the importance of developing more dynamic organisational capabilities within other MMOs.
The study unpacks the dimensions of resources and capabilities required to effectively deliver and support mobile money services sustainably. While physical resources appear to be the lowest hanging fruit and most easily accessible, such investments are insignificant without the complementary human capital and strategic resources. It is safe to say that barring the full complement of resources, the existence of mobile money organisations are at risk and may have already claimed some casualties.