Research: The Total Addressable Market for Mobile Money is Just 51 percent of the Adult population
With the launch of the National Financial Inclusion Strategy in 2012, Nigeria began a concerted (and so far, arduous) journey to attaining its target of 80 percent financial inclusion by 2020. While there have been several interventions and initiatives to achieve this goal, including the recent refresh of the strategy in 2018, we are yet to witness significant progress in financial access.
Although we believe that there is no single magic bullet solution to cracking the financial inclusion puzzle, we do know that deploying financial services digitally is the sustainable way to serve the remote and rural regions which are currently unserved. However, at this junction, we believe there is also a need to step back and have another conversation about the total addressable market for digital financial services.
The recurrent stats which keep coming up whenever the country’s financial inclusion situation is discussed include our adult population of 100 million, high unbanked and underserved numbers, and high mobile penetration. It sounds like a textbook case of build it and they will come. However, our research estimates that just about 51 percent of the total adult population could be sustainably served using the current business models.
This estimate came about based on 3 factors:
1. Electricity
First of all, DFS requires electricity. The mobile phones and devices through which consumers and providers access and deliver their services require power to run.
However, a considerable percentage of Nigerian adults live in regions yet to be connected to the national power grid. These regions have no electricity supply and residents have to rely on self generated power sources. This creates problems for consumers and even financial service agents (who providers leverage to reach the last mile in rural and remote regions).
With no power, consumers with mobile phones cannot keep their devices running. With no power, banking and mobile money agents in these locations will invest considerable amount of their capital on power generation in order to keep their own devices running which ultimately eats into their bottomline.
2. Mobile Network Connectivity
Mobile network infrastructure are the rails on which DFS rides, all the way to the customer. In spite of Nigeria’s impressive teledensity figures, regions abound where mobile network connectivity is extremely limited or altogether non-existent.
Providers and consumers require reliable mobile connectivity in order to process payments and transactions. Poor connectivity is partly responsible for failed transactions which has adverse effects on consumer trust and repeat customers. In areas without network connectivity, we discover a dearth of service providers (and their agents) as the value proposition for their business is non-existent.
3. Poverty and economic activity
Research has also shown that poverty is a major inhibitor to financial inclusion. In the poorest regions, residents tend to live from hand to mouth, with little to nothing to set aside in savings. These areas also witness limited economic activity and are seldom developed i.e. good navigable roads, proximity to business districts etc. These conditions ensure that such areas offer almost no viability for providers. In order to build the business case for these regions, economic activity has to be stimulated through relevant interventions.
From the constraints listed above, we can see that the total addressable market for DFS is limited. In our CICO Economics in Nigeria report, it was stated that “by layering the viability of [financial services] across the different regions of Nigeria, over the geospatial distribution of requisite infrastructure for financial inclusion such as mobile network connectivity, electricity supply, bank infrastructure etc, the results reveal that 51 percent of Nigeria’s adult population today lives in viable areas.”
That’s right — just about half of Nigeria’s adult population are fortuitously positioned to access financial services. And when you realise that many of the already banked individuals are included in that 51 percent, we begin to appreciate the magnitude of work that remains ahead of us.
So, the conversation we need to have, beyond rolling out new agents and licensing new fintechs, is how to build out the demand-side infrastructure for financial inclusion. As a priority, we need to extend the total addressable market for financial services beyond just 51 percent of the Nigerian population (a percentage which falls very much below the NFIS target of 80 percent). We can do this by addressing the three constraints described above, all of which are systemic problems that cannot be solved solely by one sector of the economy).
Solving for network connectivity by extending and strengthening network infrastructure, increasing power generation and providing alternative power generation solutions to off-grid locations and stimulating economic activity in poor regions are projects that need to be tackled in earnest if our financial inclusion aspirations are to be a reality.
This shows us that, financial inclusion demands a top-down, 360 degree cross-sector approach. It requires a considerable amount of effort and resources from the mobile network industry, financial services ecosystem, the power sector and all allied industries to move the needle significantly. The good news is that the results promises far-reaching improvements to the economy, the development of infrastructure and most importantly, the welfare of citizens.
Download the CICO Economics in Nigeria Report here
