Towards a cash-lite and then cashless economy

In our last column we noted that, while East and West Africa are not far apart in terms of mobile teledensity, East is well ahead in the application of the technology and in financial inclusion. We looked specifically at two market leaders in the industry, Safaricom in Kenya and MTN Nigeria. We have since stumbled upon some interesting research on the ten leading mobile transactions (by volume, not value) in the two countries in 2018. The provider of the research has drawn upon more than eight million data points from use of its app.

The average salary of the users of the app, predominantly urban millennials, was similar (USD295 per month in Kenya, USD272 in Nigeria). In both cases the leading transaction was bills and utilities (including payments to the mobile operators) but thereafter the differences are numerous.

ATMs are no three in Nigeria, which equates to one in five surveyed transactions, and do not feature in Kenya’s top ten. This confirms the limited progress towards what the Central Bank of Nigeria (CBN) terms a cash-lite economy and Kenya’s far greater adoption of cashless payments.

A CBN report for H1 2018 highlights the distance still to be travelled: ATMs accounted for 72 per cent of all electronic payment transactions in the period, compared with 20 per cent for point-of-sale transactions and just 5 per cent for mobile payments. We see the disparity between the two countries also in the fact that transfers and borrowing have the no four and six slots in Kenya’s top ten, and do not appear in Nigeria’s.

On a different note, we learn that betting has the no two position in Kenya and no ten in Nigeria. The average size of the transactions surveyed tells us that betting has caught on more among lower income groups in Kenya (USD0.98) than in Nigeria (USD2.75). Indeed the leading vendor in Kenya, SportPesa, enjoys annual revenue of USD1 billion from its operations in East Africa and the UK, and is said according to market chatter to be considering an IPO on the Nairobi Stock Exchange this year. The same source has indicated that the company would be among the ten largest on the exchange. Without being at all “churchy”, we question whether this statistic should become a source of national pride.

Help with the cash-lite project in Nigeria is on its way in the CBN circular that sets out the rules for new payment service banks. This is a large step towards Kenya’s telco-led model for mobile telephony. The CBN has moved much later than the Kenyan regulator because it is naturally conservative and likes to manage what it sees before it. It has also set high minimum thresholds for shareholders funds for its three proposed categories of license for the new banks, to the irritation of fintech entrepreneurs who will baulk at the demand for USD14 million equivalent for a super license. The CBN could argue in its defense that its own model will avoid the development of near-monopolies, Safaricom-style.

That said, both MTN Nigeria and the local Airtel operation are setting up new subsidiaries to apply for these licenses in H1 2019. MTN is particularly well-placed by virtue of its huge network of agents selling phone credit across the country. Airtel can draw on its experience gained from its mobile banking service in its home market (India).

The telcos in Nigeria have overcome the opposition of the deposit money banks, which were not happy with the CBN’s circular because of its intrusion into “their” territory. Now they have to raise their game if they are to emulate the gains of their counterparts in Kenya and elsewhere. Thanks to the young population in Nigeria, they face less generational resistance to new technology than operators in developed economies. A preference for cash is still widespread however, so their agents will need to be well-prepared. Substantial gains are to be enjoyed, not just for themselves but also for the tax authorities (once small businesses are converted to mobile money) and for users of their products on the basis of faster and less expensive services. 

09 January 2019

Jean Puri