This article (especially if judged by the title) might sound a bit unwieldy and some of my ardent readers might think this is quite unusual. I can imagine the questions going on in many minds – is @AremoFisayo now being used as a political machinery for the government? I understand all the concerns, but, please pay attention because I mean every word in this article.
Let’s be clear, I am not absolving the Central Bank of Nigeria (CBN) of any wrongdoing, especially with the way some of its policies are stifling growth, and not only within the technology space; however, I also believe that its policy stance has fueled (I use that word carefully) the continuous rise of many financial technology businesses in Nigeria. Even the CBN, as far as I am concerned, might not understand the implication of this policy stance.
The United Kingdom is arguably the most Fintech-friendly nation on earth; hence, it is a major Fintech hub (don’t forget that London is also a major financial hub). The UK experience confirms the age-long wisdom that innovation follows regulation. Once the regulation is right, innovation follows. The same theory applies to countries like Kenya & Rwanda. The regulatory stance in those countries support innovation, that’s why businesses prefer to launch there first, before venturing into much difficult markets like Nigeria (at least so they say).
Let me digress a little. One of the reasons we have not seen major investments in the Nigerian upstream oil and gas sector is because the regulatory direction is still not clear yet. The Petroleum Industry Bill (PIB) is not passed, so investors will just wait till the coast is clear. My point here is that regulations affect other sectors of the economy as well, not only technology.
We can continue to talk about how difficult Nigeria’s operating environment is. We can count a host of businesses that started in Nigeria but have relocated to other countries. We can also speak about entrepreneurs slugging it out in Nigeria’s jungle, with scars to show how stifling this country could be. Some of the CEOs will explain to you how the copycat models have failed in Nigeria (even when some of these models succeeded in other emerging markets). I am sure Tencent is still wondering why WeChat didn’t catch on in Nigeria (especially when its arrival is timed with the gradual death of Blackberry Messenger).
Facebook has been trying to force the FB Messenger on Nigerians for some time now, but Nigerians have spoken loud and clear – Whatsapp is great for us!
Difficult but Huge Market Opportunity
As part of my work, I have spoken to a number of technology entrepreneurs looking to expand their businesses into Nigeria. You can literally see the excitement of trying to capture Nigeria’s 170m population (I don’t know how we got to be telling ourselves that our market is that large, when we all know that for most businesses, their market is limited to only Lagos, Abuja and sometimes PH), and the palpable fear of potentially falling flat on their faces.
Other African entrepreneurs believe that they have not won if they cannot capture and conquer Nigeria. The sentiment is clear, hence the need to continuously strategise on how to efficiently and effectively gain market entry into Nigeria. I guess everyone has a strategy until he gets punched in the face.
Back to the crux of the matter
I believe that the Nigerian regulatory environment can be a lot more flexible to allow for innovation – the drone regulation is a case in point. That said, I sincerely am of the opinion that a lot can still be done. However, it appears that there is one regulation fueling the continuous rise of Fintech in Nigeria – that’s the regulation prohibiting the Mobile Telecom Operators from driving mobile money operations in Nigeria.
I have heard a lot of arguments about how mobile money in Nigeria cannot be bank-led, how people are being financially excluded etc. I agree with these points, and I also say that it is this same point that is driving alternative methods of solving these problems through Fintech.
Maybe I am still unable to convince you but let me take you on a journey to Kenya, where Safaricom has essentially built the largest Telco, as well as the largest financial services group in the country. Safaricom is the height of financial services innovation in Kenya. Most Fintechs are condemned to work with this telco, or get crushed.
Through M-Pesa, P2P payment is solved. E-commerce businesses get paid through it, and ride-hailing companies get paid using the same platform. If I owned a business in Kenya, I must have an M-Pesa account, because without it, payment will be a major struggle.
I remember during my 1-week visit to Nairobi, when I was trying to pay with my GTBank Naira Mastercard, and the shopkeeper asked to be paid through M-Pesa. If I had not linked my card to my Uber account, I would have trekked all through Nairobi because it appears that if you are not on M-Pesa, you are financially excluded.
Safaricom is consolidating its position by getting into other businesses including ride-hailing – Little, and paperless banking services – M-Shwari (Savings and loans). All these services being offered by different fintech companies in Nigeria are bundled into just 1 MNO in Kenya. In fact, other MNOs in Kenya – Telkom and Airtel are also locked out of this M-Pesa rush, so they have to build theirs. Safaricom is now the biggest supporter of mobile money interoperability, so these other telcos are condemned to being alternative SIM cards after Safaricom SIM.
The Nigerian Scenario
Imagine that MTN could offer mobile money services after the order of Safaricom, then platforms like Kudi.ai won’t exist. If MTN Nigeria could offer savings and loans after the order of M-Shwari, then Piggybank, CowryWise and other savings apps would struggle. Lending will be much difficult as Paylater, Aella Credit and other lending apps would struggle with distribution. MTN will have data on its own customers (call records, savings, borrowing and spending patterns). Banks will not have that retail reach and certainly, no Fintech will have it as well.
It is not a zero-sum game or winner takes all; Fintechs will still get some crumbs here and there, but certainly nothing compared to what they have now.
I hope with these few points of mine, I have been able to convince you (and not to confuse you) that the CBN’s singular act of prohibiting MNOs from driving mobile money is largely responsible for Fintech growth in Nigeria, as the problems that MNOs could have solved still remain unsolved, and Banks won’t solve them anyway.
Going forward, I will suggest that Fintechs support banks in the advocacy to continue to keep the Telcos out of the financial space. This might not be the best for financial inclusion, but certainly the best for the enlightened self-interests of the players within the sector.