Nairametrics interviewed Gaurang Shah, the Senior Vice President, Digital Payments & Labs, Middle East and Africa, Mastercard MEA, on a number of topical issues that affect digital and financial inclusion in Nigeria and Africa.
How would you assess the digital payment scene in Nigeria?
It has come a long way and a lot still needs to be done, as less than 5% of consumer payment transactions are electronic. This isn’t peculiar to Nigeria, as a recent study conducted by Mastercard found that cash still epitomizes 85% to 90% of all consumer transactions internationally and it is associated with significant direct and indirect costs. Direct costs include lost tax revenues, cash production, handling, and transportation.
But we are seeing a rapid growth as emerging markets, in particular, have increasingly identified the need to digitize their payment economies and reduce cash dependency as a way to accomplish financial inclusion.
Nigeria’s payment space has great potential for increased digitization, expansion of acceptance, and the creation of more innovative solutions to grow inclusion. Through the power of partnership with key players in this ecosystem, and innovative solutions underpinned by Mastercard’s secure and trusted technology, we believe the future is bright for Nigeria’s payment space.
Last December, the CBN reviewed some bank fees and charges and also introduced BVN 2.0, which were meant to drive financial inclusion. Comparing Nigeria with other emerging markets, what more can the apex bank do to further break barriers?
Payment digitization can be a solution to reinvigorate the economy. According to Moody’s Analytics, each 1% increase in the use of digital payments produced an average annual increase of US$104 billion in the consumption of goods and services. This represents a 0.04% increase in GDP in developed markets and a 0.02% increase in developing ones. Every contribution will count to ease the declining GDP growth rate.
Enabling financial inclusion is something we have quite some experience in doing. Five years ago, we made a commitment to bring 500M financially excluded individuals into the digital economy. Now that we have achieved that goal, we’re focused on extending our commitment to bringing in a total of 1 billion individuals by 2025 and helping 50 million micro and small merchants (MSMs) connect to the digital economy by enabling them to accept electronic payments.
By making it easier to accept electronic payments, along with greater access to other opportunities including credit, Mastercard is providing businesses with the tools they need to grow and thrive.
From our experience, everyone has a role to play, from the smallest businesses to the biggest corporations, governments to NGOs, traditional banks to fintechs, from the older generations to the youth. When you create digital solutions that are easy for people to use and fit into their lifestyle, they will adopt them easily. We live in the digital age where most people will have a mobile device by the end of the next decade, placing digital solutions in their hands with basic solutions will drive uptake.
To do this, we must understand user needs and behavior through research, in-market assessment, and cash journey mapping. Financial education is also very key, along with employing authentication technologies that respect user privacy. We must co-create and enable innovation through close engagement with regulators, and run pilots to ensure commercial viability while remaining focused on achieving scale.
CBN’s 2020 target is to ensure 80% of Nigerian adults access financial services by the end of the year. Do you think this is achievable?
Yes, but reaching that target will require a broad range of efforts, and specifically in Nigeria, it will include ongoing work on government disbursement solutions, wage digitization of private-sector workers, partnerships with mobile network operators, solutions for gig workers, scaling efforts with fintechs, digital platforms and digital wallets/apps, and solutions addressing needs of the financially vulnerable.
How has Mastercard been able to stay competitive as Africans adopt decentralized finance and peer to peer lending?
For more than 50 years, Mastercard has been transforming how people pay and get paid. Our solutions power one of the world’s fastest payment processing networks to make transactions faster, easier, more accessible, and more secure.
We invest in understanding the real needs and be close to the market as we innovate new solutions. That’s why 5 years back, we set-up our Financial Inclusion R&D center in Africa and invested in understanding the real problems in the most critical economic verticals in the African market – Agriculture, Education, SME, Healthcare, etc. and came up with solutions that we not only piloted but are now commercializing in the region.
Besides our technology, we believe that fostering a culture of innovation is critical to success. So, we hire talented people with curious minds and big ideas and then help them cultivate innovation. We’re also committed to working with developers and entrepreneurs, enabling advances in the payments ecosystem of the future.
We are passionate about innovating in Africa for Africa and we have invested in several African companies, including Jumia (a leading e-commerce platform in Africa) and Oltio (a mobile payments technology company in Africa).
What do you think the future holds for African banks in the digital payment ecosystem?
That’s a great question. Technological advancement and innovation are steering the digital financial services industry. Fintech players are becoming globally mainstream and an increasing influx of fintech players are competing with large traditional players. What was once a focus on peer to peer payments has now expanded to everything from credit to insurance to wealth management, offered through a centralized cloud-based platform.
Mastercard’s approach towards encouraging collaboration between fintechs and financial institutions is by offering solutions that connect the two. Mastercard’s technology enables our digital partners to take control of their consumers’ digital commerce needs, interactions, and experiences. By focusing on the provision of multi-use, omnichannel digital payment solutions, Mastercard is enabling its partners to improve their operational efficiency, diversify, future-proof their revenue, and transition seamlessly into digital commerce.
We continue to invest in those technologies, platforms, infrastructures, and the right fintech partnerships that enable us to provide single platform capability across multiple use cases to our partners, as we have done with the traditional banking industry for over 50 years.
With the acceleration of digital, driven by needs arising from the current pandemic, every institution in the financial payment space needs a Digital First platform and proposition and that’s what we are enabling for all our partners. As part of this proposition, we not only enable payment capabilities leveraging multiple Mastercard platforms, we are also facilitating the inclusion of capabilities offered by multiple fintechs.
What are the challenges of pay on demand adoption in Nigeria and Africa?
Some of the common challenges that stakeholders may need to address are barriers to internet access. Another is the slower speed of internet data in Africa compared to other continents. Factors such as the high cost of 4G-enabled devices and delays in assigning 4G spectrum to established service providers have been responsible for the low adoption of 4G. Along with speed, affordability, and availability of internet access which also affects use is key. Across Africa, the average cost for 1GB data is 7.12% of the average monthly salary.
On the supply side, Pay on Demand providers need to rely on many factors to scale and offer their products to more underserved populations. There are some challenges to this, irregular market conditions and unavailability of Pay on Demand solutions close to the customer results in slow consumer adoption. The overall infrastructure deficit has resulted in poor connectivity, which also affects Pay on Demand adoption. Compliance-related challenges, unavailability of effective payment solutions, and unattractive finance rates can all contribute to this.
In addition, with technology changing at a fast pace, Pay on Demand providers must continually adopt newer solutions. Ultimately, digital inclusion drives financial inclusion. The challenge is not that consumers or small businesses do not want to spend. The issue is related to the availability of funds to prepay for services for long periods at a time or invest in the full cost of a product or service upfront.
The availability of credit is almost non-existent in the absence of credit history. Hence the need for low-cost Pay on Demand solutions with small ticket values, just as 98% of mobile talk time and data worldwide are pre-paid in small-ticket purchases.
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To enable this, four major stakeholders need to work together – the device manufacturers will provide the capability to lock and unlock a device in real-time based on the status of payments – Payment service providers will enable consumers to use existing payment credentials to easily pay on demand in small values, while also being ready to lock or unlock a device in realtime – the device distributors, such as multinational organizations with a large market footprint need to make devices available easily to consumers – and Financers need to lend competitively and digitally.
At Mastercard, we have created solutions to address these concerns. We’re able to connect with device manufacturers to integrate real-time lock/unlock instructions on devices. We have also developed an inclusive payment solution that works on both smartphones and feature phones and allows for very small to large payments, auto-debit instructions, and cards that address consumer data connectivity issues and missed payments.
Also, we just launched one of such partnerships with Samsung, Airtel Africa, and Asante Financial Services Group. Through Samsung’s affordable pay-on-demand mobile devices and Asante’s insight as a leading provider of digital financial services, the innovative platform provides effective handset loans for consumers. Pay-on-Demand users will also be able to access digital payments through Mastercard’s virtual card and Mastercard QR functionality on their Airtel mobile money app, enabling them to make digital transactions across the face to face and online merchants.
Several Pay-TV subscribers still have difficulties in renewing their subscriptions using their mobile phones. Does Mastercard have a product that speaks to this?
Mastercard is driving growth in digital financial services through digital partnerships with telcos, fintechs, banks, and e-tailers.
We have developed several payment solutions that our partner financial service providers can adopt to address this. Mastercard’s secure technology enables our digital partners to confidently address their consumers’ digital commerce needs, interactions, and experiences, which is how we enable mobile network operators to also become non-traditional financial service providers.
By focusing on the provision of multi-use, omnichannel digital payment solutions, Mastercard enables partners to improve operational efficiency, diversify revenues, and transition into digital commerce.
Several SMEs were affected by the COVID-19 driven economic lull, as most of them still battle with payment. How well can they benefit from the ‘SME in a Box solution’?
The ‘SME-in-a-Box’ solution is a low-cost payment solution that enables small business owners to move their businesses online and accept a range of digital payments from their customers.
The unique offering enables business owners to access a wide range of financial services quickly and easily through a single intuitive app compatible with all Android mobile devices. The app’s functionality supports contactless payments, QR code payments, and has the ability to generate e-payment links for remote payments. Acquirers can also access a white-label app to rapidly take the solution to the market.
‘SME in a Box’ offers a low-cost acceptance service that can also run on smartphones and is powered by Mastercard Payment Gateway Services (MPGS). It also delivers speed and simplicity with remote digital onboarding services from Mastercard’s StartPath partners.
The ‘SME-in-a-Box’ solution is powered by Mastercard’s payment technology and that of its fintech partners, including payments and agency banking solutions company SmartPesa – a Mastercard StartPath partner. StartPath is our global startup engagement program and a springboard to help the best & brightest later stage startups maximize their opportunity for success. The solution will aid small and micro merchants across the region in expanding their customer base via digital platforms and enable sustainable revenue growth.
In addition, through its Simplify Commerce offering, Mastercard will enable SMEs with a plug-&-play e-commerce store builder with instant online checkout. These capabilities have been packaged as a bundled solution combined with special incentives to drive adoption and support business owners to tackle challenges during COVID-19.