This follows my previous post on Mobile Money
The concept of trickledown economics is propagated by politicians who want to give tax breaks to the rich. Their idea is thus; money exclusively trickles down for the rich to the poor. So if you want to stimulate the economy, you do so at the top and the effect would flow downwards1.
Whilst I agree money trickles down vertically, it does so in multiple value chains, not exclusively rich à poor.
How does that relate to Mobile Money?
You see, there is this idea that since Mobile Money is targeted at the unbanked, it should be marketed at the unbanked. I think this is the wrong approach.
With exception to the Nigerian political ecosystem value chain2, a new money cycle generally trickles down from the banked to other banked or the unbanked.
Let me use an illustration.
The government gets money from oil sales (banked) à pays a road contractor (banked) à who now pays his sub-contractors (mostly banked) à who now pay their labourers (mostly unbanked) à who then pay the mama put woman (unbanked) etc.
That is just one value chain flow but you get the general idea.
Hence, if you want the labourers (unbanked) to store their money in the Mobile Money format, who do you market it to, them directly who are the unbanked or the sub-contractors who are the source of the labourer’s monies?
As it is now, it is the unbanked that are being marketed to mostly. I’d posit that it should be the sub-contractors that are the source of the unbanked’s money
It is not that simple though because for money to flow seamlessly (liquidity), both the giver and receiver have to be content with the transaction form.
Why should the unbanked labourer take money in a form that he cannot spend it in? He has no time to be talking Mobile Money when he needs to quickly condemn a plate of Eba and Egusi. This is where the concept of TTL (Time To Liquidity) in my previous post comes to play.
However, if his Mobile Money wallet has a quick backup TTL (via a debit card tied to it or an ATM), it is much more viable to be considered. The labourer get paid his N2000 daily wage in Mobile Money, if the Mama put does not want to be paid in Mobile Money, he can quickly withdraw cash a form that is rather liquid.
In summary, for Mobile Money to kick-off in the above value chain, the most important persons are the sub-contractor and the labourer. I believe rightly targeted marketing and a short TTL will do just that.
1Although money generally flows from top to bottom, the volume of traffic occurs at the bottom. So to stimulate the economy, the money should be fed to the bottom as quick as possible. Basically, whatever politicians tell you, do the opposite.
2From top to bottom in the Nigerian political value chain, it is cash. In Yobe State, local government allocation comes in cash.
Thanks to Tija and Osahon for helping me spot a million typos and grammatical errors.
I have been thinking a lot about why Mobile Money is yet to catch up in Nigeria like it has in Kenya and maybe Uganda. Below are my thoughts.
I believe the primary issue stems from the fact that, although the circumstances that allow Mobile Money to thrive in Kenya are not available in Nigeria, we are still trying to push it as if it were.
So what are some of these circumstances?
- The novelty of Mobile money allowed for it to be created like a startup, the whole shindig of product-market fit. The technology was adapted to the particular environment without pressure as it was initially funded by Vodafone UK (No, mobile money was applied but not created in Kenya).
- As a result of its newness, the regulators did not see it coming and hence, did not have the opportunity to fuck things up. Paraphrasing @WhiteAfrican, regulation is the antidote of innovation.
- The newness of mobile money allowed the pioneering telco Safaricom, which happened to have an overwhelming massive market share move fast, thereby surmounting the network-effect limitation (I will explain what I mean shortly).
- When Mobile Money launched in Kenya, the absence/limitation of alternative ways to digitally move money quickly meant the necessity of adoption to try it out was much higher.
What I am basically trying to say is that, if MTN Nigeria with its almost 50% market share had a 3 year head start vs everyone else, CBN was not putting stumbling blocks all around, and internet payments were not readily available, Mobile Money adoption would have been much faster.
Anyway, that is not the case and there is an obvious need for a more inclusive payment system. How do we make it happen?
First of all, let me explain how I understand money, cash/liquidity and the bank.
- Money is simply stored value.
- Cash is a common agreed representation of that value backed by the government.
- The bank is a third party place licensed by the government where we keep that stored value and acts as a ledger.
- Liquidity is the ability to exchange one form of value to another. Cash is in most cases, the most liquid form of value as it is a commonly agreed representation of value.
At the risk of digressing further, let me use an example.
I have some yams. That is value for someone who needs yams and I want an iPad. If I can directly exchange that yam for an iPad, then the Yam is liquid. Most times it is not the case besides I might not need to get an iPad at the moment I have the yam. And most times we do not know how many yams are worth an iPad. So I turn my Yam into a representation that is universally acceptable, Money/Cash. This does two things.
- There is a common ground for exchange.
- My money cannot spoil so I can keep it until I need an iPad or something else.
- The bank is where it is usually kept.
Phew! Let’s get back to Mobile Money.
At the very core, a Mobile Money account is a bank account with much lower KYC/regulatory requirements. Simple. If it is looked upon like this, then it makes things much easier.
One of the basic issues with the poor adoption of Mobile money it the perceived high TTL (Time To Liquidity).
Remember, cash is the most liquid form of money. Nigerians want to be as near as possible to their cash or an understood representation of their cash (the bank balance).
My recommendations to help the adoption of Mobile Money in Nigeria
- Reduce Time To Liquidity: Presently, you are able to withdraw money from your mobile money account (abi na wallet?) from quite a number of ATMs. So time to liquidity is not technically an issue but it is because it is not really known. It is why I said perceived. If every Mobile Money wallet had a debit card, it would help this perception a lot. At first, people will be withdrawing their cash immediately it hits their mobile money account but over time, they will be willing to leave it.
- Interconnectivity of Wallets/Accounts: I hope Mobile Money operators understand they are not competing with each other but with adoption. It is a no brainer that since no one has the necessary network effect that Tigi had when they launched in Kenya, inter connectivity between wallets is necessary. Banking would not be viable if I needed to have an account with all 22 banks because I could not move money from GTBank to Diamond Bank.
- Open up APIs: APIs allow for the extendibility of services. Banks via Debit/Credit cards have allowed for the extendibility of payment online, POSs etc. If ‘mobile money’ accounts are connected to the card system, that would be a shortcut. But in the absence of them, there is a chance for innovation and adoption if the APIs are opened up and more efficient methods of moving money are created.
- Improve Communication: The communication of Mobile Money is frankly, confusing. I personally would do away with the term mobile money and call them what they are, accounts; if not Bank accounts. While running the idea of this post with Mark Essien, is suggested the name Mini Bank accounts. Perceived competitors should come together and unify communication. Imagine if Diamond bank called the cheque book something different from GTBank?
As things are, the banked (Mobile Money) market is for the Banks to lose. From outside, Stanbic looks the best positioned so far. Paga has done a great job and I am rooting strongly from them. I foresee Paga morphing into a branchless bank such as ING direct.
I’ll end here for now. I think I have 2 more payment blogposts in my head.
Thanks to Mark Essien for listening to my ramble and feedback which enabled this post to finally come out almost one year after I was due to write it in response to Mbwana’s question
I am doing a music startup and the first comment that comes usually is. “But Nigeria has low internet penetration”. Here’s the graph I try to explain I’m working with. Source.
BTW, adding Kenya to the mix is not to kindle any East Side-West Side rivalry but to tell the investors and entrepreneurs, “when you have finished ‘testing the waters’ in Kenya and you are ready for prime time, you know where to visit.”