E-Financial
‘A mobile Led Risk-based Approach is Crucial to Achieving Financial Inclusion in Africa’
Fintechs that are innovating, operating and growing throughout Africa have moved on from the broad academic concept of financial inclusion to the practical onboarding and walking hand in hand with underserved people along a financial journey.
The first port of call is understanding that serving the underserved is not just about technology. It’s about the human element of dealing with people that are not part of the mainstream financial system; it’s about reaching them and engaging with them where they are and when they need you. Repeat use of a product or service happens when you create products that serve real customer needs.
The world of mobile access has unlocked an ecosystem where mobile channels can sit alongside a predominantly cash economy, and this is vital for meaningful digital inclusion.
If a fintech wishes to onboard people and develop trust, it must be able to do this without forcing customers to take a financial leap to mobile money or a digital store of value. Often, off the bat, it is a bridge too far. Trust needs to be developed first.
At Mukuru, we have utilised mobile digital channels to sit alongside a cash-driven transaction. This is important because 60% to 90% (depending on the region) of payment transactions in Sub-Saharan Africa are still happening in cash. If you attempt to force the move to a digital store of value it is often too much for a financially underserved individual in the region, particularly those who have left their home countries to find work.
Financial inclusion must be seen as a journey, and you start by putting someone in control of their financial destiny without asking them to put their money into something that they don’t yet understand, such as the concept of the cloud.
Our market still operates predominantly on 2G mobile connections, which means that USSD is a critical channel. An effective fintech meets these customers at the touchpoints where they currently transact and then walks them down a path towards understanding mobile use cases.
Once the customer understands that they can control a digital transaction, encouraging them to partake in the world of mobile wallets and digital payments becomes a logical progression.
This is a blueprint for financial inclusion. If we take Mukuru’s experience, and when looking at our 10-million customers and their journeys, by the end of February 2021, up to 90% of our customers were signed up through a field agent.
Despite this, 80% of orders were being created through self-service digital channels: 43% on USSD and 32% on WhatsApp. This is evidence that if you can create products that customers need, and meet them where they are, you can grow them from a face-to-face, field force model into a self-service model where they start taking control of their own financial agenda.
However, there are still millions of people who can’t be reached by field agents. It’s not fair that they should be excluded because they live in remote regions.
They, too, should have access to financial services. A mobile-led risk-based approach represents the solution to finding them and helping them along their financial journeys.
By the very nature of connectivity on this continent, mobile sign-up is a critical entry point to the journey and basic mobile channels need to be available. Fintechs must understand the market, as well as the regulations in various territories, and then address the barriers to sign-up which perpetuate financial exclusion.
Mukuru has taken a dual approach: We look at our core self-service channels and then we look at the limitations of those channels. Due diligence can, and must, be carried out using feature phones, and this allows access to a grassroots product.
Then, when customers upgrade, which they do, they are able to move to a place where they can buy data, use WhatsApp and supply selfies, for example, meaning they can upgrade to a higher-level product. Once they can travel to a city where a field agent can find them, they get access to further product offerings because they can supply biometric and legal identification documents.
Then, if they wish to move up to take out even more products – such as a mobile wallet – the documentation and due diligence requirements go up once more.
The next step up would be feature-rich, self-help services in the form of websites and apps. A big mistake is that many believe you can start the journey on this rung of the ladder. In Mukuru’s experience, in the SADC region, the use of these channels represents about 5% to 8% of total volume.
Fintechs must serve their customers what they need, and they are voting with their feet and fingers – they want to use simplified channels.
Collaboration between regulators is important – for access to identification – and fintechs make this process far easier. The point is that one doesn’t have to swing the door wide open in the first instance because of the very limitations that left people excluded in the first place.
Rather, with a careful, mobile-led, risk-based approach the door can be inched wider until they reach a point where they step into full financial inclusion.
If we look at a Mukuru snapshot in February 2020, 70% of our transactions were cash-to-cash.
In February 2022, we moved to only 49% of those transactions being cash-to-cash, and a digital store of value (which started as a remittance) is becoming a real way of life for a significant portion of the customers who were onboarded through access to a digital channel.
Financial inclusion and verified customer onboarding can, and do, work hand in hand. If you start someone on their financial journey by giving them access to a digital channel rather than forcing them to convert immediately to a digital store of value, you start moving people along a financial journey they can control.
Central Bank of Nigeria (CBN) has awarded the country’s second Payment Terminal Service Aggregator (PTSA) license to Unified Payments, Nigeria’s premier financial technology company, following a rigorous and transparent process,
The move is targeted at enforcing existing requirement that all transactions from point-of-sale channels in Nigeria must go through a licensed Payment Terminal Service Aggregator (PTSA).
The CBN is enforcing the laws to clamp down on financial crimes and other market misconducts and it aligns with the CBN’s objectives to fully track all electronic transactions in Nigeria, given the propensity of using such transactions to fund insecurity, violent crimes, banditry, kidnapping as well as other vices.
According to one analyst, “By awarding a second PTSA license, the apex bank has proactively responded to industry operators who had expressed serious concerns about channelling all transactions through a single aggregator, the Nigeria Interbank Settlement System PLC (NIBBS), as has been the case for some years.
“With the new policy direction, payments service providers would henceforth route all transactions through either of the two licensed Companies.”
Other financial analysts and industry players have commended the Central Bank, affirming that “the move can be a massive step in the right direction. They also commended the open, transparent, and inclusive manner via which the selection process was managed, and the license awarded.
“The selection process, which lasted for months, began with an invitation for qualified organisations within the payment industry to submit an Expression of Interest document, alongside other requisite documentation and additional capital requirement of N1 billion.”
The new management of CBN decided not to give the license out without going through an open process – and for the first time in licensing a payment service provider – the apex bank went through a public bid process outlined in its publication of Friday, January 5, 2024, in different national newspapers. At the end of the process, Unified Payments emerged as the most preferred service provider.
Unified Payment Services Limited, also called Unified Payments or UP, is a shared service provider within Nigeria’s financial technology sector owned by a consortium of Nigerian banks. For over 26 years, the firm has provided payment technology to banks and other industry operators. The first and only non-bank entity that is a principal member and licensed acquirer of all of American Express, Mastercard, Visa, UnionPay and Payattitude. Unified Payments facilitates both local and international transactions.
Formerly known as ValuCard Nigeria Plc, Unified Payments led the way to introduce POS payments in Nigeria under its card scheme known as ValuCard which is the first payment card to be issued in Nigeria. The company later transformed into a scheme-neutral and option-neutral service provider enabling transactions under different schemes.
The company has continued to provide leading payment technologies and services, enabling different operators to leverage its capabilities and licenses, enabling prompt and seamless transactions.
Among the shareholders of Unified Payments are First Bank, Access Bank, United Bank for Africa (UBA), Guaranty Trust Bank Plc, Zenith Bank and Fidelity Bank. Other shareholders are Citibank Nigeria Limited, Ecobank of Nigeria Plc, First City Monument Bank Plc, Keystone Bank Ltd, Polaris Bank Ltd, Stanbic IBTC Bank Plc, Sterling Bank Plc and Wema Bank Plc.
Chartered Institute of Bankers of Nigeria, CIBN, has expressed support for the ongoing banking recapitalization exercise saying it will empower banks to lend more to the economy.
CIBN President, Dr. Ken Opara stated this yesterday while speaking at the annual lecture of the institute in Lagos, with the theme “Improving Availability of Credit in the Nigerian Real Economy: The Critical Importance of Liquidity.”
Okpara noted that the volume of credit to the real sector activities namely agriculture, manufacturing and services is low compared to their critical role in driving economic growth.
Consequently, he called for more credit to the real sector, saying, “I propose that we consider offering more credit to these key sectors and particularly the agriculture sector. It is for this reason that the Recapitalization exercise is a welcome development.
“The recently announced upward review of the Minimum Capital Requirements of Nigeria by the Central Bank of Nigeria would further empower banks to extend more credit to the economy’s productive sectors.”
To address these factors impeding credit to the real sector, Okpara suggested that, “The government needs to improve further the ease of doing business and infrastructural development, such as power, roads, rail networks, etc.
“Setting up industrial centres where these companies can co-habit and share common infrastructure. Harmonize and reduce the various taxes and levies, including locating them in a single hub.
“Banks need to be deliberate in de-risking these companies via Capacity building programmes, and Advisory services.
Specialised Financial Institutions can be created in addition to the Bank of Industry (BOI), especially credit guarantee agencies and risk-sharing institutions, to further facilitate the deepening of credit as practiced in countries such as China which significantly transformed its economy.
A new report claims that 20 per cent of Nigerians are using Bitcoin to carry out financial transactions every day.
According to the open-source blockchain website, Elastos, the research was compiled from online interviews conducted with 1,407 self-defined ‘tech savvy’ respondents in Brazil, Germany, Nigeria, South Korea, UAE, the UK, and the US.
The interviews were completed by a third party, a registered market research company and completed between 30 March and 04 April ’24.
The report further revealed that 67 per cent of Nigerians would have more trust in Bitcoin to put their life savings than banks and local governments.
The report reads; “The inaugural BIT Index (Bitcoin; Innovation & Trust) – compiled from over 1,400 self-defined ‘tech savvy’ respondents from 7 countries across the globe – sheds light on the actual perception and use of Bitcoin in people’s daily lives, irrespective of its current valuation. Elastos’ BIT Index is part of ongoing research to better track the ‘real world’ use of Bitcoin together with users’ motivations, expectations and barriers around the same.
“In particular, the data reveals the role being played by emerging markets in terms of understanding, usage and confidence around Bitcoin. Nigerian respondents’ levels of usage and trust compare starkly with those expressed from so-called ‘established’ markets such as Germany and the UK and Germany where daily usage levels are just 8% (for German respondents) and (9% for their UK counterparts).
“In terms of the trust – in addition to Nigeria – significant proportions of respondents from Brazil (35 per cent) and the UAE (32 per cent) would have more confidence in Bitcoin-based services to protect their life savings compared to those from markets such as the UK (20 per cent) and Germany (22 per cent).
“When it comes to ensuring the integrity of online transactions, emerging market respondents also revealed their relative confidence in Bitcoin, compared to alternatives. According to the data, 66 per cent of Nigerian respondents and 35 per cent from Brazil have more confidence in Bitcoin-based systems than alternatives such as banks, or national Governments, compared to figures of just 16 per cent (Germany) and 21 per cent (UK) who feel the same.
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