Financial technology is taking off and the massive success of the KCB M-Pesa deal in Kenya--which offers loans to customers via cell phone alone--is making news, (and surely, profits!). We've discussed the implications of that innovation here. Now, everyone is wondering: who and where will be the next big success story in lending technology? Nigeria is the next hot spot for mobile lending—despite the failure of mobile money in the country, and even, perhaps, because of it.
There are three main factors at play: 1) governmental initiatives to improve access to financial services and broadband internet, 2) the rate of growth in both of those fields independent of the government, and 3) the fact that only around 30 percent of people currently have access to retail credit. Taken together, these factors will result in a population eager to use cell phones to access financial services and credit for the first time.
Among the most exciting results of this revolution will be accessible, mobile loans for consumers. A strong desire for credit provides opportunity for a bank to emerge as the leader of Nigerian mobile lending—offering a service no one can match, to a customer base no other bank has tapped.
Consequences of Inaction
The governmental initiatives around wireless internet access and financial services will create a perfect storm for any bank that is not working hard to become the market leader in mobile lending. As millions of people gain access to these two products, banks which do not combine them to offer credit products on mobile devices will be left behind. Why would an individual choose to go to a bank branch, wait in line and then wait days for cash to arrive, when they could just key in a few buttons on a cell phone and have the funds available instantly? Why would the majority of the population do without credit, once it becomes easily and readily available to all? Within a couple of years, banks will learn that customers won’t make that choice—and will either “profit or perish” from the decisions they make on mobile lending today.
Mobile Broadband for All
Recent reports have indicated that 95 percent of current broadband internet access in Nigeria is via cell phone, but access is quite limited—many figures put the population with broadband access under 10 percent. The government has realized that reality, and made clear its intention to change it drastically: the goal and plan is for 80 percent of the population to have broadband access by 2018.
The country is specifically aiming for mobile devices to have broadband internet access; the official plan notes that most broadband internet in Nigeria is accessed via wireless devices. In addition, it says that “broadband is to the 21st century Information Age what electricity was to the Industrial Age.” Nigeria is growing quickly and the government wants the economy to grow faster, propelling the country forward economically. Internet access is a key target to enable that success.
Governmental policies are not a guarantee, especially in Africa, but in cases like this one where the government is simply aiming to speed up a process already underway, there is reason to believe that the goals will be met. Citizens have made clear their vested interest in cell phones, with at least 90 percent of Nigerians owning at least one, and the rapid growth of the smartphone market has made it clear that Nigerians do not wish to be left behind in the technological revolution.
It is difficult to imagine a better combination than growing citizens’ interest, governmental policy and business interests. That is the triumvirate of forces at play in Nigeria and we have every reason to believe that mobile lending can be the tool a bank uses to distinguish itself, adjusting to the new reality and producing a massively profitable product along the way.
Implications for Banks
The availability of greater broadband access on mobile devices will force banks to make a choice: evolve with their customers or be left behind. While most banks now have some sort of mobile offering, of the top ten banks in Nigeria, none currently offer mobile lending. Even GT Bank’s new GTEasySavers plan, which is offered in partnership with Telco Etisalat and is probably the most innovative financial product on the Nigerian market today, does not offer any sort of loan option.
If customers use their phones to make payments, speak to friends, transfer funds, post to Facebook, and more, why wouldn’t they use their phones to take loans? A mobile offering is clearly sorely lacking in Nigeria. Beyond failing to offer mobile lending, several Nigerian banks even require customers to go to the bank to get information about loan products available—not a realistic option for millions of people gaining access to both financial services and broadband internet for the first time.
Until today, banks have been able to maintain their customer bases with basic mobile banking services; internet access is minimal, and many people lack bank accounts altogether. As access speeds up and expands, however, that will no longer be the case. The first bank to launch mobile lending has the potential for success that is much, much larger and can reach all the people that mobile money reaches and more.
Push for Financial Inclusion
Nigeria is also making a major push for financial inclusion. Parts of that initiative will make it easier than ever for banks to adapt new technology to meet customers’ needs.
Many Nigerian adults have no access to financial services; optimistic figures are that around 40 percent of the general population, and higher percentages of women, uneducated and young people lack access. The government has set a goal that only 20 percent of the population should be without access to financial services by 2020. The definition of financial services includes traditional savings and withdrawal mechanisms, but also access to credit through products such as loans.
One of the main problems with credit access up until now has been that it is very difficult for Nigerians to open a bank account; many do not have official identification, or live far from bank branches, and the Know Your Customer (KYC) process required to open an account was too burdensome to be worthwhile for many people. This also made it difficult or irrelevant for banks to offer mobile lending; if people had to go to a branch in any case, why bother with a mobile product?
To enable financial inclusion, the government has set up a multi-tiered approach, including relaxed KYC regulations, increased financial literacy and more. For banks looking to offer a mobile lending process, the relaxed KYC regulations are the key to acquiring new customers.
The new KYC regulations/types of accounts have three tiers, from the simplest of accounts which can do very little, such as the new GT Bank/Etisalat account, to regular bank accounts with all their accompanying requirements. Perhaps the most interesting is the middle tier of account; it does require some forms of identification and is limited, but unlike the most basic account, it can be linked to a mobile device. This second-tier account also allows 12 months for customers to complete a more detailed KYC process which enables their accounts to handle more complicated types of transactions.
Perhaps most importantly, this second tier of account does not require customers to work through a bank branch directly; they can set up an account through an agent, or using a cell phone. Given that cell phones will have more and more internet access, it’s not hard to imagine that they will take business away from bank branches, and that those cell phones need to be able to be used as a tool for the retail credit which has been lacking up until now. This new regulation will also avoid past Nigerian issues around agent-based banking—a lack of agents, or their level of trustworthiness or knowledge becomes far less significant when nearly all transactions can take place without their participation.
How Will Banks Adjust?
Today’s Nigerian banks are not prepared for the onslaught of demand for mobile credit products that is sure to arrive with increased access to broadband and financial services. The failure of mobile money in Nigeria until now is in part due to poor preparation on the part of banks or mobile money providers for the changing nature of their business. Many of these providers charge monthly fees that nearly amount to the average monthly salary—certainly not a tactic that will generate customers! They haven’t set up the trustworthy networks of agents, developed strategic products to meet the market needs or launched gradually in order to ensure that their products are high-quality and market ready. (more information)
Instead, some have focused on mobile banking apps for existing customers, while others have hardly moved technologically—without even enabling mobile banking access. Mobile banking is no longer a sufficient solution to customers’ needs in any case—as customers move towards handling more of their daily needs via cell phone and more customers emerge, lending will need to evolve.
In order to successfully meet the new challenge of mobile lending, banks need customized mobile lending solutions, rolled out with expert consultation from companies with experience in this field. Unsecured small business (SME) mobile lending will vary from rural mobile loans, which will be different than payroll loans for teachers who are members of a union. Banks need to build or buy a mobile lending solution—and time is of the essence.
In Kenya, CBA benefited tremendously from being first with their M-Shwari offering and KCB signed more than one million customers within the first month of their joint offering with M-Pesa. The first Nigerian bank to find a way to offer mobile lending, both to new and current customers, stands to gain new customers today and tomorrow and position itself as the banking leader for the future of Nigeria—with a caveat. Success in this field is hard to achieve, and banks must be sure to chart a smart path forward, working with firms with experience and expertise and building their products to match or establish customers’ needs—failure to do so will be strategically and financially disastrous.
