Although the 2004 wave of consolidation led to a near-doubling of bank branches, from 3535 in 2005 to 5565 in 2009, as per figures from the Central Bank of Nigeria (CBN), the number of financially included Nigerians was 23.6m by the end of 2008, according to Enhancing Financial Innovation & Access (EFInA), a financial development organisation. Since 2009, the CBN has promoted a new financial inclusion strategy that places the impetus on alternative channels to reach the unbanked. EFInA’s CEO, Modupe Ladipo, told OBG, “The EFInA’s ‘Access to Financial Services in Nigeria 2012’ survey showed that from 2008 to 2012, the proportion of adults that had access to formal financial services increased by 17.4m. In the next 12 to 18 months, we expect to see a significant impact on financial inclusion mainly due to CBN initiatives like mobile money, agent banking and the ‘cash-less’ policy.”

UNEVEN SPREAD: EFInA’s financial access surveys of some 20,000 consumers have tracked inclusion biannually since 2008. The 2012 survey found that the share of adults with access to formal financial providers had risen from 23.6% in 2008 to 43% in 2012, with 32.5% formally banked (28.6m people) and 10.5% (9.2m) covered by Mutual Fund Basics (MFBs). However, 76.2% of rural inhabitants and 72.8% of adult women were still outside the formal financial system. The south-west has the highest inclusion indicators, with 57.7% of the adult population included, compared to the northwest, where a mere 22.5% are included. Tracking all branches of banks and MFBs, ATMs and post offices using GPRS mobile data technology, the CBN has launched a Geographic Information System in partnership with the Bill and Melinda Gates Foundation to map financial access points nationwide. Some hope to see faster change. “The entire financial services sector should work towards full digitisation of the payment process from end to end,” Ayo Bajomo, Eartholeum’s executive director and COO, told OBG. “While it may achieve some operational cost savings for banks, the current approach to ATM deployment will not significantly change the amount of cash circulating through the economy because they are largely used for cash withdrawals. However, with proper integration of the various stakeholders in the financial ecosystem, ATMs and electronic kiosks can be used as a catalyst to drive electronic payments. The Central Bank should channel savings achieved from reduced cash handling costs into stakeholder education and incentives to facilitate the use of electronic payment platforms. These will revolutionise payments and exponentially increase the adoption of electronic channels.”

INCLUSION POLICY: The CBN’s Financial Inclusion Policy (FIS), published in October 2012, aims to reduce the share of financially excluded Nigerians to 20% by 2020, with 70% of adults formally banked and an additional 10% served through other financial services like MFBs. In particular, the share of adults using payments systems is targeted to grow from 21.6% in 2010 to 70% in 2020, while the share holding savings accounts should expand from 24% to 60% in the same span. Credit-active clients should increase from 2% to 40%, while all adults are expected to hold “know-your-customer” (KYC) bank ID cards, up from 18% in 2010 and a projected 59% in 2015. While this will entail moderate growth in coverage of bank branches, from 6.8 branches per 100,000 adults in 2010 to 7.6 by 2020, and in MFB outlets, from 2.9 per 100,000 to 5, the major focus is on alternative banking channels such as ATMs, point-of-sales (POS) and mobile agents. The number of ATMs per 100,000 adults is expected to grow from 11.8 in 2010 to 59.6 in 2020, while POS numbers will rise from 13.3 to 850, and new mobile agents from no coverage to 62 per 100,000 adults in the same span according to the policy. Given the near saturation of the formally employed market, the priority will be to target informal traders and farmers for future growth.

MOBILE PLATFORMS: With some 110m SIM cards in circulation the potential for leveraging mobile platforms to expand access to the unbanked is significant. The CBN has licensed 20 mobile banking operators since August 2011 (up from an initial 16), although the first pilot project was launched by PagaTech in September 2010. “Mobile money has been slow to take off in Nigeria,” Bunmi Lawson, CEO and managing director of Accion Microfinance Bank, told OBG. “Unlike East Africa, it has not yet reached a tipping point.” Yet the mobile money ecosystem is growing. In contrast to other markets like Kenya, the CBN specifically bans telecoms operators from taking the lead in rolling out such products, favouring banks instead. Banks like GT Bank, Stanbic IBTC, First Bank, Ecobank, UBA (through Afripay) and Zenith Bank had all been granted licences by 2012, while independent platforms like e-Tranzact, PagaTech, Fets, MK udi, Paycom and Eartholeum are open to all operators and banks. To encourage greater flexibility and uptake, the CBN has applied a three-tier KYC framework for non-banked mobile banking customers. Mobile banking platform providers have been expanding the number of participating agents since early 2012, with PagaTech and e-Tranzact building the largest networks.

“Challenges to the development of mobile banking are a chicken-and-egg issue: do you expand the number of agents deployed first or do you drive an expansion in your subscriber base to incentivise new agents?” Uzo Eziukwu, managing director and CEO of Parkway Projects, told OBG. Amongst the banks, First Bank is estimated to hold a roughly 35% share of the mobile money market. By 2012 the survey conducted by EFInA found that some 4.8m adults in the country were aware of mobile money services, although only an estimated 0.4m were registered for one of them – most often simply to buy mobile airtime top-ups. The second most common use is for remittances, usually from mobile phones to withdrawals from ATMs. Yet by July 2013, the CBN estimates some 5.73m Nigerians had signed up for one of the services. Despite this accelerating usage of mobile services, the market has not reached the critical mass necessary to ensure the profitability of platform operators. “It took a good three years from 2003 for the use of ATM cards to reach a critical mass and take off. It would be disingenuous to believe the use of mobile banking services will take any less time,” Uzo Eziukwu, CEO of Parkway Projects, told OBG.

AGENCY BANKING: The regulator is encouraging banks to expand their reach through an agency model of banking. “While the formal employee segment is practically saturated by banks eager to lend, the next step will be for banks to reach out to informal employees and farmers,” Niyi Yusuf, country managing director of Accenture, told OBG. Through guidelines published in February 2013, the CBN allows third-party agents to represent at least two banks at the same time. While less affluent customers tend not to use bank branches, the new agency model, similar to that used in India, expects that agents familiar to local communities will engender more trust in financial institutions. Meant as a side business for shops with a high cash turnover (such as supermarkets, restaurants, pharmacies and kiosks, for instance), banks can either outsource agents to third-party operators or recruit their own.

The Nigerian postal service, NIPOST, will also play a central role in collaboration with banks. A financial literacy steering committee was established in July 2013 to leverage the financial inclusion policy and educate potential customers. “We expect to see significant uptake of mobile money, facilitated by the agency banking model, in the 18 to 24 months from mid-2013,” Modupe Ladipo, CEO of EFInA, told OBG. With the registration of agents starting in July 2013, the first effects of this new distribution channel should be felt in 2014 once banks have established their agency infrastructure. Although the new banking model is still in its early stages, both the CBN and participating banks expect unconventional channels like mobile and agency banking to drive significantly higher use of non-cash payment methods as well as account ownership. Striking the balance between ensuring competition and supporting banks as they seek to achieve scale is key for the CBN. While regulatory requirements for such channels have been moderated, the regulator will also have to keep a close watch on market conduct as banks pursue innovative means of reaching unbanked customers.