When payments moves up North
So you probably heard the news (or not?) — Digital Payments have made MEGA waves in the Nigerian Economy. It’s got investors itching to know what’s really going on in the motherland. Let’s sprinkle a little data on this for context.
FYI: For those unfamiliar with the acronyms used for payment channels in Nigeria — here’s a quick crash course: ‘POS’ refers to the point-of-sale machines commonly found in supermarkets, restaurants, fuel stations etc. ‘Mobile Money’ refers to the roadside agents in small shops/kiosks that have POS machines that can perform payment transactions such as cash withdrawals, fund transfers & bill payments. ‘NIP’ refers to instant fund transfers between different Bank Accounts initiated using Mobile Banking Apps or simple numeric shortcodes on non-Smartphones.
My, My, My! Take a look at that growth between 2019–2020! — a whole $124B growth spurt. The largest single-year jump (that is until we see 2021 numbers.) COVID-19 may have locked us up indoors, but that prompted a whole wave of new users that were forced to rely on some digital payment method to pay domestic bills, send money to relatives, pay salaries etc.
Now there were some initial fears that COVID may have been a yo-yo effect and Nigerians would revert back to the status quo once the lockdown restrictions were lifted, however early data from 2021 already indicates that this new reality is here to stay.
Below is data from NIBBS (the Nigerian Interbank Settlement System) that shows the combined monthly volume of POS, Mobile & NIP transactions between 2020–2021.
Those 2021 bars have persisted above pre-pandemic levels (Jan-Feb 2020) for the most part of the year! Digital Payments for the win!!!
While the news about e-payments in Nigeria has been refreshing especially for external observers, it begs the question as to which particular payment methods are leading the charge in the wave of e-payment adoption sweeping across Nigeria?
Well, I’m glad you just had that thought because I did some digging through the data and…..
Well, if you know anything about Nigerians, you know that we like to get things done kia kia — “quick and easy”. And that includes our payment method of choice — Direct Bank-to-Bank Transfers.
But before we move on, can someone explain what the heck caused the absurd spike in ATM transactions in 2020? Did I miss something? I believe we were all supposed to be in our houses, how did people get the chance to do THAT many ATM transactions.
Anyways, back to our point. Beyond the obnoxious upsurge in Bank-to-Bank Transfers, one thing that pops out of this chart is that light blue line that managed to surpass POS payments in 2019. ‘Mobile POS agents’ are the little roadside kiosks that are stationed literally every block in busy markets, densely populated urban areas, and semi-urban localities. The attendants at these kiosks have POS machines that let you withdraw cash, make a direct Bank-to-Bank transfer to other Bank Accounts, or pay bills (electricity, cable tv etc). But we all know that most people use them to get cash without needing to walk distances to find a nearby ATM (Data from SANEF, the industry coalition for the Mobile Agency business shows that Cash withdrawals alone accounts for 64% of all transactions passing through their network)
So if we could summarize the channel progression of consumers in the Nigerian payment landscape into a neat bedtime story — it would go something like this: Once upon a time, anytime you needed the money in your Bank account to move, you had to go queue long hours at a poorly ventilated Bank. But then came along these huge cyborg machines that spat out cash for you so you didn’t need to wait in lines at Banks any longer. Shortly after, came rapid-quick Bank Account-to-Account Transfers that let you move money without it ever needing to be converted to real cash. It unleashed a tidal wave of P2P, P2B, B2P payments that has continued to crest higher and higher. But alas, even with this incredible real-time novelty, there were still basic rituals of life that couldn’t just get done without Cash i.e boarding a public bus to head home after work. And so enters with a big bang a solution that lets you get cash quicker than those cyborg ATMs — 3 Champagne toasts for Mobile POS Agents!
Glad to break it to you but even with all this eye-popping growth, we have barely scratched the surface when it comes to deepening the potential reach of e-payments in the country. And that’s simply because a good proportion of Nigerian adults are still left out of the formal financial system. In fact, here is the lay of the land when it comes to the population of Nigerian adults that have still never owned a Bank account:
Now with that gigantic $517B circle in the opening chart to this piece, still fresh in your mind, I bet you couldn’t keep from wondering: “How much bigger can that pie get?” A couple of trillions? Well, judging from this chart above, it’s clear that Nigeria’s financial ecosystem would have to find a way to include the 38million people that are still left out of the formal financial system. What’s also equally fascinating for me is the geographical skew that gives us a bit of insight into where a majority of these non-Bank account owners reside — the NORTH. A whole 70% (27 million) of all financially excluded Nigerian adults reside in the NORTH. (Doesn’t that realization sort of knock you outta your chair a lil?)
But bringing it home for the crop of FinTechs focused on actually including the ‘excluded’ (i.e Bankly, Opay) → “What kind of digital financial products would actually appeal to Northern Nigerians?”
Digital Wallet Faux Pas? Surveys of the unbanked reveal that 31% of the unbanked report a ‘lack of regular income’ as the reason for not having a bank account (compare that with just 3% that report high-interest loans as their primary reason). With that as a given, a digital wallet for safeguarding their ‘petty cash’ may not necessarily be as enticing to this particular demographic, the way it may be for an urban Southerner who has greater access to steady paying, salaried jobs.
Agriculture? The North is known as the ‘Food basket of the Nation’ — where many families depend on subsistence farming for a living. We can wager a good bet that alot of the Cash-dominant microtransactions are driven by interactions between upstream and downstream agents in the agri-value chain. How can these startups design products that rival the convenience, trust and interoperability that Cash has offered these agro supply chains for decades?
Religion? A hot-button topic that we were all advised to avoid at the dinner table. But nonetheless given how central religious life is in most parts of the North, it will be foolhardy to neglect the influence that religious beliefs/influential religious figures may have on how well FinTech products may be received.
Gender? Another hot-button topic but still a very critical centrepiece that dictates many aspects of daily life for the average Northerner — Most popular FinTech products in the market today develop a single app or website for their male and female users. Will FinTechs with sights on the North need to consider custom gender laws that may require female and male users to be served differently? (By the way, who is to say that ‘apps and websites’ are the way to go? Internet penetration and digital literacy is much lower in the North than in the South)
In any case, these sensibilities will necessarily have to guide alot of the thinking, strategizing, planning and testing for any startup seeking to lure the 27million Northerners that have been left out of Nigeria’s booming financial ecosystem. Treating them as after-thoughts may risk serious market entry disasters (Remember Walmart in Germany?)
“Do any others come to mind for you?” — Drop a comment, I’m all for the conversation! :)
Adios! Until our next great conversation,
In the meantime, you can find me relishing every millisecond of this last day of my work leave :)