There are many innovative solutions available to the Central Bank of Nigeria, but is it taking advantage of them, or just going with the old way of doing things?
Earlier in August, in a sudden move, the Central Bank of Nigeria (CBN) changed its International Money Transfer Operators (IMTOs) policy. The change was so drastic that the licences of all money transfer services, save three, have been revoked. The three remaining are old players in the scene relatively speaking - Western Union, Moneygram, and Ria.
The decision was made in the interests of curbing the growing unlicensed money transmitters operating in the country, and also - in the words of a press release - to ensure that no ‘attempt aimed at undermining the country’s foreign exchange regime’ is condoned.
Much has been written on the reasons, however, I’m interested in this from an innovation point of view, and from the point of view of the many people who were using newer, more innovative money transfer solutions.
Several startups have been finding more technological, and cheaper ways, to allow users to transfer money. The issue is a rather simple one. The African diaspora is huge, and many Nigerians need easy and cheap solutions that will help them get money to loved ones in their home country. It’s got to be an easy transaction without a lot of friction. There’s a good reason why Nigerians are sending money home - they didn’t’t just wake up in the morning and decide it’s a good day to send money. There are obligations, needs, and reasons. After all, most of them are somewhere else in the world because they found they could get a decent job that could help with their responsibilities at home.
Several startups like WorldRemit, MFS Africa, Transferwise, or Azimo found solutions for these people where money transfers can be almost seamless. Many of the solutions make use of Digital Payment Services (DPS) where money can be sent using mobile phone apps and SMS services, in partnership with retailers and service providers.
The CBN announcement has its pros and its cons. The pros are obvious - better control, more safety. There obviously needs to be adequate and effective regulation. It’s good that CBN consolidate the numerous avenues to send money into the country - with only three partners to work with, managing fraud and laundering is much, much easier and effective. That’s a plus.
The cons, however, are much more complicated. There is a question about these three providers that needs to be answered. All three have been around for a long time, but with that also comes antiquated systems and unnecessary costs in today’s technological landscape. Do these partners have the capability, or the plans, to provide seamless transactions for users at a low cost? In order to get at the big fish involved in laundering and fraud, the common person is being cut off from valuable services that are really changing lives.
Does the diaspora have to now go to a Western Union agent in person, fill out the necessary forms, bring in all the necessary paperwork such as proof of address etc., conduct the transaction and then send the necessary Money Transfer Control Number (MTCN) to the person they’re sending it to, and then pay the fees? At the time of writing, it costs 9.99 USD to send 5 USD to Nigeria if you’re sending cash! Sure you can do it online, or make use of the Western Union app, but then you can only make use of a VISA or Mastercard credit card to do it - something that many Africans do not have. Many do not even have bank accounts.
The beauty of DPS in recent years has been the ability to circumvent these options and pay someone directly to their cellphone, with digital money they can actually use. Or if they want the cash, they can draw it from hundreds of agents around the country. DPS also allows you to pay for goods and services, and then send a coupon or code via SMS to someone else, who then simply pick up those goods and services from the relevant retailer or service provider. While the three players above provide similar services by allowing users to pay bills for others, it’s still not exactly the same thing.
In my opinion, remittance itself has to disappear from the customer’s experience. Amazon has showed us the value of the ‘one-click payment’ service. Amazon are also a good example of how borders are closing - I can order almost anything from Amazon from almost anywhere, and have it delivered to just about anywhere. The costs will change, but the borders don’t mean much. This is the sort of thing that needs to start happening in the money transfers space. For example, instead of sending money home to Nigeria, why can’t I be allowed to pay for groceries and medical supplies from select partners, and then those goods are delivered to my loved one’s door? That kind of thinking is what needs to enter the money transfer space, and in the case of many startups, it has.
I think it’s a great that CBN has chosen three solid partners in solving their problem, but often in Africa we focus so much on regulatory framework without the bigger African picture in mind. Perhaps these three players don’t have everything in place now to meet the true needs of many, many Africans - but do they have the plans and strategies to do so? Or are they still thinking in one, limited context? It’s not about remittance but rather about the end result.
In theory, the partner selection by the CBN is crucial. If they just picked the biggest remittance providers because of who they are, based on historical and e ven political relationships, that’s not helping us all in the long run. In my opinion, innovation is key here, and we have the technology in DPS.
I love the example of Tanzania. In 2008, less than one percent of Tanzanian adults had access to mobile financial services, but by 2013 this shot up to 90 percent. As I explore in detail in my bookDisrupting Africa: The Rise and Rise of African Innovation, these services are effectively offering a huge amount of people the security and benefits of bank accounts (these days, even interest is being paid out) - it’s making it easy for people to invest into the financial system. It’s just that the financial system is looking very different!
The Bank of Tanzania (BOT) has taken a “test and learn” approach, inviting the private sector to partner with them in opening up solutions and freeing up financial services to the common person. "We have learned that new technologies that augur well with the Central Bank's objective need to be nurtured and monitored closely to ensure they do not cause any financial instability or reputational risk that may affect the country's payment systems. This approach has made digital payment services in Tanzania a success story," says Prof Benno Ndulu, governor of BOT. Colaboration has been key.
Africa can leapfrog traditional infrastructure and find new solutions to its challenges. In the case of money transfer solutions, there is a lot on the table. My hope is CBN and its partners have a plan - for the sake of the long term.