10 Predictions for Digital Payments in 2020

2019 was an interesting year for payments globally, and our dear Nigeria wasn’t left out of the parte. But 2020 would be even much more exciting as many of the payments food that got on the fire last year would be served piping hot at the start of the new decade. 2020 would be lit!

As usual, I would be trying out my hands in seeing the future even if I desperately need a pair of glasses to see the tip of my pointy nose in the real world.

So, here’s the third annual prediction of the payments ecosystem in Nigeria. My predictions are always on point: most of them would never happen, and I’m no better than a new age Babalawo. But then who cares?

Let’s dive right in!

#1 Despite CBN’s push, commercial banks won’t crack retail credit
If you didn’t skip Economics 101, you would know that retail credit drives consumption within an economy. Our Nigerian bankers know as well, but maybe they just don’t give two flying horse legs. The CBN has been pushing them with stringent regulatory measures but you can’t give what you don’t have. Our bankers are mostly of the Shashe type and there isn’t a shred of retail DNA in their body. Come December 2020, the drive for retail credit would only have been marginal with banks turning their backside to collect the cane that the CBN would be using to whoop them for not expanding credits

#2 Account-based payments explode. Rapidly overtakes card payments online
Card payments suck in Nigeria, and it isn’t a secret and using accounts to make payments for services have been the mainstay of Instagram and Whatsapp commerce in Nigeria for almost 5 years. But automating and wrapping this around with some beautiful APIs would go mainstream this year. It would touch at least 50% of all card payments. How we will confirm if this prediction is accurate or not is anyone’s guess.

#3 MTN gets a PSB license. Trouble ensure for bankers
MTN has been dancing around financial services for as long as chicken lacked teeth. Last year they got the super agents license and they are already doing something with it but it seems their PSB license application has more dust on it than all the sands at Eleko Beach. But give it to MTN, they don’t give up easily, so expect that somewhere and somehow, they would meet the requirements and get their PSB license. Then trouble ensures for all bankers.

#4 Monthly interbank transfer hits 300m/month and it would be fueled by cheap low-value transfers
Last year, I predicted that interbank pricing would crash; the CBN didn’t disappoint. Now that you can now do transfers as low as N10 a pop, start seeing crazy emergent behavior where it’s now way cheaper to use your app or USSD to send N250 for bread and moin-moin than taking Keke Marwa to the nearest ATM.

#5 Opay will be one of the top ten banks in Nigeria
Everyone seems to be screaming about how the Chinese African juggernaut has ridden roughshod over GoKada and Max.NG. What they haven’t paid attention to has been the massive growth of the payment infrastructure backing it. In 2017, the first thing Opay did was buy the derelict Paycomm mobile money which has now grown from nothing to becoming the seventh-largest player on the interbank market. In 2020, Opay will push massive retail credit, offer better rates for investments, and their size means money stays within their ecosystem than move out. Expect them to get a seat at the Banker’s Committee soon. And if they ain’t invited, they would buy one of the commercial banks.

#6 CBN kickstarts Open Banking
APIs rule the world and the last walls erected by banks against the onslaught customers integrating their bank services into other apps are crashing down with open banking APIs. Nigeria has been slugging it since 2017 but this year, CBN will back it with a directive and possibly adopt the standards being done by Open Banking Nigeria (disclosure, I’m a trustee at Open Banking so this is as much as a prayer and as a prediction)

#7 Agency banking becomes successful as the number of agents hits 600K
My good friends at SANEF had an amazing 2019; they did multiples of what they started the year with. The growth of adoption would see agency banking exploding to over a million agent touchpoints. The vast agent banking network would drive the emergence of new payment products and business models from fintechs. But but but, don’t dance too fast, this would be dominated by MTN as they are pushing more infrastructure and agent recruitment spend that all other super agents, combined. Those guys don’t play around!

#8 A heavy hitter launches a digital bank, eclipses all the struggling existing small players
Many players have tried to crack the digital bank nuts, but it has been mostly eggs thrown at walls just to pull it down. If you call yourself a digital bank in Nigeria today, you are probably too small to be just a little over insignificant. But come this year, someone (probably not a Nigerian entity) puts money down to end this argument and launches the Monzo of Nigeria. But it wouldn’t be any of the players we have now.

#9 A prominent international player buys a major fintech (think Flutterwave, Paystack and not Interswitch)
Visa just plopped $200m to get 20% of Interswitch but doesn’t own it and would have to share the crumbs and strategies with other institutional investors. This year, however, a big hitter would come for any of Flutterwave, Paystack, or even some of the lesser-known but kicking-it fintechs.

#10 Whatsapp decides to launch the next payment play in Nigeria using Facebook Pay, trouble starts for all fintechs
Whatsapp would land forcefully in Nigeria as it’s first foray to own payments within the African ecosystem. After all, if the only massive growth potential left in the world is in the SSA, why not start from the palace of the king of Africa?

#11 The one prediction 100% to come true
Most of these predictions are at best an educated guess at what could happen, which isn’t better than a bunch of bananas trying to eat a monkey.

From the Darkness to Light: A Case for Digitizing the Nigerian Capital Market

I wasn’t too excited when MTN got listed on the capital market. After all, they were flat out against being a public company. The IPO was hyped and then postponed for like 5 billion times before it petered out. And it’s at the last minute that they reluctantly got dragged to list shares by introduction; even then, it was more of a meh situation. Then the shares started an upward swing in valuation, and suddenly everyone wanted a piece of the pie: Since it got listed in May 2019 at N90, the shares have gone on to N138 in September 2019. Who doesn’t want an asset that swings up 65% within four months?

MTN didn’t plan to come to the capital market by choice. Its listing is part of the condition for getting its historic $5.1b fine reduced to a paltry $1.7b. And it got fined in the first instance because it broke the NCC’s rule of registering its customers; it had 5.2m unregistered customers too many.

In short, the MTN’s market rally got everyone itching to get into the market; however, this new interest in the capital market did not meet the market ready. The hassles of buying and trading equities that have persisted since its inception only allowed for the fanatical investors to surmount the long and seemingly sadistic process. This has always been counter-productive, but this manifested all too clearly in the MTN listing. Supposedly “lazy” investors, millennials, and other interested newbies found it difficult to get into the game, and most of them decided that the hassles of entry were not worth the shares after all.

With all the issues we face in Nigeria daily, who wants to spend precious lifetimes filling paper forms even if MTN is growing at 1 gazillion percent per month?

Getting into the Nigerian capital market is torture!

A retail investor, probably me and you, can only get into the capital market through a broker. You need to find a good broker, then open a brokerage account which involves completing the Central Securities and Clearing Systems account opening form, alongside the broker’s account opening form, providing a valid means of identification, utility bill (or any other valid form of residential verification documentation), and passport photographs. You will then wait another 48 hours (at the minimum) for the account to become operative, then proceed to fund the account and trade the shares. Everything being equal, all these should take about a week. This is, however, usually not the case as textbook interpretation is typically different from real life. Recently, a couple of friends tried engaging with a brokerage firm, and they reported that the time between making first contact to account opening took about a month. Who has time for such?

This, amongst others, points to the underlying reason why it is difficult for millennials, “lazy” investors and newbies to play in the capital market. Mainly because when juxtaposed with commercial banking, the ease it affords has not been duplicated. The accessibility and ease of banking services like responsive banking applications, opening accounts online, transacting with USSD, all of which can be done with minimal effort and within minutes has become their reality. They neither have the interest nor patience to go through the arduous process of getting involved in the capital market or trading on the stock exchange.

Let’s agree that these processes were put in place to stymie money laundering and ensure upmost compliance with applicable laws, regulations, and the dictates of regulators. However, this cannot make for a good excuse as the banks are faced with similar, if not more onerous, laws, rules, and even regulators. Since the banks have devised ways to provide fast, easy and solution-driven technological innovations to its customers while remaining within the confines of the law, it is clear that the blame lies squarely at the foot of the capital market operators.

Another prohibitive feature of the capital market is the transaction cost. At 1.35% of invested amounts, all the benefits that could accrue to the investor must have been given up as fees.

The capital market is paying dearly for being analog

While not substantiated, it has been rumored that not more than 200,000 unique investors have conducted any capital market transaction over the last two years. This data may continue to be nothing more than speculations because, asides the trading data from the NSE, getting information from this market is synonymous to getting water out of rocks.

Since the heydays of 2008 when practically everyone was involved in the equities game, the market has been in freefall. But as the demographics evolve, 90% of the young people who have entered the job market don’t have any brokerage account. The fact that the market continues to be roiled and influenced by international investors who are not committed to Nigeria and can move billions out at the slightest hint of trouble is no consolation.

Again, in comparison with the banks, it is clear what great strides have occurred in the banking industry in the last 5 years as a result of intentional digital innovation and transition. A clear example is in the number of people who have adopted digital banking solutions since its inception. According to the KPMG annual banking survey, in 2012, only 6% of account holders use mobile banking, now in 2019, 59% use USSD and 55% use mobile and web banking applications. Another case in point is interbank transactions which, last year, did 729 million transactions with about 18 million unique Nigerians participating.

We know for a fact that it is not the lack of interest or knowledge of investing that has bred a reluctance to participate in the capital market. With the likes of PiggyVest and Cowrywise attracting over 300,000 users, we can correctly deduce that Nigerians both know the benefits of investing and wants to invest. Other alternative investment options like FarmCrowdy and Thrive Agric get regularly oversubscribed. It goes without saying that the future of investing is any viable investment option that can afford a mobile, fast, seamless and cheap experience.

Guys, let’s get something done

The Security and Exchange Commission, the capital market regulator, knew the capital market needs urgent intervention which in 5 years might be a little too late. This is even much more dire for CSCS and the NSE as FMDQ moves deeper into the market. To better understand this, in 2012 FMDQ was registered by the SEC as an over the counter (OTC) securities exchange (an OTC is a platform where securities of companies that are not listed on a formal exchange are traded) but fully launched in November 2013. Today, FMDQ operates the largest securities exchange in Nigeria, with an average annual market turnover of circa $548 bn over the last five years. But by August 2019, FMDQ became Africa’s first vertically integrated financial market infrastructure group with an OTC exchange, a central clearinghouse, and a depository. FMDQ has also started the FMDQ Academy, an education program for the Nigerian financial market stakeholders — governments, regulators, operators, investing public, media, and students.

It is clear that FMDQ has positioned itself and is continually bringing the innovations that CSCS and NSE lack, such as APIs and faster turnaround for account opening and trades, adequate sensitization, and knowledge sharing. The market will do well to thrive as a pluralized one rather than a monopoly; hence, the CSCS and the NSE in other to survive and compete favorably should heed the clarion call for the need to significantly transform the capital market.

So, what’s next?

Without prescribing specific methods as ways to move the needle, the most critical thing the capital market should adopt should be something, anything, that allows the opening of brokerage accounts from mobile applications with ease and enable trades to be driven seamlessly. As a rule of thumb, a millennial should be able to trade, using just a thumb, on a smartphone, or a USSD within 1 minute at the most.

The market should also drive a massive knowledge and sensitization campaign. Most Nigerians don’t know how the capital market works. It’s not for them to know, it’s for the operators, who need these retail investors, to demystify how the market works.

Brokers, NSE, and the CSCS should strike an integration and distribution partnerships with banks and telcos who already have the reach and the eyeballs.

And boy, the cost of trading is to not friendly for the reluctant millennials. The cost of transactions should possibly not be more than N100 per trade. After all, more volume means more revenue, even if the margin for each is smaller.

We never know, these steps, amongst others if steadily implemented, could (could is the word!) be a catalyst for the turnaround of the capital market.

Why QR code payment would never succeed in Africa

Paying with QR code is so cool. All you need to do is bring out your smartphone, take a snapshot, and voila, payment is made. The simplicity and versatility are simply unparalleled. QR code payments have been adapted from in-store shopping; to online payments; to even paying for cable subscription on TV.

As much as you would love QR code, it’s not really a global phenomenon. While QR code is in use almost everywhere in the world, it’s more prevalent in China. It’s so popular in China that is regarded as a currency – it’s practically the only way to pay for anything. This is even more evident in that kids as young as four years may never have seen cash before. Remember, if you carry cash around in China, people will probably think you have lost your mind.

QR, which means Quick Response, code has a fascinating background. It was invented by a Japanese company called Denso Wave in 1994 as a means of tracking vehicles during manufacturing. Just imagine robots bringing out their smartphones to snap pictures of cars. That may not have been how it worked, but you get the drift. After a while, people figured that if QR codes could be used to identify car parts then it could also be used to identify things to be paid for. Before long, it was adapted to various situations. Considering that QR code is similar to a fancy barcode, it could now be put or printed on practically any surface with a display.

However, Tencent popularized the use of QR code for payments when it started embedding it into its WeChat platform. The accessibility and ease of use made for a viral adoption and the rest, as they say, is history.

So, if QR code is versatile, cheap, and cheerful, why hasn’t it been used to transform payments in Africa? I guess it’s easier said than done.

Seeing how successful QR code has been in Asia, many attempts have been made to bring this magic to Africa. But practically each of these has failed woefully. I recall a meeting I had with one of the global payments giants in Tanzania in 2016; they wanted to use QR code to make payments in the country but failed to read the tea leaves; the Telco they were pitching put them on the next plane out of Darussalam.

It’s not rocket science to figure out why QR codes schemes never work in Africa. Some are obvious while others require seeing beyond technology into the realities of the African space.

The lack of network effect is one of the major killers of payment schemes in Africa, QR code included. Quite a number of supposedly smart fintechs naively believe their innovative products can be scaled without leveraging on others; instead of establishing a common standard, they go at it alone. And usually watch the product die alone as well. Companies like Tencent and Alibaba who can define new ecosystems are a rarity. Majority of successful companies rely on common standards and collaborate actively with others to thrive.  By the way, there is now an EMV standard for QR code, it’s too little too late.

While the sale and adoption of smartphones have been impressive for years, the reality is that Africa is still an impoverished continent where 41% of us live below the poverty line. Being poor means only 33% of Africans can afford a smartphone even if they barely made it through getting a feature phone. QR code payments depend 100% on smartphones, and where the majority can’t afford smartphones, the chance of QR scaling is zero.

The beauty and elegance of QR code payments come alive when you use it; but needs a working Internet. Unfortunately, telecoms services in Africa are shitty because of many reasons; poor investment, dilapidated infrastructure, fiber cables getting sabotaged, sometimes thieves making away with batteries and other telecoms equipment. With a patchy network, payments get stalled, and after a few failed attempts that must have taken many minutes into completing a transaction, little wonder QR codes get abandoned

And even for the few that have smartphones, they hardly leave the mobile data on. Also, though most Africans get their internet from their mobile phones, data is still costly in most parts of the continent. Consequently, savvy users turn off their data; the chore of turning it on for just payment is significant friction that has made QR code payments not habit-forming.

Lastly, payments apps in Africa have poor usability, which doesn’t exclude even the largest pan-African banks. In fact, you could almost say that app usability is inversely proportional to the size of the bank; the smaller fintechs have snazzier designs and more responsive interfaces. Poor customer experience means it takes just a little too long to bring out a smartphone, unlock it, spend minute logging in, finding the QR menu, and getting payments done. Imagine a scenario at a retail checkout where a paying customer is spending minutes fumbling with her phone when cash and cards are faster. Here comes the death of QR.

While QR has stumbled across Sub-Saharan Africa, other payment methods, which are aware of the African realities, such as USSD and STK, have made significant progress. M-Pesa processes billions of transactions each year over STK. 35% of the over 700 million interbank transfers in Nigeria in 2018 were made on USSD.

Would QR code ever catch on in Africa as the infrastructure gets better and smartphones cheaper? Maybe. Maybe not. But for the time being, it has been certified dead on arrival, needing no post-mortem inquiry.

By 2050, traveling would be the past time of dinosaurs

The last time you got in a car, or endured a 10-hour transatlantic flight cooped up in a tiny seat, why did you do it? Why did you get up at foolish o’clock on a Monday morning to go and camp out in rush-hour traffic? It’s the same reason that a nomad gets on his camel to start his journey across a desert and that the executive in his Armani suit hops on his private jet: to get from one place to the other; to leave their present location and be in a new place; to experience a new place and all it holds. What if you didn’t have to get out of bed to get that intense workout, complete with the increased heart rate and adrenaline rush through your muscles? What if you could get to savor the taste of freshly baked Inuit bannock bread and French Macarons right from your kitchen on the other side of the world? What if you could feel the salty sting of the ocean on your face while looking down on the breath-taking view of the Shetland Islands from the top of Broch of Mousa without even taking a single step out of your house?

If we were to look at the history of transportation, we would conclude that it has traveled (every pun intended) a parallel path to that of industrialization and innovation. As technology got more advanced, man was able to go farther, go faster, see more, and do more. The novelty being somewhere else or seeing what is out there has driven man for as long as he’s been on the planet. The same reason Columbus built a boat and went in search of America is what pushes scientists to research and develop space travel. It is the same reason why writers and movie makers are still making a killing from selling time travel and teleportation.

I’m sure the first caveman who managed to figure out that he could get on the back of a donkey must have been considered a god. From that first bumpy ride to the jet age and then to conquering space, it’s always been about more: see more, experience more, explore more, discover more, have more influence, dominate more. All man seems to have ever wanted (like a greedy, needy baby who always wants more) is to get into the next new place, see what’s there and then move on to the next newer, shinier thing. It’s a classic case of curiosity that killed the cat, or better put, the greed that drove business. All we’ve ever wanted is more, to see what’s out there, to experience all there is. It’s the worst case of FOMO there ever was, and we’ve just been hopping from one invention to the next, all in a bid to satisfy this deep-seated hunger.

The question now is this: is travel really what man wants, or is it just a means to an end? Is the craze for building faster, cheaper, more efficient means of transportation just a matter of form over function? If man had somehow managed to unravel the mysteries of the universe, no one would have spent a red cent on researching space travel. Man’s best friend, technology (not his other best friend), in an ironic twist, is going to be the one to render travel extinct. 5G network technology is starting to roll out, virtual reality is being perfected, and IoT is getting cheaper: human existence as we know it is about to be turned on its head. Forget the four horsemen of the Apocalypse, these three are the ones to watch out for.

Just imagine for a moment that we come up with some sophisticated, super-cheap IoT cameras that can be strung all over the place. Cheap and cheerful. Tack that to a 7g network technology, and you have an immersive system that gives us a real-time Google Street View. To put the cherry on top, put a tech that does synthetic smell and taste, full-body haptic feedback suite; you could be literally anywhere you choose, doing whatever you wish, at the snap of a finger, or the press of a button. One minute, you could be swimming with hammerhead sharks in the Pacific Ocean and the next, be exploring the sun’s core (without getting roasted).

You could go practically anywhere and do anything you wished without the risks of accidents, plane crashes or becoming an inter-galactic barbecue. Say goodbye to speeding tickets, exhaust gases, long uncomfortable flights, the complications of atmospheric re-entry, the whole nine yards. With near-zero latency video, immersion and telepresence, your virtual experience could even be better than the real thing. So why bother getting in a car? Before you know it cars, planes, trains, and even spaceships will become relics of the lost age and talking about them will be like asking a teenager today if they know what a Walkman is.

By 2050, when nobody borders to travel anymore, our kids would wonder why we subjected ourselves to such cruel things like Keke Marwa and GoKada bikes. Jokes apart, immersive technology has a serious chance of reducing the need for travel because it would offer a better experience, subsequently reducing the negative impacts that cars and planes have on the planet.

Death by a billion transfers; the immortality of cash is exaggerated

‘Cash is king,’ so says the famous adage. But digital payments have been waging and winning a silent war against cash for years, but nobody seems to be noticing. We all say that cash can’t be knocked off, but we are so wrong because if you expected a bloody revolution where digital payments overtake cash in one fell swoop, you are barking the wrong tree. Digital payment has been like a guerrilla army, silently waging a war of attrition against cash.

In the UK, cash has been on a downward slide for years. In 2015, debit cards overtook cash, and by 2026, cash may join my ancestors. The size population wasn’t a problem before mobile payments exceeded cash usage in China. Bringing out wads of money in the Middle Kingdom would probably earn you an evil stare.

You would expect that a country like Nigeria, being a developing country, is immune to this, but the numbers say otherwise. Nigeria has about 18,000 connected ATMs as seen by industry data, and every month does roughly 72 million transactions valued at N550 billion. ATMs were the earliest and most reliable electronic banking channels in Nigeria, and they came with so much convenience.  Increased ATM usage is also helped by the fact that customers now have the flexibility of using other banks’ ATMs, as most of the banks are part of major interbank networks. Banks find it cheaper to pay fees to these networks as against setting up additional units in expensive-to-deploy areas. ATMs have been hugely successful.

However, the mobile explosion happened. First came mobile apps from Etranzact (native Java apps on Symbian phones) which at one time had 15 banks on its platform. People took to mobile technology in a way that has seemed impossible with financial services and products because people developed functional literacy around mobile phones – how to identify numbers, key in airtime tokens, read balances, etc. It helped that the mobile phone developers made the technology accessible and within reach of everyone, educated or not.  Then, USSD appeared on the scene. In 2014, GTBank, Fidelity Bank, and Zenith were the first three banks to go full scale on USSD banking for ordinary accounts; however, within two years, practically every bank has a full-service USSD banking offering for their customers

At the same time, telcos started expanding data services, and smartphones became cheaper. With improved customer experience and stable apps, the growth of mobile for services grew at over 100% CAGR.

In a pivotal moment in 2017, the launch of Alat by Wema showed what any bank could achieve with a mobile app in Nigeria. Alat, a branchless, paperless bank which provides financial services through its Android, iOS and web applications, is described as ‘Nigeria’s first digital bank.’ Beyond Alat, many successful apps have launched, such as PiggyVest, CowryWise, Carbon (PayLater), Wallet.Africa, etc.

Recent numbers showed that 79% of interbank transfers (an excellent indicator of retail digital finance usage) are driven by mobile phones.

Then the magic happened. In Q4 of 2018, interbank transfers overtook ATM transactions for the first time, and from January 2019, monthly interbank transfers have consistently exceeded ATM transfers. ATM volume shrank 4% in Q1 2019 as against Q1 2018 while interbank transfer grew 67% over the same period.

Quarterly qrowth of digital payments in Nigeria

Quarterly growth of digital payments in Nigeria

It’s clear, the people have spoken: Why travel 100 miles to get cash from an ATM while you can send the money to the recipient immediately from your mobile? Digital payment is particularly essential for financial inclusion as Nigerians in rural areas may not have immediate access to a bank branch but will most likely have access to a mobile phone which they can then carry out banking transactions on.

The implications of this may not be very apparent, but the impact would be cataclysmic for cash and for businesses that drive ATM transactions. Based on projections, transfers would do about 1.4b transactions this year while ATM usage would decline by 10% over the same period. Throw in the rumored reduction of fees; then you can imagine that fintechs that operate within the ATM space (device sellers, switches, card suppliers, etc.) have reached peak business growth.  It also means that as the convenience becomes apparent, there is going to be accelerated growth in transfers. Would this also affect POS and Web where the growth has been at 100%+ CAGR as well?

We also expect this to have an impact on banks and cash handling. But it’s a positive one. Cash operations is a pain for any bank, and the less cash they have to deal with, the longer in minutes the bank workers get added to their lives.

The verdict is in – Digital and mobile platforms are winning customers over, one mobile phone after another.