Category: Nigeria

Adedeji Olowe shies from politics but has tons of opinions about Nigeria. He’s passionate and stakes his future here.

Three reasons why current accounts are for dinosaurs

When I started working as a new hire, one of the things shoved down my long throat was my salary account, which was a current account. I didn’t know my left from my right as the account was free to use so all the complaints of charges that customers were screaming about were like cold water pouring off the back of a randy drake.

I wasn’t alone; as having a current account is a right of passage for anyone starting work at structured (more formal) organizations. You go through finding references, and they dashed you a chequebook, with which you can always make withdrawals of the pittance you are paid.

But as banking evolved in Nigeria and everyone got on the electronic channels, things changed dramatically to a point where it is now gross foolishness to keep your current account.

Going back to what bank account products were meant to be, current accounts, called checking account in the US, are designed to be used for everyday transactions, allow you to give cheques to friends, billers, and loan sharks, to draw money from your accounts, etc. Because of this, the stringent requirements needed to have a current account include getting two other current account holders to provide references for you; a letter from your employer to show that you earn something, no matter how little. For these services, Nigerian banks charge a commission on turnover (N5 per N1,000), which recently transformed itself into an account maintenance charge (N1 per N1,000). Outside Nigeria, banks charge a flat monthly fee to run your current account which could be waived if you maintain a minimum amount.

Savings accounts, on the other hand, were designed for savings. You need minimal documentation for this (identification), and you earn interests on whatever amount you leave hanging around each month. However, if you withdraw from it too often, you don’t get to receive any interest.

Nigerian banks being alaseju, are very good at collecting their charges. In fairness to banks, these charges are fair, but because banks do a poor job of communicating with customers, the charges look spurious and annoying.
Throw in the trouble of getting two random uncles to be your reference, inability to put together all the documents the banks want, and the annoyance of seeing your money disappear month after month, Nigerians made a nice detour from current accounts. The numbers speak loudly: of the 111M accounts, 24M are current while 83M are savings account.

The savings account has been so bastardized but is now serendipitously solving the problems of everyday Nigeria. You don’t need to wonder while wandering to know that current accounts’ usefulness has gone with the winds. A regular savings account come with a card for ATM, POS, and web transactions. Savings accounts are also strapped with mobile, internet, and USSD banking, you can do interbank transfers, pay your bills, and buy airtime.

So, what do you lose? You can’t give cheques, but nobody gives two flying horse legs about cheques anymore. In fact, the CBN itself has waged war against cheques up to a level that its use is restricted to those with antediluvian attitude and my friends who borrow money from consumer credit companies (you know yourselves!). You also can’t walk into LG and Samsung to take on new TVs hoping to pay small small. For that inconvenience, you are free from many charges including but not limited to a 0.1% account maintenance fee, search fee, stamp duty fee of N50 for every deposit over N1,000.

So for all these pain of current accounts, only a masochist would enjoy having one. And the three reasons? Read from the top again :-).

A rant about the evolution of telephony in Nigeria

A long time ago, when chicken had teeth, the whole of Nigeria (not half of it, the whole!) had 400,000 lines for 80 million people. Of course, only the rich had these phones. Everyone went to the business center to make calls and do Yahoo faxes. Or you climb a tree and shout yourself hoarse if you want to talk to someone near.

Then NITEL, the government parastatal, decided to do analog mobile telephones. It cost three arms and ten legs. Only the thieves, the politicians, and cocaine pushers got them. The first time I held an analog Motorola Startac in my hand, I felt like God’s nephew. It was a status symbol for the successful Ibo traders (naught-nine-naught).

Then, the private Telcos brought in their technology. Notwithstanding, Multilink, Intercellular, Starcomms, and others felt telephone was for the rich boys. They cost N150,000 to get one. A few senior executives got these lines to call their girlfriends on the phone (that was before we started calling them side-chicks). The rest of Nigerians were left to shout at each other just to talk.
At this time, just before Abacha bit the apple or kicked the bucket, he handed over GSM licenses to everyone except my uncle. Both Celia Motophone and Mr. Adenuga setup 30,000-line exchanges. Apparently, the target wasn’t the common man. The phone services never saw the light of the day.

Sometimes just after my sister was cleaning the plates used for the 2001 New Year party, the President of the Federal Republic of Nigeria got upset, instructed the technocrat leading the NCC, the nation’s watchdog guarding the national electromagnetic asset, to auction some frequencies for $285M a pop. MTN and Econet Wireless raised Benjamins from everyone and got themselves some licenses. Hey, something is gonna happen?

In August 2001, MTN and Econet Wireless launched their brand new but mightily creaky networks. SIM cards were sold for N20,000 a pop, and you can call a few friends for N50 per minute. Again, only the rich could buy SIMs and phones. Wait, won’t these guys learn some lessons from history?

Luckily, guys at MTN and Econet leased some wisdom and crashed the cost of getting a new SIM. MTN did BOGOF (not what you think it is) and it was buddie buddie time at Econet. At this incredible time, everyone had a phone, but calling was still an unforgivable N50 per minute. Someone discovered flashing, and madness ensues.

Everyone had a phone, the poor people flash the rich to call them back, just like “collect call” in the US. If you don’t know what flashing means, ask your uncle. If you have any, ask your “uncle.”

The whole country begged, rolled on the ground, threatened, even sacrificed goats so that MTN and Econet could charge per second, but they said it was technically impossible; God didn’t like it; heaven will crash; blah; blah and damn blah. After a while, they lost all excuses but N50 per minute calls remained.

Somewhere on the horizon, sometimes in August 2003, a green bull galloped into the Nigerian China shop, and hell was let loose. Glo brought per second call billing and within a few days, MTN and Econet (they changed names more times than I have changed jobs) came out with per second billing as well.
Many Nigerians, including yours sincerely, swore for MTN and Econet (or was it Vmobile?).

For the first time, Nigerians found their voices, and since then, with calls getting cheaper by the day, nobody has had peace. Flashing died a withering slow and agonizing death. Even your Maiguards will call you and stay on the phone for 45 minutes at a time.

Now, it seems the end of the beginning has passed.

You see, the Internet has become so cheap and Whatsapp so pervasive that only psychopaths send SMS and nobody calls again. Everything is now done on Whatsapp. ARPU, the means by which finance guys in telecoms skewer themselves, have been steadily declining over the past five years.

17 years is a short time for what the country has done for telephony. I doff my hat. But will the same happen for power, payments, and financial inclusion?

Only Making Interbank Transfers Free Can Fix Financial Inclusion in Nigeria

Financial inclusion is a buzzword, but it’s also a real issue for third-world countries. Many things have been thrown at it, including the kitchen sink. As far as Nigeria is concerned, nothing seems to be working. Nevertheless, I believe that significantly reducing the cost of transactions, by making interbank transfers free, will break the exclusion barrier all through the invocation of the Network Effect.

The Network Effect, also known as Metcalf’s Law, says that the value of a network grows as the square of the number of its users increase. In simple English; when there are many people in a network, there is always someone you want to do aproko with.

Why am I so confident that this is possible? Well, I have the evolution of mobile telephony in Nigeria as a reliable basis.

Let’s learn from the telco revolution

Before MTN and Econet transformed mobile telephony in Nigeria, you would have imagined that we all used witchcraft to talk to ourselves. Apparently, we did! Or how would you describe 400K active lines for a nation of 126M disconnected souls?

However, what most people don’t know is that just before the GSM licenses were awarded, Nigeria had 6 GSM licenses issued by Obasanjo, and before then, 33 GSM licenses were given by the Dark Goggled General.

Many licenses and nobody was talking. The GSM providers felt telephones were for the middle-class and HNWI (High Net Worth Individuals, the fancy name for people who have hammered). Maybe that was true, but unfortunately, Nigeria never had many of the rich guys. The GSM providers failed spectacularly.

So, when MTN and Econet, the new kids of the block of 2001, started their operations, they came to the market with N20,000 SIM cards; only the middle-class and uber rich could get them. Apparently, some of them failed their networking classes and didn’t know about Metcalfe’s law. I’m happy there were remedial classes: MTN promptly introduced BOGOF and Econet brought Buddie to the masses. The market exploded; I finally got my SIM and phone, my friends got theirs, and we trade stories about girls. Nigeria was never the same again!

Just like telephony where you call those within your social and business circles to peddle rumors, close business deals, track errant staff, or check on your grandmother; transfer of money is also a social and business construct.

We thought telephones were for the rich

In the days when telephony was expensive and not for the poor, according to General David Mark, Nigerians thronged business centers to make local calls and cybercafes for international calls. For the trivial gist, they talk to their neighbors. Today, for the essential transactions such as transfers and bill payments that cost N50 a pop, they use their mobile apps and USSD codes. For small purchases of N10 to N1,000, they fish out dirty Naira notes from corners we can’t talk about to give their maiguards, bike men, Garri sellers, etc.

Why? Because it doesn’t make sense to use N50 to transfer N200.

My fancy friends in the e-trade argue about financial literacy, money stuffed in mattresses, etc. What they have not been able to explain to me is that even with poor literacy in Nigeria, how does everyone know how to use mobile phones: punch in airtime credit, dial numbers, and read digits of those calling them? Because when technology is demystified and pervasive, the knowledge becomes commonplace.

Ask yourself, when last did a new phone come with a manual even though it’s significantly more powerful than the dead-ass Motorola Talkabout of the early 2000s?

There is a history of transaction growth following price reductions

Back to cheap transfers, when the Central Bank of Nigeria crashed the cost of transfers from N100 to N50, the monthly transfers exploded from the measly 7M a month in 2016 to 58M in May 2018. The average transaction size dropped from N320K to N112K. In 2001, it cost N50 per minute to call; most people didn’t bother to call anyone. When the networks crashed the cost to Kobos per second, calls exploded.

Dropping interbank transfer to N5 for bank customers would do more magic than anyone could imagine. Not only that, making transfers of an amount less than N1,000 free means that the flow of money to the excluded would be free. When it is free to send money to my shoe shiner, he would learn how to receive it and also send it to others as well. After all, if he knows how to check his airtime balance, he will know how to check his wallet or account balance. And he would be able to send to his friends and his young wife in the village; all for free.

Bankers are scared because they think of the margins that would be wiped out. But, the addressable market is so huge, probably 100 times more, than what we have today. Instead of the 58M monthly transfers we are happy about, we could be talking about 5B transfers a month. Most of these would come from the N20 to N500 transfers that are small, trivial and extremely habit forming for even the least educated, as long as they have a phone and fingers to punch the keys.

Nigerian Banks of all shades, the CBN, international Development Finance Institutions (think WHO, DFID), Bill Gates, etc. have spent years and a lifetime trying to make Financial Inclusion work in Nigeria but the efforts haven’t yielded tangible fruits. Why not try making transactions cheaper? After all, nothing beats free.

I hate shopping online. But for a different reason

Just like every other man, shopping in store is the very worst punishment, just next after going to hell. In fact, it can be worse than going to hell if you must do that with a woman. Much worse if you have to do that with your daughter. It’s not hard to figure out: women love good things and must check them out; men want to save money so they need to get out of the store, ASAP!

Would you think shopping online should be a panacea? That would be correct as long as you ain’t a Nigerian. Shopping online in Nigeria is hard as it’s fraught with so many problems not limited to lack of trust (will they chop my money or will the items I ordered be the one that shows up?), delayed delivery (will my emergency items come after a year), or failed payments (damn, did I just get debited and it says transaction failed?).

But then, many times when the items are low risk, or I feel particularly adventurous, I still take the plunge to shop.

Searching for items to buy isn’t even that bad. Search for anything and Jumia or Konga probably have one. It’s when you want to shop that the wahala starts. You will need to create a user profile, add different addresses for delivery, etc. At these moments, I usually give up and say, darn it! Can’t be bothered.

Friction at the point of payment is a big problem for every ecommerce venture. Those who check their analytics know that the cliff is at this junction.
By the way, this isn’t a Nigerian problem but something that is plaguing merchants all over the world. However, with Amazon capturing about 44% of all ecommerce in the US in 2017, it means almost half of all shoppers have keyed in their details on Amazon once and for all and probably now have frictionless shopping. In fact, Amazon patented the 1-click shopping experience.

Different attempts have been made to simplify but this hasn’t helped anyone. So what could be done?

I have an idea but let’s come back to that later.
Years ago, every website needed to implement its own user credentials. This was painful for the websites and even much more arduous for the users. But at the same time, social media was growing like wild vines and even my mother’s grandmother was on it. Then Google and Facebook came up with social login which allows websites to authenticate users with their Google and Facebook ID. Of course, Twitter and LinkedIn did same, but it never had the type of traction that Google and Facebook had.

When your user base is over 2 billion, you are a planet to yourself. Darling, Let’s book a SpaceX ride to Planet Google (SpaceX doesn’t fly to Facebook anymore because of data breach asteroids).

What if a similar concept could be applied to shopping online? You would say that one could login to Jumia and Konga with your Google and Facebook ID but that only works for the authentication. The real pain is having to enter your addresses and card information over and over and over again.

Let’s think local for a moment. Imagine a service which Konga, Jumia, Gloo, Payporte, etc. could integrate but that allows shoppers to keep their profiles, addresses, cards, etc. so that once a customer registers once, the information is available for all ecommerce sites that support it. And supporting it could be as simple as one line of code for popular shopping engines such as Shopify, WordPress, Magento, etc.

It could be designed such that it doesn’t take away from the brand of the ecommerce company (they care about this a lot) but customers will have complete control on what is shared, who it is shared with and see the history of activities.

This would be a 1-click experience for hapless men like me.
Sitting comfortably in my armchair, I think this will significantly remove friction from shopping and should be very advantageous for smaller players who don’t have the clout of Jumia and Konga but unfortunately, experiences a steeper cliff than others.

Transforming Payments in Nigeria with Open Banking

This is the email that birthed Open Banking Nigeria. Sent just 2 minutes to midnight on June 1, 2017. Sent to those unfortunate to be my friends and so, are subjected to never-ending streams of half-baked ideas and utter madness.

It’s a very long read, so be warned!

****************************************

Good evening everyone,

At one time or the other, we all heard about how payments would be the next big deal. We have heard of big data, APIs, yeti, abominable snowman and all the rest. Unfortunately, many ideas, companies, and committees have been long on intentions but short on execution.

All of us in this email thread know what APIs can do and how payments can transform the lives of our customers, the fortunes of our companies and improve trade and transactions in the country.

However, things are not the way they should be: APIs are hard to get; tough to implement and even more difficult to integrate with.

The Challenge

There are many sides to this problem:

For the average Nigerian bank, many FinTechs are knocking on the door requesting APIs to do basic things such as payments, validating data, collections, etc. Many are developing custom APIs which don’t scale to other implementations. Keeping track of who is connected to what is a challenge. Monetization is a difficulty.

For FinTechs, (I suffered this over the last few months), convincing banks to allow connectivity is met with apathy, distrust, and unbearable burden. Each bank comes with custom integration methods and codes. Many banks never allow connectivity, so the world-changing solution dies when the Xth bank joins, two years after.

For risk managers, (you know yourselves!) the new craze of FinTechs, apps, and services is a disaster waiting to happen. The surface area for which a breach can occur expands with every new connection, and nevertheless, the product managers are blaming risk + control managers for being cogs in the wheel of progress.

The CIO that wants to implement a robust ESB solution, which adequately caters for different external applications connecting with core banking solution, is faced with complicated software that is expensive to buy, implement, support and integrate. By the way, nobody else in the industry knows how the software works and so when the smart cookie who runs it resigns, the solution is abandoned after two years of never-ending implementation.

So what is the Way Forward?

I have faced this problem in almost all the dimensions possible. However, my current experience in FinTech and as an outsider looking into banking has shown me how crippling this is for banks, FinTechs, risk managers, CIOs, etc.

However, my broad experience has also demonstrated that we stand, as a country, at a junction by which this problem can be solved simply, cheaply and everyone would be a winner.

It would be an open-source, non-partisan API standard for banks and other OFIs.

Why not PSD2 or Open Banking Project (UK)

The problems banks and FinTechs currently face also plaguing everyone in Europe, and they consequently came up with EU Government backed PSD2 and industry-led Open Banking.

Ordinarily, it would have been easy to fork their project for Nigerian banks. Unfortunately, their implementation could be expensive, complicated and time-consuming for anyone to implement.

Developing what works for our environment, regulation, our level of technical maturity, etc. may have a greater chance of success than wholesale adoption of international standards.

However, references would be made to international best practices where and when it suits the local objectives.

Problems the Open API Should Solve

This initiative should solve practical problems of payment interconnectivity for different industry player:

Banks: A non-proprietary API infrastructure which any of the FinTech and other partners can connect with simply and securely. It would be easy also to monetize the connections, set limits and enforce transaction integrity

FinTechs: With every bank adopting the interface, connecting to each would be a breeze. They can focus on building amazing solutions without wasting time and effort convincing each bank for connectivity and also developing extensive custom codes for each

Risk Managers: With a single doorway that provide a consistent interface and means for managing external integrators, risks can be reduced, and threats can be easily seen and controlled

Product Managers: FinTechs are not foes but friends who can multiply a bank’s transactions and together bring new sources of revenue, especially in the new regime of low transaction fees

Industry: The Open APIs will also provide a level playing field for everyone which ultimately allows innovation to grow while preventing bigger players from stifling others because of legacy connectivities and platforms

The Open Banking API Tenets

  • Non-partisan
    It will not favor any company, groups or sector over another. Contributions shall be accepted from everyone
  • Open and free for anyone to use
    The standard shall be free for anyone to use
  • Technology agnostic
    While the interface would be standard driven, how each bank, OFI, etc. choose to implement would not be dictated
  • Simple to implement
    It would favor simplicity over gimmicks or exoteric functionalities
  • Secure
    Security would be inbuilt from grounds up to engender confidence by companies, regulators, and other stakeholders

Starting Up

While the API standard would be open and free for anyone able to contribute, we all know that it has to start with something and with some people. Each of you receiving this email has been previously approached and selected for various reasons and skill set.

A draft document outlining objectives, design, and API definitions would be developed and released for additional inputs. The final document would be robust enough to be presented to the general public for adoption.

Key areas that need help would be for API design, security, scalability and regulatory.

Conclusion

It has been a long email and thanks for reading this far. Questions, comments and other contributions are welcomed.

Best regards, 

Adédèjì Ọlọ́wẹ̀
www.dejiolowe.com