If CBN wants cashless, it should #maketransferfree

The CBN cashless policy can never be successful if transfer is not made free

The Central Bank of Nigeria’s (CBN) directive on cashless is a direction the country needs, which I support 100%. Some may argue that this impacts the poor and the bottom of the pyramid negatively – yes, it does, at first, but in the long run, this is significantly superior to cash and would benefit everyone.

But why would I support an approach many have termed poorly thought through and echoes a military approach that sets many ordinary Nigerians on edge? It’s because sometimes you cannot fling out the baby with the bath water.

Because of the impact on many Nigerians and the poorly received approach by the CBN, several Nigerians are pushing that CBN should suspend the new cashless policy. This is a poor thought, and it’s as flawed as asking Nigerians to stop making phone calls and start shouting to get the attention of their neighbors.

To make cashless successful and for everyone to reap the benefits and growth potential, sacrifices are expected of everyone. And we know that these sacrifices are not trivial.

Of course, the CBN is asking everyone to sacrifice a lot, but what are the CBN and the bankers giving in return? 

This is where it gets sketchy and unfairly lopsided. It’s also where the success of cashless is in doubt. If the poor feel taken for a ride and disadvantaged, everyone will find a way to sabotage the cashless policy. 

When you consider the CBN’s argument that this would curb kidnapping (a rich man’s problem) and vote buying (a poor man’s opportunity), the chance of success for CBN is severely curtailed. 

Cashless would never curb kidnapping – if my loved one were kidnapped, I’m not sure I’m ready to lose them because I don’t want to pay the 5% extra charge on the cash ransom. A politician doesn’t care about the 10% on the N1b he will use to buy votes. The original N1b wasn’t his to start with.

After all, when the Naira fell badly to the USD, the poorer exchange rate was never a problem when politicians bought USD to get votes.

So what exactly can the CBN do? There are three immediate solutions.

CBN should make the electronic transfer free for everyone. But to block abuse, there should be a limit and a monthly cap. Why would this work? It’s simple – the poor, most affected by the cashless, and the elites (the CBN and bank executives), think about money and value differently. Time is expensive for the executives, so paying N50 for the transfer is nothing to them. But for the poor, every kobo counts. They cannot understand why they must pay N50 for a transfer when they can walk to the market and use cash without spending extra. 

The CBN should go on a massive campaign to woo Nigerians and not talk down on them. Many Nigerians don’t trust the financial system. They think it’s rigged against them for the benefit of bankers. Many Nigerians are also scared of going to the banks because banks are formal and bankers look scary sometimes. 

To make this work, the CBN should create relatable ads and public service announcements using influencers that can cut through the noise and let everyone know the CBN means good.

The CBN should also enforce liability shifts to the banks. Why would this work? Most Nigerians that would be forced to go cashless are digital neophytes, which means the bad actors will take advantage of them. The bankers are the ones that control digital payment services, and it’s their sole responsibility to make it safe and secure for all their customers. Maybe when bankers start paying for these frauds, they will put in more effort to keep everyone safer.

In conclusion, the new cashless policy by the CBN and bankers is a rare opportunity for the Nigerian financial ecosystem to grow and for financial inclusion to bring benefits to Nigerians. But without the bankers and CBN making transactions free (and cheaper) for Nigerians and taking other measures to assuage Nigerians about the benefits of this initiative, it would fail. 

This chance is too good to be lost. Let CBN #maketransferfree.

10 Predictions for Digital Payments in 2022

It’s 5 years since I’ve been shilling my predictions, and here again, are my top 10 predictions for 2022. Although, if any of them comes through, I owe you a beer.

As always, even though nobody pays attention, these predictions are largely educated guesses being that I have an advantage of seeing a lot from the wobbly perch on which I sit. But then, my candid advice is to take them with a grain of salt.

Now let’s dive into what Oracle has predicted for the coming year.

#1 A global giant comes to play. I will pay you with WhatsApp

Stripe came in 2020 to buy Paystack but not to play. But in 2022, my blurry eyes see a global player coming to play big time. But then why would a global player come? The market is hot as hell; alternative payments methods such as virtual accounts have proven to be very successful; API players like OnePipe and Mono are doing very well and shipping data around like smugglers, and lastly, open banking would go live once the standards are approved by the CBN. There is simply no better time to be here. My bets are on WhatsApp to come back with payments within their chat app. WhatsApp isn’t a stranger to payments; they have started, albeit with limited success, in Brazil and India.

#2 MTN launches PSB. Only a few super agents are left standing. Top 5 banks on notice

I predicted that MTN would get its license and they did. Give me a round of applause! Karl, the CEO of MTN, is a ruthless executioner and following the spanking that banks gave him last year on USSD, he has more than enough incentives to do a good job. And he will; never keep Karl behind your back. MTN would drive its PSB so hard and super agents so amazingly, they would quickly suck the oxygen out of the market. The prediction here is that I expect a rapid decimation of the super agents when MTN’s PSB goes live. I’m super curious about who Karl would anoint as the CEO of the bank though; I smell some ex-orange colored EDs who know all the tricks of the traditional banks and where dead bodies can be buried.

Disclosure: I bought some MTN shares and I’m rooting for them.

#3 Transfers become free. Financial inclusion becomes a reality

I don’t know if this is a prediction or a wish list because even if it doesn’t want to come to pass by itself, I’m going to devote part of my energy to it in 2022 to make it a self-fulfilling prophecy. And the premise is simple – make transfers below a certain amount free for everyone and you have a good chance of bringing financial inclusion to every Nigerian. CBN did this for ATMs and it was a success (bankers hated it though) and they may be tempted to do it next year too. The last time the cost of transfer went down to N10, the market jumped like drops of water inside the hot oil.

#4 Open banking goes live. API players are shaken off the tree

CBN has been cooking this for so long it’s almost burning on the stove. Finally, the standards are approved, released, and banks are mandated to implement them in 10 days 😁. Now, open banking is significantly more comprehensive, faster, and safer than the APIs being sold by my friends. And because only licensed players would be allowed, the market may shake some old API providers out of the market the way mobile internet killed business centers (if you were born after I graduated, please ask your uncle).

Disclosure: I’m a Trustee at Open Banking Nigeria and deeply connected to the regulatory efforts to spin up open APIs in Nigeria.

#5 FX goes the crypto way. P2P FX transactions power investment apps. CBN is upset

CBN is like the financial Thor of Nigeria, its hammer can smash the densest head. It came after crypto earlier in the year, but they survived and went underground where no hammers can touch them. The hammer then came after FX jugglers; just ask what happened to abokifx.com. But we need FX or how do I pay my subscriptions or buy Tesla shares? As the need for FX has refused to go away, some players may borrow a leaf from the p2p play that saved crypto in Nigeria. Could that, in one move, be the end of CBN’s control of retail FX in Nigeria? While some investment apps may have gotten an injunction to prevent CBN from locking their accounts up, trust them to throw a party if p2p can save their business model.

#6 NIN dethrones BVN as the ID of choice. CBN’s fear about data comes true

CBN is super worried about how and what fintechs are doing with BVN; anyone with half a brain would be worried at how easy BVN data can be gotten and misused. So, they got NIBSS to clamp down on BVN; unfortunately, there are no better alternatives for fintechs. Well, NIN came along with fresher data and wider coverage. The only problem is NIN being government property means data security and privacy may be poor. Soon, a major breach happens and DSS is called to fish out fintech founders.

#7 Lending becomes hot. Bigger banks jump in. Bigger banks get shocked.

Nigeria has a N74 trillion credit gap which is flashing eyes at prospective lenders. Even though many lenders have taken bad advantage of borrowers so much that even regulators have to weigh in, the demand for consumer and SME credit continues to surge. At least 5 top 10 banks, being the jealous type, would jump in without looking, but with disastrous consequences. They will fail because their loans would be packed like corporate bank credits.

Disclosure: I’m deeper into lending tech than the Marianna trench. And Sterling (Spectra), Access (QuickBucks), and FCMB (Credit Direct) have been doing consumer credit at scale before my last child was born.

#8 Market goes super-hot. New unicorns are born. Old players die

2021 was a year of growth for the fintech market and the conditions for a hot 2022 have been laid down – #1 the API business model gets proven (Mono and OnePipe raised $19m between themselves); #2 CBN released tons of licenses for new payments providers; #3 virtual account became a prime payments method, and #4 the folks that raised cash must show investors growth. What do you think the torrid combination of this means for next year? The market becomes competitive like crazy; fintechs would use dollars as weapons to snap talents and do marketing; larger and ballsy fintechs may start doing their APIs directly, bypassing Mono and others. When the smoke clears, the battlefield would be full of dead bodies. But I see the new players being victorious and crowned as unicorns. And the older players? Any of them born before 2015 is likely to slink into oblivion.

#9 Visa buys Interswitch

I’m predicting this for the third year in a row; maybe if I say it enough it would happen. Why do I think so? It just makes sense for various reasons; Naira is at all-time cheap and Interswitch fundamentals is anchored on Naira which makes them cheaper and because they are a grown-ass fintech, they can’t enjoy the 20x EBITDA multiple that smaller and younger fintechs use for their valuation. But then, they are a behemoth, they control 90%+ of ISO card traffic in Nigeria. And sweet old Ms. Visa owns 20% of them to start with. Meanwhile, Mastercard continues to kick Visa’s teeth with their Nigerian market dominance and even the previously smacked Verve is having a resurgence. Therefore, it makes sense for Visa to buy the Switch and just make Verve become Verve by Visa (Ve by Vi, how does that even sound?) But the kicker? Some of the long-term investors are itching to return funds to their limited partners so they would be more than happy to sell to Visa and bid goodbye.

#10 Mastercard buys Etranzact

This prediction is tied to number 9 like the way my daughters are tied to my surname. Once Visa buys the Switch, Mastercard would have to find their way out of there faster than a cat would slink off a hot plate. Of the bunch of payments processors hanging around Nigeria, only Etranzact remains a viable option for Mastercard as they have their servers in every place that’s called a bank. Most of the institutional owners would gladly receive a 3x premium.

Wondering what happened the previous years and the predictions? Read about my takes for 2018, 2019, 2020, and 2021.

Disclosure: I own some bits of Etranzact but if the multiple isn’t at least 5x, nobody should talk to me.

Telcos to the Mobile Money Rescue

The Central Bank recently relaxed the rule on Mobile Money (MM) participation by giving out telcos invite to the party. Yes it’s a party but then everyone’s gone home.

Specifically telcos are now allowed to be Super Agents, which means they could use their thousands of retail touch points to serve MM customers. But unlike what most people are clamoring for or what some think CBN did, telcos cannot operate MM systems, they cannot accept deposits or give loans.

While we may want to quickly apply a generous dose of cane to CBN’s butt, we should for once understand their position and what it portends to the industry.
The problem, in my own opinion only, is that telcos cannot serve two masters and with some of them so powerful and rich, turning them to banks (banks collect deposits, :-)), is creating a monopoly. The NCC, a very strong regulator, is the umpire for the telcos while CBN patrols the financial sector. Trust me, nobody wants to mess with both of them.

Should that be allowed to happen, who controls who? What happens when CBN issues a counter memo to what NCC has issued? What about deposit insurance? If a telco is doing well providing voice and data services but tottering under banking related issues, can CBN move in and take over to prevent an implosion?
What about very large telcos that are like industry to themselves?

MTN is the obvious example here. While they control just about  62,813,111 active lines as of June 2015 which is 42% of 146,486,786 nationwide, data from other sources such as banks suggest that 75%+ of customer main lines are from MTN. Their 2014 $2.6B profit is a testimony to that. I believe that such a single entity controlling the bulk of telecoms and banking would simply be impossible to manage.

Another thing is CBN simply takes a more serious, no-nonsense approach to regulation. While getting hit by her stick might be painful, the disciplined stance has been of benefit to everyone. As we speak, there are clear laws by CBN barring banks from entering into the telecoms market. Oh, there are wider rules barring banks from doing anything apart from banking. #EnoughSaid.
This takes me to another point – what made the original efforts to skid of the track?

Transaction Charges
MM transactions are expensive for the target market and sincerely there are no feasible means of making it cheaper. There are no incentives for agents to cash in and cash out for free. If this is the case, how will it be different when telcos are super agents?

So you ask, how are banks able to do cash in and out for free? It’s simple – banks make money from lending the deposits they have. Click here to know a bit about banking. Unfortunately the advantage of float isn’t available to MM operators (MMOs) whose settlement accounts are ring-fenced. Visit the CBN website to read about guidelines of MM operations and pay attention to article 9. Don’t worry, you won’t lose your mind from reading it, it’s actually in next-to-everyday language.

MM died slow and painful deaths because they simply can’t connect to each other even though the CBN mandated it. Today everyone takes it for granted that you can easily zap money from Bank A to Bank B using common standards (NIBSS and QuickTeller) but try to do that for MM and you are out of luck. Try to move funds from Bank A to MM B, and you may get slapped. NIBSS has fixed the major interconnection issues but maybe its 3 years too late, maybe not.

Cash Out
Today you don’t think twice before using any random ATM of any random bank. After all, the worst is you get wacked with N65 from the 4th adulterous transaction on an amorous ATM. To do that with MM is just almost impossible as there isn’t any national standard for ATM cash out that’s bank agnostic. InterSwitch has been working on something for eons but as the target customers are dumping MM in droves, there hasn’t been any incentive to roll it out across all banks. And by the way, if that ever happens, MM customers will pay N100 per transaction as against free for ordinary bank customers.

Whether online or in store, your card is always there to make you poorer. Unfortunately that can’t be said with MM. Even if you had N1B in your MM wallet today, you are probably going to die of hunger as the next restaurant doesn’t have any means of accepting your payment. Oh, if you told them you have N1B in MM they probably will beat you up as nobody will believe you.
Same problem exists online – you can’t pay for anything on all the major Nigerian websites. Paga made some in-roads but then how many people are on Paga and how many online stores even accept Paga? When you are shopping online and you want to pay, you don’t select banks, you merely select UPSL or InterSwitch, Visa, Verve or MasterCard.

International Acceptance
Ok, this is taking it too far. Your MM money dies right there at the airport. Even if you sneaked out through Seme Border, you can’t use it as Cotonou. Case closed.

I don’t know if this is a problem but according to CBN, banks are allowed to open accounts for everyone irrespective of race, religion or net worth. The target market of MMOs are better served by banks and unless they are cretins, which they are not, they wouldn’t touch an MMO with a 10 foot pole when all they get are hassles, fees and lack of interoperability.

How Can We Fix This?
It shouldn’t be all woes. I believe the Central Bank can fix the financial inclusion problem but it may be tough:

  • Allow telcos to to do MM. All they need do is develop a robust framework with NCC. They may also make the telcos to create Chinese walls between their different operations
  • I know it sounds dull, but CBN may have to wade in and review prices of transactions to allow the business to grow. Cash outs and cash ins should be free but agents to be reimbursed by MMO. Transfer will incur charges
  • Implement a common ATM cash out standards and ensure all banks comply within a reasonable time frame.
  • Implement a common purchase standard on POS and online and ensure banks, merchants and switches comply. Within a reasonable time of course.
  • Tie in the card schemes and make it easy for MMOs and customers to latch on without having to put up their relatives for sale on OLX.
  • Bar banks from having customers at the lower tiers of KYC.

Some of my recommendations sound despotic but then what do you expect from me on a Sunday afternoon?

What’s killing financial inclusion in Nigeria?

Financial inclusion in Nigeria falls short because products lack accessibility and affordability, ignoring basic needs like free transactions. Understanding the needs of the poor is key to an effective design.

No scholar worth his salt would denigrate his study in the first line, or on any other line for that matter. However, listen carefully, take what I’m going to say below with a pinch of salt as it’s based on armchair projections.

But then who cares?

We are quite a lot in Nigeria, or so says the official and derivative stats. I really don’t buy into the numbers but then nobody gives two flying horse legs about my opinions. With about 180 million hungry souls crammed within the national border, only about 30 million accounts are there in the 20+ odd banks.

Considering that nobody in Nigeria is faithful to anything, especially to their banks, I know finding unique bank customers could slash the numbers down to about 20M. Just a hunch, don’t quote this for your PhD!

The Central Bank of Nigeria, other NGOs and do-good money bags have tried all they could with financial inclusion but it ain’t just hitting that sweet spot. Banks were corralled into the deal, and we came up with Prepaid Cards and Mobile Wallets. Both had as much success as the Zepellin.

On a quiet Sunday morning, after the rain has done about 3 rounds, much more than middle-aged men can cope with these days, I thought about what could have made all the efforts, the bankers, the CBN, flounder like a pricked balloon.

It was just simple. Financial inclusion designed by rich bankers and their friends in Brioni suits just don’t work.

Why? Because financial inclusion products should be accessible and affordable. Unfortunately, they are not.

This is best underscored by a recent conversation I had with one of my banker friends designing a saving product where artisans and others can pay N100 a day to save about N1,000 using their phones. I was like, what the F? I wouldn’t even do that on a regular account!

Which brings us to why the fancy financial inclusion schemes never work. Most were designed with absolutely no idea of what poor people want. But then ain’t difficult to find out, they want basic and affordable financial products.

They want free cash in/cash out.

They want free balance inquiry.

They want free bill payments.

They really don’t give two rats’ legs about cost of transaction.

Oh my, they don’t keep money in balances because like we all know, you can only save when you can afford to. When you live off less than $1 a day, which 70% of us are anyway (who did the enumeration?) you can’t afford to save. When you earn less than N50K a month and you have mouths hungrier than young birds to feed, you can’t save.

So dear banker, if the poor can’t save, there isn’t going to be any float.

If you don’t get any of these above, you can’t design products for poor people, bottom of the pyramid or financial inclusion.

This isn’t Davos, so get off your high horse dude!

Cashless Nigeria by Force, by Fire!

I was recently reviewing a CBN report on Cashless Nigeria and it is scary to know that 65% of Cash in Circulation is outside the banking system. I guess everything the CBN can do to cajole those who have ecstasy at the sight of cash wouldn’t work. Time we did it differently. What will happen if the CBN changes the Naira design with 1 year for everyone to comply or the Ghana-must-go of cash becomes an anthropological artifact? The whole cash would have to come to the banks to be changed, isn’t it?

What if the CBN puts a cap on the amount you can get back as cash but the rest has to be paid into some accounts, even if it is a mobile wallet? What if there is no penalty for pay in but there is for cash out?

We have done even crazier things in Nigeria and we can pull this off. The whole Cashless stuff is kind of tiring when you consider the efforts guys have put in but then nobody said it’s gonna be easy. The rest of the country is going to be on Cashless in few months and I hope we can drag them kicking and screaming into the new dispensation.