Nigeria’s emerging mobile money market will witness mergers and acquisitions (M&A) deals in the next 12 months, industry analysts have told Business Day. The expected consolidations are seen as the best option for licensed operators to survive the thin profit margins and high cost of operations in the sector.
“There is no money in the mobile banking business. You make money through the value added services you can provide through your mobile banking business”, said an industry player who was involved in the drafting of the mobile money guidelines for the Central Bank of Nigeria (CBN).
Our source also disclosed that in the original recommendations to the CBN, it was proposed that the apex bank licence just four players. Currently, the CBN has licensed 16 mobile money operators in the sector, increasing competition in a tight market.
“The mobile payment business is highly capital intensive. Small and lowly capitalised players will find it difficult to survive in the long run” the head of e-banking for a major bank said.
“To achieve 50,000 mobile payment transactions per second, you need an investment of about N1 billion. Very few operators can afford such significant investments” he said.
Players in the industry have to strive for high business volumes to make any profit, another industry player told BusinessDay. “We make just about N10 million profits for business volumes of about ten million transactions.”
A major challenge is the high cost of building the mobile money agent network. The agency building network is very costly, as most agents need to generate high volumes of business to make the mobile money agency worth their time, according to operator spoken with.
Operators have to sacrifice most of their profit margins for the agents. An agent needs about 1,000 transactions to make N150. And with the current low take-off of the mobile payment systems, most agents are not achieving that. So to satisfy them, operators have had to look for alternative income sources for them, to keep them interested in mobile money agency, and also give up most of the profits in mobile money transactions, to ensure they earn enough to remain in business, BusinessDay found out from speaking with operators in the mobile payment industry.
The tight profit margins in the sector have not however stopped new players from seeking mobile payment licences from the CBN which has currently gone ahead to licence 16 operators.
In light of the intense competition in the segment, industry analysts have advised mobile payment operators to consider mergers and acquisitions to consolidate the market. Analysts expect that consolidation will enable mobile money operators muster scale and become attractive to foreign investors.
Consolidation of existing licensed mobile money players as a result of competition is expected in the near future, Henrietta Bankole-Olusina, head of mobility for Accenture Nigeria, said. “We expect the potential size of the Nigerian mobility market should attract further competition from external global players or operators. Competition will ultimately drive down service costs, increase innovation and convenience for customers and establish mobility as key cashless channel”, she posited. The country’s mobile payment market is worth $7.2 billion (N1.12 trillion) according to Accenture.
The value of mobile payment transactions is currently N27 billion, a significant increase over just N200 million last year, according to the CBN. But the prevalence of poor infrastructure is hindering its take off. Other issues such as poor remuneration of agents, lack of inter-operability amongst systems, and the absence of a value proposition for consumers, have slowed down the growth of the industry.
Out of the 16 licensed mobile money operators, only GTBank (in strategic partnership with MTN and Fortis), United Bank of Africa (UBA), FirstBank Plc, Stanbic IBTC, EcoBank Plc, Pagatech and E-transact have commenced operations.
Zenith Bank Pls is planning to launch its mobile money service in no distant time. Amongst those yet to roll out financial services are M-kudi, Monetise, Paycom, Eartholeum, Moneybox, Parkway Projects, Chams, and TETS.
“I think they need to come together. The cost of infrastructure is very high. Unfortunately, the infrastructure that 13 of them had to buy one by one, they could easily have shared on the platform of one or two. But they have decided to go down this route. So, they have very high operating expenses”, Ade Shonubi, managing director and chief executive officer, Nigerian Inter-Bank Settlement Systems (NIBSS) said in an interview.
“Mobile money companies need to reduce their operating expenses, and one of the best ways of managing it is collaboration and consolidation. So, what they would have paid N10 for, five of them will pay for and it will only cost each of them N2”, Shonubi explained.
“There is need to manage the expectations of some stakeholders, especially on the viability of mobile payment deployment. The growth period might be longer than expected because of the complexity of the ecosystem” Chuma Ezirim, head, eBusiness, FirstBank Plc said.