“Thoughts from the Playhouse”?

“Thoughts from the Playhouse” is a series of reports, essays and case studies on all things digital from us at Playhouse Communication Ltd. We plan on producing at least one „Thought‟ a month but if we find a lot of interesting stuff happening, we‟re not going to limit ourselves. If you would like to subscribe to receive these thought pieces, please email us at info@playhousehousecomm.com

Introduction to Mobile Money By Ogo Chizea, Account Manager 3rd October, 2011 Introduction The Central Bank of Nigeria, in collaboration with the Bankers‟ Committee, recently issued a circular placing cash withdrawal limits on individual & corporate account holders, with the aim of reducing the high dominance of cash in the Nigerian economy. The „Cashless society‟ policy is due to start in a pilot scheme in Lagos on 1st January 2012 before eventually being rolled out across the entire country. We at Playhouse believe that this Cashless society policy will have an impact on the growth of digital based businesses in the country so we thought we would give an overview of one of the anticipated „side effects‟ of this policy - Mobile Money. What Is Mobile Money? „Mobile Money‟ also known as „Mobile payment, simply means using your mobile phone to conduct financial transactions. That is a consumer can use this means instead of paying with cash, credit cards or cheque. A customer can also use this means to transfer money to another person. It is the latest electronic banking innovation and revolution changing the lives of millions across the globe. How does this work?

Imagine the scenario of a customer wanting to pay for/purchase goods. This is how it could work using mobile money: 1. Customer sends SMS of his/her mobile number to the supplier. 2. Supplier then sends a request to customer for payment. 3. Mobile money then sends an SMS with a bill reference number to the customer

requesting the customer to reply with a security PIN given to the customer for approval.

4. Customer authorizes payment by replying the SMS with the said bill reference number and PIN.

5. Mobile money authenticates customer‟s security PIN and requests for bank approval on transaction.

6. Upon receipt of bank‟s confirmation to debit customer‟s mobile account, mobile money will send a payment notification with details to customer as well as the supplier.

7. Supplier then delivers the goods and services. Simple. Also, just got to hope that there isn‟t a long queue of people behind you waiting to pay. Another scenario. This time, transferring money by SMS. Again, please note that is how it could work: 1. Customer enters recipient‟s phone number and the amount to be sent and

customer‟s PIN. 2. Customer is asked to confirm the information entered e.g. Send money to 0721

234567, N5,000) 3. Customer confirms it is correct and presses „Ok‟. 4. Customer and the recipient receive an SMS confirming the transaction. 5. Recipient then finds an agent and presents the confirmation SMS, along with tel

number and shows original ID. 6. The agent enters code into the system. 7. Both the agent and the customer will receive an SMS confirming the

transaction. 8. Agent pays the recipient the cash. Much simpler. What are the advantages?

The advantages of mobile money are: 1. Affordability 2. Convenience 3. Security 4. Empowering people to forge their own paths out of poverty 5. Reduces the cost and risk inherent in dealing with cash And the disadvantages?

1. Transactional payments can easily fail as messages might get lost due to network issues

2. Messages can be slow and can take time for the supplier to get receipt of payment from the customer

3. Phone Hacking

What else? Mobile money is not popular in Europe and the U.S However it is very popular in developing countries like India, Kenya, South Africa and Tanzania. However Kenya is the most successful in the world with their mobile money system called M-PESA which was set up in March 2007 by mobile operators Vodafone and Safaricom. According to researchers it gained a subscriber base of 2.37million a little over one year. M-PESA is changing the ways Kenyans manage their money by letting them borrow, save and pay for services more easily. Researchers have also found out that since its inception, 38% of Kenyan households have at least one M-PESA user in them. The success of M-PESA has been attributed to the environment of the country which has an underdeveloped banking infrastructure and high poverty rate. Interesting facts about M-PESA:

Their volume of transactions per month has reached $400 million while the total annual transaction volume for Paypal mobile was $600 million for the entire year globally1.

The number of transactions passing through the M-PESA system (in a country with a population of 38 million with per capita GDP of less than $1,000) is greater than all of the transactions Western Union had globally.

So what about Nigeria?

The Central Bank of Nigeria recently issued mobile money licences to 16 firms, namely; Fortis Money, UBA/Afripay, GTBank, Pagatech, E-tranzact, Monitise, Eartholuem, Paycom, FET, Ecobank, M-kudi, Parkway, Corporetti, Chams, Stanbic, MFB and Firstbank. These firms have been given the go-ahead to do a test run and demonstrate their competence, failure in which would mean they lose their temporary licences. On the 26th of August this year, Glo signed an MOU with Afripay (a member of the UBA Group), which has obtained a mobile money license from CBN, in preparation of the commercial launch of Nigeria‟s first mobile money service. This deal will enable mobile subscribers open mobile accounts to store Electronic Value(E-Value) of money easily on their mobile phones, using their mobile number as their account number. Customers will also be able to transfer money to any mobile number, spend the money directly from their mobile phone account to pay for goods as well as buy airtime. This service will be branded as “U-MO” and it has successfully been test-run through select agencies. Both parties have promised to ensure that the product is available all over the country, in both rural and urban areas. Similarly, MTN signed an agreement with GTBank in August this year with the launch of the mobile money platform. There are strong indications that Nigeria may become the largest mobile payments market in sub-Saharan Africa, even though it has not taken full effect. No timeline has been given yet by CBN as to when it will go „public‟. However, mobile money has started seeing early adoption in the hospitality industry. Protea Hotel, a five star

1 mPay Connect Mobile Payments Blog - http://mobilepayments.wordpress.com/

hotel in the country has set up the infrastructure to allow their guests and customers to spend all they want without pulling out a Naira note. And Pagatech has already run tests with DStv which will enable subscriber s to pay their monthly subscription via their phones. Playhouse’s thoughts

We believe that mobile money has the potential to make an impact on Nigeria and the Nigerian digital environment. The benefits are already stated above but there a couple of things we think observers need to keep an eye on; first, how long will it take to take off? If one assumes that the reason for the high number of unbanked in Nigeria is because the majority of the population would prefers to keep its money under the bed, just how willing is this same population going to be trust its money to mobile phones? Especially in light of fears about 419/fraud. So, some time needs to be allowed for the audience to not only learn about the service but then also come to trust using it. Secondly, if however we assume that the reason for the high unbanked is because of the lack of access for the population to banks, how sure are we that the mobile money licencees will be willing to invest in the infrastructure to make their services widely available? For example a key part of the infrastructure is mobile lines yet the word on the street2 is that the mobile operators have decided that the cost of extending their reach into the rural areas is not worth the cost-benefit and so are focusing on increasing their range of services in the already covered urban areas. Anyway, looks like another case of „wait and see‟. About Playhouse Communication Ltd Playhouse is a full service digital advertising agency. If you would like to find out more, visit our website at www.playhousecomm.com, email us at info@playhousecomm.com or call us on +234 (0)13205232.

2 Nigeria - Telecoms, Mobile, Broadband and Forecasts - http://www.budde.com.au/Research/Nigeria-

Telecoms-Mobile-Broadband-and-Forecasts.html