E-Payments for Financial Inclusion in Nigeria: Strategies and Opportunities

1. CBN’s International Conference on Payment Systems Delivering Financial Inclusion through E-Payments in Nigeria 17 September 2013 Modupe Ladipo Chief Executive Officer, EFInA

2. Content • About EFInA • National Financial Inclusion Targets for Nigeria • Opportunities to Deepen E-payments through the CBN’s Cash-less Policy • Achieving Financial Inclusion through E-Payments • Key Insights from the EFInA Access to Financial Services in Nigeria 2012 survey • Opportunities for Deepening E-Payments through Mobile Money

3. About EFInA EFInA • Financial sector development organisation promoting financial inclusion • Funded by DFID and the Bill & Melinda Gates Foundation • “Leader in facilitating an all-inclusive and growth-promoting financial system” • Research • Innovation • Advocacy • Capacity building Objectives Vision About the EFInA Access to Financial Services in Nigeria survey Pillars • Nationally representative of all adults (18+) • 3rd survey year (2008, 2010, 2012) • “Relevant and reliable data on the demand for and usage of a range of financial products, both formal and informal in Nigeria” • Input to evidence-based financial inclusion policies & reform • Credible benchmarks & indicators for financial access • Defines and quantifies the market opportunity for the low income segment • Highlight trends in financial access over time

4. National Financial Inclusion Targets for Nigeria • The National Financial Inclusion Strategy commits to reducing financial exclusion to 20% by 2020 • Payments are seen as the backbone for the successful delivery of the Strategy. The Central Bank of Nigeria has set a target of 70% of adults using formal payment services by 2020 • The key targets of the National Financial Inclusion Strategy are provided in the table below

5. Opportunities to Deepen E-payments through the CBN’s Cash-less Policy Mobile Money: Consumers are not aware of it, do not know how it works and if they can trust it. Consumers need incentives to create a change of behavior that will attract them to use mobile money on a frequent basis. Mobile money operators need to improve their value proposition. PoS Terminals: Merchants need to understand the benefits of e-payments in order to commit to using PoS terminals for all transactions. Incentives also need to implemented for customers to encourage them to use their cards to make payments. Internet Banking: Low awareness among the banked, do not know how it works and if they can trust it. Banks should actively promote this channel to their existing customers. NEFT: Covers all 9 options in the payment grid - P2P, P2G, P2B, G2G, G2B, G2P, B2G, B2B and B2P. However it needs to be more widely promoted as an alternative for cheques, especially for B2B transactions. NIP: On-line real-time account-based payments. Ideal for single-item payments e.g. P2P, B2B, P2B, B2P and revenue collection. Mobile Money Deployment of Point of Sales (PoS) Terminals Internet Banking NEFT NIBSS Electronic Funds Transfer NIP NIBSS Instant Payments

6. Achieving Financial Inclusion through E-payments • Achieving financial inclusion through e-payments is a two-step process: • Firstly, excluded people must have an account at a regulated financial institution that allows them to store electronic value. The account might be a bank account, m-wallet or another form of e-value storage • Secondly, people must be able to use their account at a regulated financial institution to initiate or receive electronic transactions, beyond simply withdrawing cash at an ATM • According to the Global FINDEX 2011, World Bank survey, around one-third of Brazilians and South Africans with debit cards use e-payments, compared with one-tenth of Nigerians. 2% of Nigerian adults use e-payments, whilst 19% hold debit cards. Source: Global FINDEX 2011, World Bank

7. Key Insights from the EFInA Access to Financial Services in Nigeria 2012 survey

8. % Trends in Financial Inclusion in Nigeria Trends in Financial Access from 2008 to 2012 2.5% 2008 • The proportion of adults that are formally included increased from 23.6% to 43.0%, which is an increase of 17.4 million • The proportion of adults that are financially served increased from 47.5% to 60.3%, which is an increase of 11.7 million • The number of adults that are financially excluded decreased by 10.5 million 45.4 m 2.1 m 18.3 m 20.7 m 2010 5.3 m 25.4 m 14.8 m 39.2m 2012 9.2 m 15.2 m 34.9 m 28.6 m The four categories are mutually exclusive Banked Formal other Note: 2010 & 2012 figures include remittances (Formal other and Informal only), whereas 2008 does not Source: EFInA Access to Financial Services in Nigeria 2012 survey Financially excluded Informal only

9. Frequency of Types of Payments Undertaken by Customers • Bank customers most frequently make cash withdrawals and cash deposits • Most people do not use cheque deposits, bill payments, electronic bank transfers and loan repayments Source: EFInA Access to Financial Services in Nigeria 2012 survey

10. Channels Used for Financial Transactions Channels used for financial transactions • Bank branches: • 93.7% of adults who have a bank product, conduct their transactions at the bank • It is the most important channel for 57.9% of banked adults • ATMs: • 60.2% of adults who have a bank product, use ATMs for transactions • 41.2% of banked adults stated that ATMs are their most important channel • Mobile phones/POS machines • Transactions through mobile phonesandPOS machines are still extremely low Most important channels for financial transactions Source: EFInA Access to Financial Services in Nigeria 2012 survey

11. Ownership of Mobile Phones by State Source: EFInA Access to Financial Services in Nigeria 2012 survey

12. Who are Most Likely to Own Mobile Phones? • 56.3 million adults (64.1% of the adult population) own mobile phones • 68.9% of the adult male population own a mobile phone vs. 58.8% of the adult female population • Adults in urban areas are more likely to own mobile phones (84.9%, 21.6 million) than those living in rural areas (55.6%, 34.7 million) Source: EFInA Access to Financial Services in Nigeria 2012 survey

13. Mobile Money • 4.8 million adults (5.5% of the adult population) are aware of mobile money operators • Only 0.4 million adults (0.5% of the adult population) are registered with any mobile money operator • Mobile money is most often used to buy airtime Source: EFInA Access to Financial Services in Nigeria 2012 survey

14. Demographic Profile of Adults Registered with Mobile Money Operators % of registered mobile money users • Of the 0.4 million adults who are registered with mobile money operators, most are likely to be male, aged between 18 to 30 years, have achieved tertiary levels of education, and have an income of more than N40,000 per month Gender Age Personal monthly income Education Source: EFInA Access to Financial Services in Nigeria 2012 survey

15. Proximity to Mobile Money Agents • 24.5% of adults are aware of the location of the closest mobile money agent to their home/place of work. Of those that are aware: • 81.8% of them have a mobile money agent located within 30 minutes of their home/place of work Source: EFInA Access to Financial Services in Nigeria 2012 survey

16. Understanding of Mobile Money • Only 20.6% of adults can explain what mobile money entails • 66.3% of adults are not familiar with the term mobile money • Adults who own mobile phones are more familiar with the term than those who do not own a mobile phone Source: EFInA Access to Financial Services in Nigeria 2012 survey

17. % Opportunities for Deepening E-Payments through Mobile Money 48.1million adults could be encouraged to use mobile money 29.8million adults 56.3million adults Top factors that would encourage non-users of mobile money: own a mobile phone and are unbanked own a mobile phone 15.0million adults • Understanding how mobile money works • Having a mobile money agent close to their home/place of work • Feeling mobile money is safe • When many people start using mobile money would consider using their mobile phones to send money 9.4million adults 14.1million adults would consider using their mobile phones to save money would consider using their mobile phones to receive money Source: EFInA Access to Financial Services in Nigeria 2012 survey

18. Agent Networks, Product Options and Corporate Commitment Are Critical Factors for Mobile Money Uptake Three Critical Factors that Make Mobile Money Work 1 Managing the agent network - Many providers focus on building their agent networks as fast as possible, without careful attention to the agents’ business case and profitability. 2 Creating a compelling product offering - Most experts consider a product (or suite of products) that generates 2.0 to 2.5 transactions per month per customer to be a commercial success. Determine the product that will provide that volume. 3 Sustaining a strong corporate commitment - Research suggests that even successful deployments require three to five years to reach profitability, which can strain corporate commitment. An enthusiastic, committed corporate culture that is willing to make significant up-front investments and patiently wait for impact at scale is crucial to mobile-money success. Source: McKinsey Quarterly - Mobile money: Getting to scale in emerging markets

19. How to Maximise the Financial Inclusion Effects of E-Payments • Actively promote mobile money: An inclusive approach to Cash-less cannot rely only on card-based solutions - it should also deploy and promote card-less channels for payments, such as mobile money • Consider providing incentives for customers to encourage their usage of e-payments: While customers may be forced by government or employers to receive salary or benefits in a particular way, once they receive it, they will ultimately manage their money using instruments that they know and trust • Build trust through effective consumer protection that supports e-payments: Nigeria is at an early stage in the usage of e-payments. As e-payments inevitably grow in the next few years, it will become essential to develop and implement suitable mechanisms for addressing customer queries and resolving dispute. • Increase government’s participation in supporting e-payments: The government should take a more active approach to monitoring the implementation of the current guidelines for the electronic payments of salary disbursements and government tax collections at the state and local levels– mobile money should be considered for making payments • Consider small businesses as another route to inclusion: Further analysis of how payments are made by and between large and smaller businesses through the entire value chain of procurement and distribution would be worthwhile. B2B payments may offer the most potential for driving e-payments in the short to medium term

20. Data Acquisition Options • EFInA Access to Financial Services in Nigeria, 2008/2010/2012 surveys • Comprehensive database where information can be segmented in multiple dimensions, e.g., gender, geopolitical zone, age, education, etc. • Data will be provided in SPSS format • Key findings can be downloaded from the EFInA website • Data Options • Purchase full dataset • Request customised presentations • Purchase a limited number of variables • Data request form can be downloaded from the EFInA website • Contact • info@efina.org.ng • Website • www.efina.org.ng

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