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DPI 662   Memo 5

To: World Bank

From: Representative of the Banking Sector in Nigeria

Subject: Supporting Bank-Owned Mobile Money Solutions

Date: November 23, 2020

Typically, mobile money services are owned and operated by either a mobile network operator (MNO) or a financial institution, namely a bank. These two models have both achieved success in different countries with distinct contexts. Considering the social, demographic, and economic conditions in Nigeria, I write this memo to convey our concerns regarding the MNO-led approach and suggest a more robust bank-led model for deploying mobile money services in Nigeria.


Why shouldn’t MNOs lead the mobile money efforts?


First, MNOs do not have enough experience in developing and implementing financial services, meaning that they usually have limited bandwidth in dealing with the risks of these kinds of services. In order to reach a profitable scale, MNOs may take radical actions and launch products that can be harmful to one country’s economy. For example, together with the well-known M-Pesa mobile money service, Safaricom, the MNO, launched the loan and saving service: M-Shwari. However, the service was pointed out to “encourage” gambling in Kenya and negatively influence society.


Second, the coverage is another key drawback of bank-led mobile money services. Most of the time, only subscribers of the specific MNO can access the services. This barrier can keep groups in society from using digital payments, leading to serious equity issues.


Lastly and more fundamentally, without sophisticated laws and regulations, the MNO-led mobile money developments may decrease one country’s control over its own financial and economic system. Moreover, seen from the M-Pesa case, customers’ funds are held in trust rather than in banks. Despite the measures to ensure security, it is still facing severe security risks.


Why should banks own and operate mobile money services?


Then, why banks? First, banks have long-enough experience developing financial products and tackling financial risks. Considering the uncertainty of the development landscape in Nigeria, banks also hold a more resilient position in dealing with a large amount of mobile money. More important, the bank-owned and -operated mobile money services can ensure the country’s control over its financial market. The bank sector will work together with the state government to perfect the laws and regulations on mobile money.


Enjoying these advantages, banks also face challenges in launching mobile money services, the first of which is how to run the service on the network. We will partner with MNOs in Nigeria to overcome this challenge. Meanwhile, we start to form an alliance with major players in the banking sector in Nigeria (e.g., FirstBank, Citibank Nigeria) to ensure the coverage of the bank-led mobile money services.

To: World Bank

From: Representative of the Consumer Advocacy Group in Nigeria

Subject: Bank-Owned Mobile Money Solutions Will Serve Us Better

Date: November 23, 2020

Representing the Consumer Advocacy Group in Nigeria, I am writing to convey our concerns about the potential mobile money services that the World Bank is considering. This memo first addresses some general concerns we have towards the mobile money services in Nigeria. It then follows with our opinions of the two options layout by the World Bank.


Concerns of mobile money services in Nigeria.


For a financial market like Nigeria, which has considerable uncertainty, a radical move into mobile money can introduce huge challenges and risks. First, it may cause severe privacy issues. Without enough knowledge of privacy and security, people may choose to exchange their personal information for better service, which has been happening in many developing countries all around the world. Second, even though digital payments are advertised to increase the accessibility of a large population to the financial system, it is not guaranteed to achieve that. For example, the M-Pesa launched by Safaricom in Kenya only authorized accesses for their subscribers, leaving large groups of people who have no access to phones or networks. Third, although the World Bank report shows that digital payments and mobile money services can boost economic developments and help save costs for the government, these services may neglect the needs of the people who have little or no connections with the formal economy. We urge you to seriously consider how these serves may impact every segment of the population.


Bank-Owned Mobile Money Solutions Will Serve Us Better


Despite the concerns, we believe mobile money services can benefit Nigeria if we can mitigate the challenges and deal with the concerns. Meanwhile, among the two mobile money services models, we would recommend that banks rather than mobile network operators (MNOs) own and operate the services. This recommendation considers the conditions of Nigeria and the trade-offs between these two options. 


The banks in Nigeria (e.g., FirstBank, Citibank Nigeria) enjoy good trust among the population, making it better positioned to promote digital payments and mobile money services. Meanwhile, having more experience dealing with risks of financial products, banks can serve the population in a more resilient way. Moreover, we believe the bank-led model may be able to serve a wider range of rural population via its already existing branches, which may be hard for the MNO-led services.

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