Introduction
Since mobile money was introduced in Nigeria in 2011, there have been reservations, ambivalence and criticism of the efficiency of the Mobile Money Operators (MMOs) in the payments ecosystem, with most critics citing insufficient capital and lack of industry knowledge by the MMOs as a big challenge.
Nigeria currently has 21 licensed Mobile Money Operators (MMO), the highest number of MMOs in the world and the Central Bank of Nigeria (CBN) is said to have commenced the process of revoking the licenses of dormant MMOs. However, coasting on the success of its efforts in recent years at stabilizing the banking sector, CBN recently examined the regulatory framework of the mobile money industry and on April 1, 2015 approved the Guidelines on Mobile Money Services (Guidelines) in Nigeria.
The Guidelines
CBN is authorised by section 47 of the CBN Act which deals with payment and settlement systems, to promote and facilitate the development of efficient and effective systems for the settlement of transactions including the development of electronic payment systems, hence the powers to issue the aforementioned guidelines.
The Guidelines specify the minimum technical and business requirements for the various recognized participants in the industry and aims to promote the safety and effectiveness of the industry services.
Two models of mobile money services are identified and established by the Guidelines;
- The Bank-led Model: This model recognises a bank or consortium of banks rendering mobile money services either alone or in partnership with other approved organisations. It however stipulates that the Lead Initiator shall be a bank. (The Lead Initiator is saddled with the responsibility of providing and managing the core infrastructure for a national mobile payment system.)
- The Non-Bank led Model: This model on the other hand recognises duly licensed corporate organizations delivering mobile money services. It however, specifically stipulates that the Lead Initiator must be a duly licensed corporate organization other than a deposit money bank (DMB) or a Telecommunications provider (Telco).
It acknowledges Mobile Money Agent Networks and stipulates that the CBN guidelines for Regulation of Agent Banking issued in 2013 shall apply to them.
In the Guidelines, the MMOs are mandated to obtain periodically reviewable licenses from CBN, a unique Scheme Code from the Nigeria Inter-Bank Settlement System (NIBSS) and unique short codes from the Nigerian Communications Commission (NCC). As with guidelines for other players in the financial market, the run-off-the-mill Know Your Customer (KYC) requirements are provided for MMOs to comply with. They also demand procedural logging of all transactions by the MMOs and prohibits airtime deductions in respect of such transactions. Card transactions are subject to KYC and the Guidelines on the Issuance and Usage of Cards in Nigeria. The security of such transactions is taken into consideration by the Guidelines which mandate that they comply with PCI DSS standards.
Market Participants
The Guidelines recognize 5 participants in the mobile money services industry and assigns certain privileges, roles and responsibilities to them;
- Banks (as Scheme Operators): they are expected among other things to provide financial, clearing and settlement services to the mobile payments system and are in charge of verification, approval and accountability for the credibility and integrity of partner organisations. They are also mandated to educate consumers on appropriate use of the services while providing them with an adequate enquiry or complaint channel.
- Licensed Corporate Organisations: these are expected to provide and manage the requisite and compliant solutions for mobile payment services. They are also required to provide access to CBN on a demand basis for on-the-spot assessment and transaction verification, including a monthly assessment performance report. Of note however, is the requirement to keep records of transactions for a minimum of 7 years.
- Infrastructure Providers: these are responsible for providing infrastructure to enable switching, processing and settlement facilities for mobile money services.
- Mobile Network Operators: CBN’s regulation of the Telcos in this guideline is mostly concerned with preventing monopoly or anti-competition practices in the mobile money services industry. The Telcos are to provide the telecom network infrastructure and are prohibited from favouring any MMO over another in terms of traffic and price. They are of course, to ensure that mobile money services remain free and that airtime value is not used for payment or transfer of monetary value. They are also to file monthly statutory returns to CBN including; nature, value and volume of transactions, incidents of fraud and nature and number of consumer complaints.
- Consumers: the Guidelines list a series of consumer entitlements. They are however assigned the responsibility of PIN/Password protection, proper confirmation of transaction details before authorization and prompt reporting of fraud cases, errors and complaints. They are afforded the right to escalate complaints to CBN’s Consumer Protection Department only where resolution of complaints through the bank’s complaint channels are exhausted or unduly delayed.
Settlement
The critical issue of settlement is addressed and strictly regulated by CBN which mandates that settlement accounts be opened as Nominee Accounts with DMBs on behalf of MMO customers. A notable feature of the Guidelines, regarding settlement, is the ultimatum that a minimum Shareholder’s Fund unimpaired by losses of ₦2 billion must be maintained by Scheme Operators, with effect from June 1, 2016.
Generally, two levels of settlements are set out and are to be complied with;
- Inter-Scheme Settlement (consisting of On-Us Transactions and Not-on-Us Transactions) which will be provided by the NIBSS; and
- Final Settlement which will be done through the CBN Inter-Bank Funds Transfer System (CIFTS).
Risk Management
There are minimum risk mitigation/management standards covering Credit, Settlement and Business continuity risks, the latter which mandates the existence of a board approved Business Continuity Plan (BCP) that must be tested through a fail-over process, at least twice a year.
Dispute Resolution
Apart from providing minimum transaction and technology standards, the Guidelines provide dispute resolution mechanism and guides. The general disposition of CBN on disputes is anti-litigation and pro-settlement. Customer complaints are expected to be resolved in 48 hours, while disputes arising between parties must be settled within 14 days. Customers are allowed to escalate complaints to CBN where dissatisfied with the above resolution, after which they may resort to Arbitration according to the Arbitration and Conciliation Act.
On cessation of services, MMOs are to furnish CBN with a 120 day notice in writing of intention to discontinue operations.
Sanctions for not complying with the Guidelines range from withholding of corporate approval, financial penalties and suspension from operation to revocation of operation license.
Requirements for Mobile Money License
Upon payment of a non-refundable application fee of ₦100,000 to CBN, the following are required for grant of a mobile money license; Consortium’s Certificate of Incorporation, profile, emails and contact numbers, Memo and Articles of Association, Shareholding structure, Return on Allotment of share and particulars of Directors. The applicant is also required to provide CV’s of company’s Board and Management, company’s organogram, Business plan featuring company’s profit sharing agreement and 3 years financial projections.
The IT Policy of the company covering Privacy, Information Ownership/Disclosure, Backup and Restore, Network Security, Encryption, Confidential Data, Password, 3rd Party Connection, Incidence Response and Physical Security is required.
Other requirements include; Enterprise Risk Management Framework, BCP, Draft Agreements with Technical Partners, Participating Banks, Switching Company(ies), Merchants, Telcos and any other party. The applicant must also submit 3 years Tax Clearance Certificate for each party in the Consortium, Project Deployment Plan and Evidence of Shareholders’ Fund of ₦2 billion before the license is issued.
Challenges facing the Mobile Money Market
Globally, USD 7.5 billion was generated in the month of December 2014 alone. It is indisputable that mobile money is the future of payments the world over. Nigeria as a member of the MINT nations, remains a ripe market for investment in mobile money operations as several organizations, government bodies and enterprises are increasingly resorting to the mobile platform as a means of bill payments, bulk disbursements and merchant payments.
However, the market is beset by certain challenges which CBN and the Electronic Payment Providers Association of Nigeria (E-PPAN) have both expressly and impliedly recognised. These, if addressed, especially in the light of CBN’s regulatory moves, will leave a highly profitable industry for market players.
- Urgent need for recapitalization: with the exception of the bank-led MMOs, only a handful of licensees are performing maximally. This has been attributed to the fact that licenses were easily and cheaply obtained by these independent MMOs who were at the material time, largely unaware that mobile market operations as retail businesses are capital intensive.
- Lack of industry knowledge: dormant operators are so because of lack of industry knowledge at the time of obtaining license. There is therefore a need for the input of expert professionals to resuscitate the dormant operators.
- Uneven distribution of mobile payment services: Banks have demonstrated their ability to flourish in the mobile money market, especially by leveraging on their existing customer base. Unfortunately, it is common knowledge that the distribution network of these banks and their operations are uneven and inadequate. These banks have the bulk of their operations (much like their branches) lopsidedly concentrated in urban areas, leaving a larger rural demographic of the country yet untapped. The CEO of NIBSS, Mr. Adebisi Shonubi this year reminded stakeholders that the operators were licensed principally to serve as transaction channels for deepening financial inclusion in rural areas across the country. The unfortunate situation however, is that the independent MMOs have largely resorted to competing with bank-led MMOs in the urban areas, neglecting the rural golden goose.
Recommendation
CBN has been forthcoming by laying down well considered regulations and commencing a purge of the Nigerian mobile money services market. If there was ever a time for investment in the mobile money market, it is now as there is a need for recapitalization of the existing operators which would naturally initiate increased participation of requisite market experts thereby resolving the challenges identified above.
