Trade, Development, and Immigration

Why Mobile Money transformed Kenya, but failed to take off in Nigeria

This article compares the impact of Mobile Money on Kenya, the largest economy in East Africa, with its impact on Nigeria, the largest economy in West Africa (and Africa as a whole). We see very different patterns of financial development in respect of Mobile Money.

What is Mobile Money?

Mobile Money started as a payment service performed from a mobile phone, although now it is evolving into a platform to also include a limited range of other financial services. It enables users to access their money anywhere and at any time without the need for a traditional bank account, and can provide financial inclusion for the low-income masses. It will not replace retail banks, which provide a more diverse range of financial services, but in a number of countries it has become a popular platform for typically small transactions.

In the developed world we have retail bank accounts so Mobile Money is unlikely to have a significant impact, however, for the large part of the global population who do not have retail bank accounts – ‘the unbanked’ – this provides access to financial services they would not otherwise have.

How does it work?

There are broadly two approaches to Mobile Money: the service is either ‘bank-led’ or ‘telecom-led’. In practice, the service requires a telecommunication operator to provide the infrastructure, as well as a bank to provide the financial framework.

A subscriber with a compatible SIM card creates an account in which to deposit funds on their phone, typically by purchasing a Mobile Money scratch card. A user can then pay for a good or service with their mobile phone to another subscriber. Both the recipient and the sender receive a text message confirming the payment has been successful. The recipient can then cash this money with a Mobile Money agent or keep their money in their account. Telecommunication companies already have a network of agents selling air-time and so these agents’ functions can expand to include Mobile Money. Mobile Money transactions are protected with a PIN number in a similar manner to using a bank card to provide protection to customers.

The operator receives a transaction fee for every transaction. Transaction fees are typically small, at either a percentage or a flat fee depending on the transaction.

Why has Mobile Money been so successful in Kenya?

Kenya has been successful due to Mobile Money being ‘telecom-led’. The telecommunication company Safaricom entered the Mobile Money market in Kenya back in 2007 with a platform called M-PESA. Safaricom invested in the infrastructure, trained their agents all over the country to become Mobile Money agents and simultaneously promoted awareness. Safaricom have been successful due to the high penetration of mobile phones throughout Kenya as well as a large unbanked population. There was also little regulation at the time, which helped facilitate market innovation. Subsequently, other telecommunication companies have entered the market, but they still have a small market share in comparison to Safaricom.

Today, a large portion of Kenyan GDP is channelled through M-PESA. Safaricom have been unquestionably very successful, and can even facilitate a limited range of loans, savings, insurance products as well as financial transactions. This platform is not just used by the rural poor. People with traditional bank accounts also use it for ease of making a payment. M-PESA may never replace the role of traditional banks, but it allows access to individuals who otherwise would not be able to make electronic payments.

During the first half of 2015 in Kenya there were 131,761 Mobile Money agents and 26.5m customers according to the EFInA Quarterly Review. This is in a population of around 45m people. This shows that Mobile Money has become widely accepted.

The Nigerian experience:

Nigeria also has a large unbanked population and high levels of telecommunications penetration. However the Mobile Money experience here has not yet been so successful.

According to the EFInA Access to Financial Services in Nigeria 2014 Survey, there were 0.8m adults in Nigeria using Mobile Money. This compares to a population of around 178m people, demonstrating far less penetration compared to the Kenyan market.

The main blame for the slow take up of Mobile Money falls on the Nigerian Central Bank (NCB). The NCB has followed a ‘bank-led’ model where they have licenced banks to operate Mobile Money rather than the telecommunication companies. The reason for the bank-led model in Nigeria has been partly for protectionist reasons, to avoid money laundering and also due to concerns about a loss of control. The NCB has also more heavily legislated the Mobile Money industry making the Nigerian regulatory environment less attractive.

Telecommunication companies have been restricted to providing the infrastructure for Mobile Money, through which bank services can be offered. This has proved less attractive to the telecommunication companies, and has given them less incentive to develop the technology and infrastructure here in Nigeria. Banks also have less incentive to develop Mobile Money, which may compete with existing products and target typically poor individuals instead of their normal target of wealthy individuals. This is as well as banks not having the distribution model which telecommunication companies have.

MTN, a South African telecommunication company with successful Mobile Money platforms in a number of other countries has fallen into difficulties with the Nigerian Government. The Nigerian Communication Commission (NCC) has imposed a significant fine on MTN Nigeria for not deactivating customers who had not proved their identity and registered correctly. The incentive for MTN Nigeria to continue investment in Nigeria with a potential court case on the horizon and uncertainty over fine payments is also questionable although MTN appear to be negotiating the fine down.

This is slowing the pace of financial empowerment in Nigeria. There are areas within the country with security issues due to Boko Haram and vast areas where there are no retail banks. However telecommunication operators are everywhere. The opportunities are there, but until the regulatory framework is more open, Mobile Money is unlikely to have much of an impact.


As Kenya is in its tenth year of Mobile Money, Nigeria is lagging behind. Mobile Money can empower the unbanked population by providing basic financial services and financial inclusion. This can help businesses grow and make trade easier.

Nigeria now needs to catch up, otherwise the unbanked population will be suffering the consequences of not having basic financial services for years to come.

4 thoughts on “Why Mobile Money transformed Kenya, but failed to take off in Nigeria”

  1. Posted 12/02/2016 at 13:15 | Permalink

    There will be a transformational tipping point when Bitcoin goes viral in Nigeria. It will look something like this.

    In a matter of a few months, everyone in Nigeria with a mobile phone or computer will have a Bitcoin account with or some other SPV Bitcoin wallet. There will be street sellers in rickety wooden shacks selling Bitcoin, and people will be sending it in and out of the country and between each other without restriction in the size of transaction, the time or place.

    Internet penetration is good on mobiles in Nigeria, and there will be nothing that the State can do to stop these transactions. People outside Nigeria will specialize in conversion to cash or deposits to bank accounts as a service.

    Nigerians are very familiar with the utility of cash, and when the light bulb goes on over their heads in a collective eureka moment that Bitcoin is cash on your mobile phone that cannot be confiscated, there will be a mad rush for it. It fits the culture and perception of money perfectly; what is missing now is information on what Bitcoin is and how it works, and simple services to seed the population with it.

    Kenya and Nigeria are vastly different places, in the same way that Spain is different to Scotland. No one would claim that there is any reason to compare the Scots to the Spanish, and the same is true with the difference between Kenyans and Nigerians. MPESA works there because their culture facilitated it. A similar project (and there have been a few attempts) fails in Nigeria because the people think differently. Bitcoin on the other hand, is like mobile phones, that are successful in both Nigeria and Kenya.

    Bitcoin represents a fundamental low level tool, like the cellphone. Kenyans and Nigerians both have mouths and the need to talk and listen over the phone. Kenyans and Nigerians both have the need to send and recieve money. What languages they use over the phone, what they say is different in each culture, but what is common to them both is speaking over the phone. It is the same with Bitcoin; everyone needs money, and to be able to send it without friction. Bitcoin does this, just as the form factor of the mobile phone does, and this is why it is transformational across cultures and borders, whereas MPESA is culture specific.

    If this analysis is wrong and Kenyans and Nigerians are identical, then the Central Bank restrictions really is the differentiator, and Bitcoin removes this obstacle completely, making the prediction I just made inevitable despite the Central Bank’s objections. Either way, Bitcoin is inevitable, and there is nothing anyone in Nigeria or Kenya can do to stop it.

  2. Posted 12/02/2016 at 18:31 | Permalink

    “Kenya has been successful due to Mobile Money being ‘telecom-led’.”

    My take differs.

    Yes Safaricom is a telco but this alone does not account for its success (upon which others have built) and there are many, many markets where telco-led initiatives are going nowhere.

    I see two main elements that fed Kenya’s success. First there was a very dominant telco (85% market share) that was also terrific at execution. Safaricom is one of the most capable telcos in the world! In Nigeria no single telco has more than about 30% market share and, as the author points out, the largest, MTN, is facing a huge fine from the cash-strapped government. It is a very different competitive landscape. The author is right in citing a total lack of regulation as also helping prime the business in the early days.

    Second is demographics. Kenyan wage earners tend to leave their families in the village and get a room in the city. This sets up strong demand for P2P transfers, which formed the foundation of MPESA’s early business. By contrast Nigerians move with their families so there is simply less P2P demand.

    Perhaps a third difference is the far greater informality of the economies of west Africa compared to east Africa. Tax collection rates are lower and people fear the formality of any regulated account.

    Today, for all intents and purposes, Safaricom owns the Central Bank of Kenya and this is not lost on other regulators. The Central Bank of Nigeria (CBN) values its independence and does not seek a similar fate.

    Nigeria does have some advantages. It has excellent settlement infrastructure and CBN has encouraged interconnection that goes beyond what exists in Kenya. Commercial interoperability, a precondition given the competitive market, is next and is not easy as neither telcos nor banks are cooperative by nature. There are plenty of challenges, many smart people and good organizations are focused on leveraging digital financial services to achieve greater financial inclusion, but there are no easy answers. Yes there are changes in CBNs regulatory framework that might be helpful in prodding the industry but the authors basic premise, quoted above, that simply licensing telcos will produce a flourishing ecosystem, is naive.

  3. Posted 12/02/2016 at 19:51 | Permalink

    Today Safaricom practically owns the Central Bank of Kenya and this is not lost on other regulators. The Central Bank of Nigeria (CBN) values its independence and does not seek a similar fate.

  4. Posted 16/02/2016 at 14:38 | Permalink

    Telco’s cannot be trusted. They are part of the problems slowing down mobile payment in Nigeria. They did the same thing in India and many countries. Example, blocked short codes issued by NCC (saying it’s in use, leading some mmos to have multiple short codes!). Ask MMOs in Nigeria they will tell you.

    Telco’s and their low quality USSD signal is a big issue in Nigeria, The CBN regulation is killing the industry. It is as if they intend to kill mobile money. There is no other way to explain it. Everybody agrees that the Banks cannot do this because they don’t have to. After all , all the liquidity stays with them. So the Banks should not have been licensed to start with.

    In support of some of the posts here, Telco lead mobile money has not been successful in all places, moreover, CBN Nigeria allowed Telco’s to partner with Banks which they did as far back as 2011
    The arrangement then was that Telco’s will run the show, more or less, but banks own the license and the banks agreed and share commission.

    But the marriage did not work, I believe due to the fact that Telco’s have ulterior motives, which CBN is concerned about. Even up till today, the Telco’s are allowed to be super agents, but they are not interested either. So the notion that Telco’s in Nigeria are not allowed is totally wrong. Telco’s are just not interested in partnership and that is a red signal.

    If Telco’s had been licensed , I have no doubt mobile money would have progressed somewhat in Nigeria, but not like in Kenya because there was little to no regulation at the time allowing the only dominant Telco’s (Safaricom) to run the show unhindered which our CBN would not do.

    All the Telco’s (glo, mtn, airtel, etisalat) would have been running the show and that alone will still not match the Kenya model allowing just one Telco. Only one Telco ran the show in Kenya and was able to push their airtime selling over mobile money and call it mobile money transaction which encouraged other usage (real money movement later one).

    Fast forward 9 years after MPESA was launched, the offerings are diverse now and even Telco’s can’t ignore the sophisticated services and providers available now.
    The real innovation is coming from independent lead operators

    In the end, Telco led is not the only solution, but relaxed regulation, innovative providers and capital.

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