How difficult is financial inclusion?

There were lots and lots and lots, literally, of focus upon mobile and financial inclusion in my Sudan conference. I guess because only 4% of the adults who live there are banked. You heard me, just four percent. There are over 20 million people of working or retirement age in the country, so that’s just under a million people banked. Tiny. It’s not dissimilar to many other African countries however, and that’s why mobile is such an opportunity, but it isn’t easy. The mobile operators all compete with each other and aren’t keen on interoperability; and the banks all compete with each other and don’t want interoperability; and the banks and the MNOs don’t trust each other, and think they compete with each so they don’t want interoperability. This was the major theme of the conference and the ineffectiveness of regulators to get to grips with interoperability due to having clearly and separately defined interests in regulating different industries – telecommunications and banking – with no common strategy or platform.

Fascinating.

The whole topic was summed up best by Malik Melamu, CEO of MTN Sudan and previously 17 years in various MNOs, including Safaricom and M-PESA in Kenya, as well as 11 years in banking. He knows his stuff.

Malik began by making clear that there are two separate markets at play here, and there should be interest in both MNOs and banks working co-operatively to serve them. First, there are basic mobile services for the unbanked and then there are more sophisticated mobile wallets for the banked. Mr. Melamu said that, in the ideal world, they should see the MNOs as the farms producing crops of bankable customers, but few do see it this way. I liked the analogy.

Equally, there are many players here with different needs, from the MNO and their agents to the customers and their relationships with businesses and government, to the general need for peer-to-peer payments. Unfortunately, each of these has issues. For example, making payments from a mobile wallet (without KYC) to a bank account (with KYC); moving money between MNO wallets, where MNOs don’t want competition; providing agents with multi account distribution, as they each deal with 100s of customers cashing in and cashing out; and dealing with business and government services to citizens. It is not a simple question of asking for P2P payments, but creating common infrastructure and interests, and that’s where the challenge lies.

Malik made the point that the ideal set-up would be to have a common settlement system to link MNO and banks easily in real-time and, specifically, to have a common risk management platform, as the AML requirements often make interoperability unworkable if this is not in play.

The fact that MNOs have the reach to deal with the long-tail of unbanked customers is great, but it will not happen fi those customers are blocked from accessing bank accounts they need to pay into. Even more importantly, the MNO’s agents often have issues with cash exposure and literally run out of cash on heavy traffic days and in the extreme rural outlets, so the real role of a bank would be to provide a line of liquidity to the MNOs agents so that they never have that stress. Will the banks provide this? Without an MNO to bank partnership, no and, again, without common risk platforms it would be unworkable for the bank anyway.

Furthermore, on the positive side, more interoperability promotes more innovation and, in turn, closes the gap between the banked and the unbanked, so surely this is a good thing? Yes, and you may agree, but it is not as simple as that. There are many challenges.

First, regulators, banks and MNOs often ask upfront to show the numbers. Show the ROI and evidence that interoperability works and there isn’t much hard evidence out there or, if there is, it is hard to find as competitive mistrust between MNOs, between banks and between MNOs and banks makes it hard to find. This competitive mistrust stops it happening.

Equally, the government, regulator, banks and MNO ideally need to create common platforms for settlement and risk, and that is an upfront cost. Who is going to fund this? If it’s the MNO or the banks and MNO, then the fees go direct to the customer which means prices increase. That is not in the interests of either party to introduce to the market.

The regulator watches and can see the incentive and concept, but have no experience of how to make it happen or to make it work, so they often sit twiddling their thumbs on the side-lines. That is often because there are two separate regulators with no common interests either. In fact, they often work in opposite directions, as evidenced by Nigeria in 2013, when the regulator tried to impose interoperability and it failed miserably. You cannot force this on the market, as that is a dangerous option due to the ways market players play.

I really enjoyed his commentary and insights and hope that this short summary of his keynote gives you a little more illumination why financial inclusion is not as easy as offering a telephone number with an agent. In fact, as I debated these things later, one conference attendee said their government regulator was so fed up with the bickering between the banks and the MNOs that they had called Alipay into their offices to see if the global payments giant could circumvent the process completely. Interesting.