Who is afraid of MTN?

MTN, the largest Nigerian telco, recently announced that it had finally acquired its first financial services license.

They achieved something that has been their desire since they started operations in Nigeria almost two decades ago. The approval they got is for a “Super Agent” license to allow them to serve as third party distribution agents for existing financial services operators. A far cry from a full mobile payments or payment service bank license that keen watchers in the space expected but the company celebrated it as a huge win.

The super-agent license is seen as a win for MTN because, for the first time, the central bank (as a regulator) has acknowledged telcos as direct players in financial services. They can now play a direct role in deepening access to financial services through distribution.

This news got mixed reactions from vocal members of the public, and a lot of it was negative. The responses made me wonder once again what people have against MTN’s operations in the financial services space or more precisely – who is afraid of MTN and why?

The fear by banks
The relationship between banking and telecoms in Nigeria has been a peculiar one. While banks funded the growth and success of the telecommunications companies, they have also been wary of their success.

With over 60 million subscribers, MTN is the largest of the telecommunications companies in Nigeria, and its reach dwarfs that of the largest commercial bank in Nigeria. Understandably, there has been a lot of trepidation about the effect of a telco player like MTN providing financial services directly to the public. Banks think that they will be adversely affected by this potential development. The reality is that a significant proportion of the population still does not have access to banking services.

The paranoia is so extreme that the central bank even went as far as explicitly barring telecoms companies from directly providing mobile payments services. Banks and other players were allowed to offer those same services while using telco infrastructure.

The reality is that telecommunications companies need efficient financial services to reduce their distribution costs, which could be quite significant when they are at scale. I have made this argument to a lot of bankers and regulators in the past that telcos are not looking to take away bank customers or business. Banks partnering with telcos will only help to make operations more efficient. This theory was proven later with USSD payments.

When the Nigerian telcos were licensed in 2001, most banks were grossly undercapitalized. That has since changed with the consolidation mandated by the banking regulator to shore up the capital base of banking institutions. This increase in bank capitalization has not led to significant improvement or the increased reach of banking services. Telecommunications companies, on the other hand, have continued to shore up their capital base and deployed that capital into rapid expansion to provide coverage to all parts of the country.

The resounding success of telcos in the face of impossible odds has only helped to heighten the tension between telcos and banks. This impasse has made collaboration on delivering financial services difficult. MTN, however, has had a partnership with Diamond Bank for a scheme called “Diamond Yello Account.” Most people were not even aware of this service as it was a banking product that only just used MTN’s infrastructure.

Banks typically lack the infrastructure to reach non-traditional customers. GTBank also bucked this trend with their telco-assisted USSD payments and banking service to achieve great success. Other bank followed GTBank’s lead with USSD and had varying degrees of success. In spite of these achievements, bankers were all still antsy when the central bank announced a new class of license of “Payment Service Banks” (PSB). This PSB license will, for the first time, allow Nigerian telcos to play directly in payments.

The fear of monopoly and second-mover advantage
At some point, there was the talk of potential monopoly, but MTN is nowhere near being a monopoly even in core telecommunications services. There is healthy competition from other players, and their size came from an early strategic advantage in distribution over the others.

While others were investing directly to build out their sales and distribution infrastructure, MTN took the pragmatic route of partnering with existing informal retail networks. This decision not only allowed it to have significant reach but also freed up resources to be devoted to infrastructure to ensure coverage. MTN was just better at doing business in Nigeria than the others. I know because I was on the other side against MTN with Econet Wireless Nigeria (now Airtel).

What MTN has always had is a second-mover advantage. Econet was the first to launch in Nigeria, but MTN eventually became dominant. While ECONET won the critical market of Lagos initially, MTN concentrated on other areas where it didn’t have to compete. Their relationship with informal trade networks made them understand the market better than others.

As ECONET Wireless Nigeria was revelling in their win of Lagos after launch, travellers who went home from Lagos for Christmas came back with MTN phones. ECONET and the others initially had a minimal presence outside Lagos, especially in the Eastern parts of Nigeria. MTN won Nigeria by living up to its early slogan of “Everywhere you go.”

In spite of the early runaway success of mobile payments players in other parts of Africa, MTN Ghana currently has the fastest growing mobile payments scheme on the continent right now. They were not the first movers, and they were not initially the dominant player, but they came from behind to win.

All reasonable tech-enabled businesses should be studying MTN and learning from them instead of being afraid of them. While others typically rush to markets with new products, MTN always takes its time to learn from the mistakes of others and iterate before achieving success.