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Ripples as Bank MTN makes debut
There are ripples in the Nigerian financial services market as MTN service bank makes its debut, Business Hallmark reports.
At the moment, Broad and Marina streets of Lagos have become very busy and agitated once again. The flurry of strategic meeting activities have increased once more in the boardrooms of banks. And much of this is on account of the fact that a big competitor, MTN Nigeria is intent on starting operations in the financial services payment system. As analysts surmise, this entry will definitely break the monopoly or position of advantage hitherto enjoyed in the financial services arena by the traditional Deposit Money banks (DMBs) which have dominated that space for a very long time. There is going to be stiffer competition for customers between the giant telecoms firm and the traditional banks in Nigeria.
While some players in the industry believe the move would complement the banking services for efficiency, others fear that it may eat into their businesses’ playground and market share.
Whatever may be the case, experts are wont to believe the development might alter the shape of banks in terms of volume of business and competitiveness among other factors.
Technology experts say is a force of disruption which has come to stay and since its emergence many business, operations have changed for the better.
Data from the Nigeria Inter-Bank Settlement System Plc (NIBSS) shows that about 111.5 million number of accounts exist in the country as at May 2020. Of the 111.5million accounts only 52.1 million have their BVN verified as at January 2022 while 59million accounts remain unverified.
‘’The shape of banking or the financial services industry in Nigeria may be changing fast. This is more so when MTN is entering the banking arena to get a piece of the market share,’’ an analyst who did not want a mention of his name in print said.
MTN mobile telecoms firms appear in fact, to be the largest mobile telephone net-work in Africa at the moment. Before now, deposit money banks which have operated the brick and mortar banking system had dominated the financial institutions industry arena almost exclusively.
The term “brick-and-mortar” refers to a traditional street-side business that offers products and services to its customers face-to-face in an office or store that the business owns or rents. The local grocery store and the corner bank are examples of brick-and-mortar companies.
But that dominance is fast changing given the speed at which technology is growing with fintechs pushing through with innovations that make banking easier with unique experience thrills.
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’Globally, the financial services industry has come under intense competition from fintech firms- agile and innovative firms leveraging technology to deliver tailored financial service offerings to consumers and corporates.
‘’In Nigeria, investors are taking positions or stakes in the country’s growing tech ecosystem fueled by attractive fundamentals like the country’s youthful and tech savvy population, increasing smartphones and internet penetration, large unbanked population, among other factors. Between 2011 & 2018, fintech investments in Nigeria recorded more than US$200 million” said PWC (Price Water Coopers) in a report. Obviously, banking is being transformed on account of the increasing sophistication of technology.
Despite the fact that other fintechs are already dotting the financial services industry, the two biggest mobile networks have secured regulatory approval to operate as financial services bank. While active bank customers in Nigeria have grown from to about 73.2 million as at 2019, data shows financial inclusion stood at 64 per cent in 2020 even as CBN targets 80 per cent
But the MTN subscriber base has hit 76.5million while Airtel boasts of 44.4million according to recent research findings. This is an indication that MTN and Airtel may be in position to dominate the financial services space if they get their acts together. In fact analysts have divided opinion on the fate that may befall the banking industry given the licensing of the big mobile telecoms firms to play in the banking services arena.
MTN and Airtel, experts say do not belong to this category of banks but its services would complement banking services. There is however, a consensus that telecoms dominates the back end of banking in these days of electronic banking.
In his comment, Managing Director, High Cap Securities limited, David Adonri reckons that MTN and other telecoms companies venturing into the banking space would have implications for the banking industry.
Adonri observed that the possibility of MTN dominating the financial services space is not far fetched given the fact that banking as at today is heavily technology driven.
“And MTN has technology which gives it a competitive edge. You know banking now is moving from brick and mortar world to the virtual space and MTN controls the virtual channels. Even the current banks which now use the virtual channels now are not the owners of the backbone. They are only renting the back bone to do their business. We are now talking about the real owner of the back bone itself taking over its activities.
‘’So it will make a very big impact or influence on the banking industry. Look at money transfer, a lot of the banks unfortunately don’t have the back end technology to do money transfer.
My personal experience was that I could not access the money sent to me from America in October through a money transfer platform called Send Wave from any of the banks because of technology deficiency. This tells you that the technology companies are moving in to dominate the banking landscape’’.
In his view, Dr. Boniface Chizea of Chief Executive Officer, BIC Consultancy Services believes that MTN can only play in the financial industry based on what the regulatory authority permits.
“We are going to start from what type of financial services MTN is going to render. In the first place, MTN is not carved out to do banking. Except it is going to begin to do that by carving out shops to do that. At best it is probably going to engage in deposit taking, some form of payment services, honoring cheques and so on. But Banking is a lot more than that.
“I have not read the MTN mandate but we know the CBN target is financial inclusion. This may be one of the strategies to achieve that. I think the role of MTN playing in the financial services arena is to achieve that purpose and other interest of the government in her pursuit to achieve economic growth’
“Mobile Money is the next growth frontier for the telecoms industry: We understand that the recent approval from the apex bank will enable MTNN to put in place the necessary infrastructure to offer banking services such as acceptance of deposits, remittances, payment processing and mobile wallets. However, it is instructive to note that the AIP implies a six-month waiting period after which final approval will be given, provided all regulatory requirements are met. As things stand, it is difficult to reliably estimate the potential contribution of the PSB subsidiary to revenue, EBITDA and Free Cash Flow (FCF)” said analysts at Cordros Research
Chairman of Zenith Bank International, Mr. Jim Ovia had stated that with an operational FINTECH system in place, there would be more inclusiveness of all and sundry in the economy; transactions and payments will be done efficiently and transparently; one may not necessarily need a banking license to establish how payment systems are done – a rare opportunity to digitize the economy.
He explained that contrary to popular assumptions, FINTECH is not a threat to the banking institutions but rather a strategic partnership to better serve the needs of customers.
MTN’s venture into the financial service space will bring all these to reality. Its number of subscribers and that of Airtel which range from 140 million is a great advantage.
MTN’s PERFORMANCE
MTN Nigeria’s unaudited results for the quarter ended 31 March 2022, recorded N96.8 billion profit after tax, representing 31.3 per cent increase in profit.
The giant telecoms company also recorded an additional 1.7 subscribers to its network, within the same period.
The company said its cumulative mobile subscribers declined by 1.3 million to 70.2 million year on year (YoY). This was blamed on the regulatory restrictions on new SIM sales and activations.
The company’s financial statement revealed that active data users increased by 3.4 million to 35.9 million YoY. It added 1.6 million active users in Q1 2022 vs Q4 2021. Similarly, active fintech subscribers rose by 6.2 million to 10.7 million YoY, and it added 1.3 million subscribers in Q1 2022 vs Q4 2021. In addition tts service revenue expanded by 22.0 per cent to N469.8 billion
Earnings before interest, tax, depreciation and amortisation (EBITDA) also grew by 25.7 per cent to N257.1 billion.
EBITDA margin increased by 1.5 percentage points to 54.6 per cent.
Analysts observed that earnings per share rose by 31.3 per cent to N4.76 kobo, while capital expenditure (Capex) rose by 80.8 per cent to N162.5 billion, up by156.8 per cent to N81.2 billion, excluding right of use assets and final dividend of N8.57 kobo per share for 2021.
MTN Nigeria CEO, Mr. Karl Toriola, commended the performance of the company, saying: “We have continued to make good progress in the first quarter, building on the momentum we achieved in Q4 2021 and delivering several key milestones as we grow our connectivity business and platforms.
This was achieved against a backdrop of significant geopolitical volatility exacerbated by the war in Ukraine. This conflict has significantly impacted energy prices, broader inflation, supply chains and consumer spending.
“In recognition of our remarkable performance in remittance of taxes despite the challenges posed by the pandemic, the Federal Inland Revenue Services (FIRS) recognised MTN Nigeria as a top 20 taxpayer and one of the best tax compliant organisations in Nigeria for the 2021 tax year.
“In terms of strategic milestones, we concluded the first phase of a series of transactions to increase Nigerian ownership in MTN Nigeria, and we are delighted to have welcomed 126,720 retail investors to our shareholder base, many of whom are first-time investors. This includes Nigerian pension funds representing approximately 6.5 million Nigerian contributors. As at 31 March 2022, the number of retail shareholders had increased to approximately 139,000, demonstrating the advances in MTN’s localisation imperative,” Toriola said.
He explained that MTN Nigeria also completed a group-wide brand refresh to position the business appropriately as it accelerates its growth and scale its platforms through its Ambition 2025 strategy.
As things are looking now, in a nutshell, MTN Nigeria’s Payment Service Bank functions according to feelers gleaned from strategists that have reviewed the extant and potential penetration strategy of the telecoms banking entrant are:
MTN will be doing more of agency banking, it will mobilize deposits, enable transfers.
The company may dominate the agency banking space with ATM
Aside running electronic purses, MTN can provide debit and prepaid cards.
MTN may not give loans and advances at the outset.
So how far would these go? We wait.
