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When we think of the potential for a cashless society we tend to look at the developed World and markets such as the United States or Europe as the places most likely for this development.  Even with credit cards and smart phones being ubiquitous throughout these countries you would be wise to look to emerging markets as the potential birthplace of a future cashless society.

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Mobile technology is growing and more than 1.7 billion people have cell phones but no bank accounts in emerging and developing markets.  According to the GMSA in 2012 there were123 mobile-money deployments in emerging markets, with 84 of them originating within the last 3 years.  Mobile money has the ability to offer financial services to the unbanked and reach consumers in the remotest parts of the World.  Even with the potential there is still a long way to go and Nigeria is a great example of this.Image

One of the emerging countries leading the cashless society initiative is Nigeria.  The cashless initiative in Nigeria is in its early stages.  The Central Bank of Nigeria, or CBN, has estimated that it will cost over $930 million to invest in new POS terminals, ATM’s, and payment solutions by 2015 as part of its “Cash-Less Lagos Project”.  Recently the CBN announced 40 billion Naira per day is being transacted virtually and the bulk of these transactions are being conducted in Lagos.

Initially CBN was targeting a phased approach post-pilot in Lagos State and then moving to a second phase which CBN claimed would cover close to 90% of all financial transactions in the country.  Due to the success of the Lagos Pilot CBN decided to implement the cashless push nationwide.  One of the stumbling blocks was the lack of infrastructure to facilitate cashless transactions conveniently and relatively close to the population. Kim Fraser, COO of MMIT, commented on the problems with the pilot program in Nigeria.  “In the Lagos Pilot there were only 10,000 POS systems on the ground in Lagos State.   Today there are over 150,000 POS systems deployed. It is still a small number to cover a country as large as Nigeria.  In addition the CBN has also realized that the term “Cashless” was scaring a lot of people especially in a country where 80% of the population is unbanked. The new catch phrase that the CBN prefers is “Cashlite”. There is still a significant way to go even under the new mantra of Cashlite though CBN appears to be making progress”.

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The debate for a cashless society has its positives and negatives.  For financial institutions a positive development of a cashless society is its ability to reduce costs required to print money and increase its consumer base and services to include the non-banked of the emerging and developing World.  For consumers there is an ease for transactions and the prospect of no longer having to carry cash.  Carrying cash can be a major problem in emerging countries where the risk of being robbed is greater. There is also potential for less corruption and more transparency in a cashless society.

The negatives include the invasion of privacy; security and fraud, and the wide divergence in the experience of mobile money service providers around the world.  There are some obvious hurdles that are slowing the progress of a cashless society including the lack of infrastructure, scalability, and the sustainability of mobile financial services.  So what does this mean for telecom and financial institutions?  It means there exists opportunities for the continued development of new financial products and greater customer education for their products.  If the telecom providers and financial institutions can create a healthy relationship with each other and with their consumer bases there can be continued growth and success for mobile money and other cashless initiatives.

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Many western companies are aware of the growing mobile money market in Africa and are watching with great interest, some actively participating in this growing industry, to the success and failures of different business models in different regions and countries.  They are also paying close attention to the different players; governments, financial institutions, and telecommunication providers, in regards to regulation or lack of regulation within the mobile money industry.  MMIT operates in the mobile money space out of Nigeria and West Africa so we feel that we are in a position of knowledge and expertise to talk on this matter in a concrete way, and also in a way that can hopefully add value and substance to the mobile money industry as it grows and matures.

Nigeria is home to 170 million individuals living in a country the size of Texas.  70% of that 170 million are unbanked, which means they either do not have access to formal banking institutions and services or are not taking part of the formal banking institutions and services. Nigeria has been labeled the financial hub of the African continent and many are watching this market to see if Nigeria is able to mimic and evolve the mobile money space in West Africa and eventually all of Sub-Saharan Africa.  The Central Bank of Nigeria (CBN) is pushing for a cashless society in Nigeria which will limit the amount of cash being carried around the country. CBN is also currently licensing out mobile money licenses that will allow financial institutions and non-financial institutions (telecommunication providers and mobile money providers) to capture the unbanked populace in Nigeria.  This regulation of the mobile money sphere by CBN is seen as a blessing and also a curse.  For the people of Nigeria mobile money allows them to bank with ease and make transactional payments without restrictions regardless of their location to a banking outlet, the time factor of when the bank opens and closes, and they can perform transactions at any time of the day. The negative for the populace is the lack of agent networks (small kiosks in rural and heavily populated areas) to cater to the areas that banks are not located in. The consumer needs to be able to cash-in his or her physical money to virtual money and if there aren’t enough agent networks it defeats the whole purpose of mobile money and a cashless society.

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To counter this concern CBN has been pressing the financial institutions to increase their agent network to meet the needs and demands of the unbanked population and to decrease the use of cash as a payment option.  CBN also has been playing more of a role in the creation of the structure for the laws and regulations of the mobile money sphere to make sure it has some control over the industry.  The Central Bank fears that if it does not get involved it will not have an influence on the financial structure in Nigeria.  This has been a key issue in Kenya where the telecom company Safaricom has been able to build the M-Pesa platform and develop a monopoly on the mobile money industry and the financial banking industry of that country. CBN wants to avoid this and also apply a structure that will help the consumer but at the same time reduce cash that is circulating in the country.  Progress has been slow and to the naked eye it might seem as though CBN isn’t doing much.  You have to keep in mind that the mobile money industry is still in its infancy and government regulation is a new development for an industry that has seen little to no regulation since its birth.  MMIT believes that before the year is over you will see a significant change in the regulation and penetration of the mobile money industry led by CBN.

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Anthony Bushu is a Business Strategy, Marketing and Communication Consultant for MMIT a mobile software developer in Lagos, Nigeria.  Anthony has diverse experience in the mobile and telecommunications industries and has worked for telecommunication companies in the US, UK, and Africa.  Anthony can be reached on Twitter@anthonybushu or by email at Anthony.b@mmitonline.com.