New Market Exploration in
Nigeria Singapore, October 2014 Section AB
Alexandra Albers David Bondatti Dominique Cina Omar Elassar Anthony Khawam Georges Nakhle
Executive Summary
Nigeria is the largest economy in Africa with a GDP 2013 of $510bn and has been growing at a sustained rate of 6.4% between 2010 and 2013. The financial services industry is emerging as a major component of the economy contributing 7.5% to the GDP growth. As of today, there is still low financial inclusion in Nigeria compared to its peers in Africa across all financial products (payments, credit, savings, insurance and pensions). However, issue of low financial inclusion is recognized and addressed by the Nigerian Government through the Nigerian cash-less program and the National Financial Inclusion Strategy. In addition, the entrepreneurial ecosystem is trying to address the issue as well. We believe that mobile-money will be key as it could substantially accelerate inclusion. Although there are still major gaps in the Nigerian m-money industry, e.g. in agent networks & consumers education/ user base, we believe that if regulation and infrastructure improve, demand could unlock the mobile-money industry. This being said, we recommend Accion to invest in the mobile-money industry. Hence, we have identified four non-bank-led m-money start-ups as potential targets.
2 I. Macroeconomic View of Nigeria II. Financial Inclusion in Nigeria III. What Should Accion Do?
3 Why Nigeria?
. The largest economy in Africa and the 26th largest in the world, with GDP of $510 billion in 2013
. With 170 million people, it is twice as large as the next most populous African country
. Benefits from a large scale consumer market. Almost 40 million Nigerian are consuming-class households1, with a potential to increase to 160 million by 2030
. Population is young and growing; Nigeria has the ninth largest working-age population in the world—a substantial growth driver going-forward
. An entrepreneurial mindset, with 41% of working-age Nigerian being involved in an early stage business2. Country ranks top-10 against entrepreneurial measures
. Potential to move 120 million Nigerian above the Empowerment Line3 and 70 million out of poverty
1. Households with income more than $7,500 (in PPP term) 2. According to 2013 Global Entrepreneurship Monitor 3. Defined by McKinsey Global Institute as income required to achieve basic household needs 4 SOURCE:Nigeria’s Renewal; McKinsey Global Institute analysis Nigeria is the largest economy in Africa, and has been growing at a sustained rate
Nominal GDP, 20131 Real growth 2010–131 African countries 2013 $ billion % Nigeria (rebased)2 510 6.4 South Africa 354 2.7 Egypt 262 1.9
Algeria 216 3.0 Angola 124 4.9 Morocco 105 4.3
Sudan 52 -0.4
Tunisia 48 1.5 Ethiopia 47 9.0 Ghana 46 10.2 Kenya 45 4.9
Cameroon 28 4.4 Côte d’Ivoire 28 4.1
Uganda 23 4.9
Zambia 22 6.7
1 Economic data for some countries in 2013 estimated by the International Monetary Fund (IMF). 2 Data for Nigeria rebased GDP are based on basic prices, the headline figure used by the National Bureau of Statistics. 5 SOURCE: IMF; National Bureau of Statistics; McKinsey Global Institute analysis The Nigerian economy is both more diverse and stable than commonly conceived
Resources share of GDP, 20131 Nigerian real GDP growth (pre-rebasing data)3 Leading oil producers, developing & emerging economies only2 % % 35 Nigeria’s growth has 30 been stable following the fiscal reforms 25 39 55 20 63 74 76 86 15 89 92 94 96 10 5 61 Avg = 45 37 23.6 0 26 24 14 -5
11 8 6 4
-10
KSA Iran
UAE -15
Brazil
China
Russia
Kuwait Nigeria Mexico -20 Venezuela 1960 65 70 75 80 85 90 95 2000 05 2010
Standard 1960–2002 2003–10 Other Resources deviation 9.0% 2.0% % 1 Calculated at basic prices. Data estimates by IHS Global Insight for some countries, as 2013 numbers were not available for all. 2 Developing or emerging economies as defined by IMF. 3 Currently rebased GDP is available only post-2010, so this chart uses the official GDP statistics based on 1990 structures and should be considered indicative for the period 1990 - 2010. NOTE: Numbers may not sum due to rounding.. 6 SOURCE: IHS Global Insight; National Bureau of Statistics; US Energy Information Administration; McKinsey Global Institute analysis The financial services industry is emerging as a major component of the economy
Nominal GDP, 2013 CAGR Contribution to GDP growth, 2013 $ billion 2010–13, real 2010–13 % % 510 40 Other services 8.1 8.7 7 Entertainment, music 23.1 3.7 16 Construction 14.6 7.2 16 Professional and technical services 5.4 2.6
17 Finance and insurance 18.6 7.5
18 Public administration 4.5 2.5
35 Manufacturing 13.0 14.3
41 Real estate 6.9 8.2
49 Telecommunications and ICT1) 6.6 10.4
Resources2) 2.2 5.1 74 Trade 7.7 20.1 85 Agriculture 112 2.6 9.4
1 Information and communications technology. 2 Resources do not include oil refining, which is included in manufacturing. 7 SOURCE: National Bureau of Statistics, data accurate as of April 2013 GDP release; McKinsey Global Institute analysis Improved productivity—not labour input— has been the major growth driver…
Contribution to GDP growth, 2010–131
2013 $ billion 47 510
36 3
424
Given that Nigeria has the 9th largest working-age population in the world, we expect Labor input to be the main growth driver. Nevertheless productivity took over
GDP, 2010 Demographics2 Employment effect3 Labour productivity4 GDP, 2013
Labour input
Category contribution 42 3 55 %
1 GDP at basic prices, the preferred measure of the National Bureau of Statistics, was used. 2 Based on the growth of the working-age population. 3 Changes in workforce participation and employment rates. 4 Labour productivity effect is growth in labour productivity, measured by real GDP per employee. 8 SOURCE: National Bureau of Statistics; World Bank; IHS Global Insight; The Conference Board; McKinsey Global Institute analysis …yet productivity still lags behind other EMs, hence presenting significant upsides potential
Per capita GDP Labour productivity Employment/population $ thousand $ thousand %
Peer average 9.8 24.0 41.0
Russia 14.8 29.1 51
Mexico 10.9 26.1 42
Malaysia 10.5 24.9 42
Brazil 10.9 22.2 49
Turkey 11.0 32.3 34
South Africa 6.9 25.4 27
Indonesia 3.5 7.7 45
Nigeria 3.0 10.3 29
-70% -57% -30%
9 SOURCE:National Bureau of Statistics; IMF; The Conference Board; McKinsey Global Institute analysis To realize the significant upsides, major issues still need to be addressed
Poor Electric power and transportation are inadequate for Nigeria’s area and population. infrastructures… Substantial enhancement is vital for economic growth and further urbanization
Country ranks 144th in Corruption Index, difficult regulatory process (e.g., 13 High barriers to procedures to register property), and major concerns for Nigerian employers1 are doing business… among others limited financing, instability2, lack of electricity and high OPEX3
In the first three months of 2014, more than 1,500 civilians were killed. In the south, High security ongoing conflict with militants occurs. Such issues make it harder to attract risks… companies and human capital; it also creates challenge for existing companies
More than 35 million adults cannot read or write. More than 10.5 million children Low skill levels… between 6 and 17 are not in school. Only 30% start primary school. For those in school, quality of education is often poor
Relatively low The economic impact of the internet has been lower in Nigeria than in other digital impact developing economies (e.g., 159th for mobile use & 128th for internet penetration)
1. According to a McKinsey survey of business across Africa 2011; 2. Economic and political instability 3. Excluding wages 10 SOURCE:Nigeria’s Renewal; McKinsey Global Institute analysis Additional progress in reducing poverty also needs to happen
Economic growth1 vs. change in poverty rate2
Annual decrease in poverty rate, 1999–20102 Percentage points
5
4 Tajikistan
3 Nepal Vietnam Swaziland Indonesia Bhutan 2 China
1 Angola 3 0 Nigeria Liberia -1 Kenya 130 million Nigerians live below -2 Zambia the empowerment line5
-3 0 1 2 3 4 5 6 7 8 9 10 11
1. Pre-rebasing GDP compound annual growth rate, 1999–2010 2. Poverty rate based on World Bank definition of $1.25 a day in 2005 purchasing power parity% terms 3. Only countries with a 1990 poverty rate above 5% were included in analysis 4. Based on pre-rebasing GDP data for Nigeria 5. Defined by MGI as income required to achieve basic household needs 11 SOURCE:PovCal.Net; World Bank; McKinsey Global Institute analysis Should issues be resolved, Nigeria’s GDP could exceed $1.6 tn by 2030 according to MGI
GDP contribution Should reforms and investments occur, Nigeria could reach its full potential by 2030, 2013 $ billion and thus become a top-20 economy
Increase in GDP by 2030 2013 GDP 582 1,634
442
108 140 35 1,124 144 73 257 109 35 194 263 63 151 279 112 510 192 87
Trade Agriculture Infrastructure Manufacturing Oil and gas Others1 Total
CAGR % 7.1 5.2 8.7 8.7 2.3 8.7 7.1
1. Assumes growth from 2010 to 2013 will be maintained for these sectors; includes financial & insurance services, real estate, motion pictures, education, health, and other service.12 SOURCE: National Bureau of Statistics; IHS Global Insight; UN FAOSTAT; World Bank; Canback Global Income Distribution Database (C-GIDD); McKinsey Global Institute analysis I. Macroeconomic View of Nigeria II. Financial Inclusion in Nigeria III. What Should Accion Do?
13 Five distinct products are identified with regards to financial inclusion
Definition Financial products
. Transfer of money by underserved, mainly through Payments mobile phones “Financial Inclusion is . Service include P2P, bill payments and remittance achieved when adults . Allow unbanked/ poor to borrow, taking into (>18 years) have easy Credit account specific needs (e.g., no collateral and need access to a broad for working capital financing) range of financial products designed . Allow unbanked/ poor to save money in an account according to their Savings that provides principal security and in some cases needs and provided at interest affordable costs. These products include . Mainly includes insurance that covers the risks of underserved and poor (weather risk for farmers) payments, credit, Insurance . Referred to as micro-insurance savings, insurance and pensions.” . The Nigerian pensions industry is based on the Pensions Chilean pensions system . Makes allowances for voluntary contributions
Source: National Financial Inclusion Strategy, Summary Report, Roland Berger 14 Today, there is still low financial inclusion in Nigeria vs. peers across all products
Product Access1 to financial products Other Indicators
M-payments Access to 22% <1% users in % of payment Payments adult services Peers2 31% Peers3 43% population
Access to 5% Loan 15 Credit credit accounts per products Peers2 28% 1’000 people Peers3 422
Saving Access to 41% 461 accounts per Savings savings Peers2 47% 1’000 people Peers3 977
Share of Access to 1% population 1% insurance Insurance using services Peers2 25% Peers3 18% insurance
Share of 5% population Pensions N/A contributing Peers3 22% pension
1. Formal or informal (See appendix for definition) 2. South Africa, Kenya, Uganda, Ghana, Tanzania, Rwanda, Zambia 3. Malaysia, Kenya, South Africa, Brazil, Indonesia, Mexico Note: Numbers are based on 2010 data 15 Source: National Financial Inclusion Strategy, Summary Report, Roland Berger, EFInA Access to Financial Services in Nigeria 2012 Survey Currently, five major barriers hinder the evolution of financial inclusion
• 23.6% of the adult population earns less than USD 2 per day, 10.9% of adults are unemployed Income Problem of • Salaries typically paid in cash low financial inclusion is • Low banking density: The average distance to a Physical branch is more than 10 km being addressed by Access • 79% of rural dwellers are unbanked Government of Nigeria • Lack of clear understanding of financial through Financial institutions and products Literacy • Lack of trust arising 1.1 Cash-less Nigeria • High fees for ATM cards and transactions policy Afforda- • Very often, there is a minimum balance 2. National bility required 2 Financial Inclusion • Cumbersome documentation requirements Eligibility Strategy • Rigorous identification requirements
Source: National Financial Inclusion Strategy, Summary Report, Roland Berger 16 Problem of low financial inclusion is being addressed by Government of Nigeria
Cash-Less National Financial 1 2 Nigeria Policy Inclusion Strategy 2012
• Promotes the use of alternatives to cash • Further to the Cash-Less Policy, includes a (debit/credit cards, bank transfers, m-money, comprehensive plan led by the Central Bank etc.) by imposing a fee of 3% for any individuals of Nigeria (CNB) Measures to tackle the 5 Description withdrawing over USD $3,000 per day barriers to inclusion • Facilitates the implementation of monetary policy and helps anti-corruption efforts
• Favor the attainment of the 20:2020 economic • Lower the financial exclusion rate to 20% by growth program by digitizing payments 2020 by enhancing financial literacy and consumer protection, simplifying account Objective • Reduce cost of banking services thereby transferring savings towards increased lending opening procedures and access to credit • Limit security risks associated with use of cash • Ensure the stability of the financial system funded by increased and stable savings
• Limited effectiveness to date given the high • Ongoing efforts with limited means to assess Assessed cash withdrawal limit (70% of the population progress realized Effecti- lives below poverty level) and unclear whether • According the CNB, in 2012 40% of the veness Strategy is resulting in expanded credit access population remained financially excluded, • Unreliable power supply affects reliability an improvement of 6% over 2010
Source: National Financial Inclusion Strategy, Summary Report, Roland Berger, CIA World Factbook 17 In addition, the entrepreneurial ecosystem is trying to address the problem as well
Selected examples …addressing the barriers of start-ups… of financial inclusion
Oradian is set to transform microfinance banking Income in Nigeria with the deployment of its flagship (low salaries, high unemployment) product, Instafin.
CashEnvoy.com is a web application that aids the Physical Access transfer of money from person-to-merchant using (low banking density) the web application and personal email addresses
i.Sec’s financial security app protects users from Financial Literacy malicious debits by providing real-time options (lack of trust in financial institutions) for approving, declining, or reporting transactions
Mobile card payment system that enables Affordability merchants to accept card payments without (high fees for financial services) internet connection
Connect Finance allows companies to track their Eligibility finances, create invoices, quotations, sales orders, (Cumbersome document. requirem.) way bills, payments etc.
Source: Web Research 18 This being said, m-money is key as it could substantially accelerate inclusion
Why is m-money the enabler? . Relatively high mobile penetration (compared to banking) grants access to large client base (100+ million in Nigeria) . Underserved clients need to be educated on financial products usually “sold not bought”. M-money helps the educate & push-sales process . Mobile agents are significantly more dense than bank branches and ATMs (especially in rural areas) and can solve the proximity issue . Once foundation of m-money is established, tapping into financing/ saving & insurance is easier (e.g., M-PESA successfully lunched M-Shwari a saving & credit product, gaining 5+ million accounts in less than a year ) . 9 markets1 in Sub-Saharan Africa where access to financial services has largely improved have more m-money accounts than bank accounts
1. Could be more than 9; these markets area Cameroon, Congo, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia, and Zimbabwe 19 SOURCE: GSMA Mobile Money for the Unbanked There are 3 main models for m-money: World Bank argues for an MNO-led model in Nigeria
Mobile money demand curve (World Bank) ▪ In developing economies, MNO-led models (e.g., M- PESA) make most sense/ dominate, as financial infrastructure is not well established. MNOs allow m- money to target large numbers of unbanked people. MNOs typically handle relationship, provide an alternative infrastructure & a network of agents
▪ Bank-led models are more likely in countries where there is a good level of banking infrastructure and regulation
▪ In developed economies the collaboration model, where mobile money must integrate 1 2 3 the entrenched financial infrastructure, is most likely
20 SOURCE: helix-institute, ITU-T “The Mobile Money Revolution” 2013 Also, an MNO-led model would help overcome barriers for Nigerian consumers
Main challenges to m-money in Nigeria How can MNOs help?
Only 12% of Nigerians have ever heard of mobile Few people are money providers, with awareness among non MNOs can leverage the aware of mobile bank users four times lower than among bank 100 million mobile money… account holders: advertising seems not to be connections in Nigeria reaching the intended audience and the 23% mobile penetration growth to increase awareness and Nigerian consumers lack clear understanding of educate the unbanked Knowledge around mobile money services, e.g., less than half of about m-money. MNOs the service is adults who have heard about mobile money knew have a significant reach limited… they can send (48%) or receive money (39%) from advantage other people
Level of trust in Only 21% of respondents said they trust mobile MNOs already money services: services are deemed vulnerable established trust with performance/ safety to mobile network fraud and poor network their growing 100 million is low… quality/ technology customer base
NOTE: survey results refer to InterMedia FII Tracker Survey in Nigeria, End of 2013 21 SOURCE: finclusion.org; Nigeria Renewal Report; McKinsey Global Institute However, current regulation in Nigeria hinders MNOs to take a leading role
Current m-money regulation in Nigeria ▪ Strong collaboration ▪ In line with the 2009 Regulatory Framework, Nigeria is between license holders issuing mobile money licenses according to 3 schemes: and MNOs is required to – Bank-focused, where a bank delivers banking services successfully tap into the to customers using the mobile phone large unbanked market – Bank-led, where a bank or consortium of banks, partnering with other organizations, jointly seek to ▪ However, current volume deliver banking services via mobile phones of transactions does not – Non-bank-led, where corporate organizations deliver attract MNOs in the mobile money services to customers business, and uncertainties on future ▪ 15+ licenses granted so far of regulation are further refraining MNOs to fully ▪ Under the current framework, Mobile Network invest in m-money Operators (MNOs) are excluded from obtaining mobile partnerships money licenses
Note: out of the 9 markets in Sub-Saharan Africa that have more m-money accounts than bank accounts 7 have allowed MNOs to provide m-money services 22 SOURCE: helix-institute, ITU-T “The Mobile Money Revolution” 2013 SOURCE: GSMA, finclusion.org, company GSMA,websitesfinclusion.org, company SOURCE: yet licensenot hold the 1. Does m why, is This despite arecent proliferationof ▪ ▪ ▪ ▪ exceeded customer base marketin early2011,its but Paga payments airtime purchases suchas productsoffer basicservices Most of these mobile money third provided inNigeria as of May tracker The consumers providers distinguish between different leadto an Such a fragmentedoffering entrantsto the - money inNigeria… platforms GSMA’s mobile money -
was party lists money transfers byboth banksand the firstthe to enterthe
that of thatof more recent among potential inability to
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Selection Selection of m Bank-focused & bank-led Non-bank-led - money platforms currently present in Nigeria
scalability scalability ENZADI transfer transfer capabilities. focused focused players are Bank lack inter of restricted restricted in - led led and bank 1 )
due due the to - bank bank -
23
…the service is not gaining traction, and <1% of adults are actively using it
% respondents to end of 2013 survey (N=6,000+)
Compared to 62% in Kenya, 38% in Tanzania and 26% in Uganda 24 SOURCE: finclusion.org Major gaps in Nigerian m-money are in agent networks & consumers education/ user base
Nigeria vs. Kenya along the key factors influencing m-money development Not in Fully in place place Nigeria Kenya (best in class)
Readiness of Nigeria is at a stage similar to that of Kenya at the launch finance and of M-PESA in 2007. The majority of the population has mobile industries limited financial access but uses mobile phones. There is high demand for simple services such as m-money Regulatory framework is cautious and offers Regulator's initial decision was to allow the little flexibility to players to respond to the scheme to proceed on an experimental basis Regulation/ Gov’t market opportunities (e.g., required (without formal approval required) in order to support interoperability at all levels is slowing encourage initiatives in the industry despite its deployment) uncertainties The exclusion of MNOs from leading in m- More than 17,000 retailers who already sold Broad agent money implies that one of the few parties with airtime signed up as M-PESA agents. At the networks experience in running agent networks may not beginning, they were incentivized based on new find the participation attractive accounts opened So far, efforts have not reached the intended Used marketing extensively to educate poor and Consumers segments (i.e., rural and unbanked): the underserved through simple and effective education majority of current m-money users already campaigns (e.g., “Send money home”). Agents also have a bank account played a significant role in this regard Several licenses issues, market is fragmented Leveraged dominant market position/ brand and there is low trust in current players. name of Safaricom to boost network effect User base growth “Chicken-and-egg” trap, where few users join the platforms because there are few users on it 25 SOURCE: IFC Mobile Money Study Nigeria 2011, team analysis If regulation/ infrastructure improve, m- money demand could be unlocked
Nigeria lacks conditions for a vibrant m- …but Nigerian consumers have strong money market… desire for m-money services Nigeria’s readiness for m-money Consumer perception for m-money in Nigeria MasterCard index score MasterCard Survey, figures out of 100%
25 Consumer readiness 12 61% High Wilingness Partnerships btwn 0 Regulation & Infrastructure willingness banks & MNOs 20 61% to use…
Economic & demographic 40 readiness 50 30% …yet 50 Financial readiness Familiarity 60 education is 53% needed… Mobile & tech 25 infrastructure 30
45 Regulation 4% …to reach usage 60 Usage rate of leading 31 31% countries Total Score 33
Nigeria Index Nigeria Kenya 26 SOURCE: mobilereadiness.mastercard.com I. Macroeconomic View of Nigeria II. Financial Inclusion in Nigeria III. What Should Accion Do?
27 Accion should look into m-payment start-ups as giants are still not building traction
What should Accion look into?
. Bank-led m-payment initiatives did not gain significant traction; banks are struggling to increase penetration using conventional measures
. Telco providers who are most fit to provide m-payment M-payment services are not granted licenses to do so Start-ups . Established players such as Paga are still struggling to unlock the potential of the Nigerian m-payment market
. As such, there is opportunity for independent m- payment start-ups to build traction so it becomes too late and too difficult for giants to compete
28 Hence, we have identified four non-bank-led m-money start-ups as potential targets
Nigerian non-bank-led start-ups Market potential can be categorized along two dimensions (current market Low High attention and potential). ENZADI1 Current market attention is defined by:
• Customer awareness of service Low • Size of network of agents • Size of existing customer- base • Size of received funding
Current market potential is
defined by: attention Market
• Managerial skills High • Well-suited & passionate team • Technical expertise • Clear strategic vision
We believe that start-ups with low market attention and high market potential fit best Accion’s investment criteria and its focus on seed-stage investments. 1. Does not hold the license yet Note: Assessment of start-ups along market attention and potential is based on expert interviews 29 Source: Field interviews Case Study: Enzadi’s business plan looks promising…
Enzadi is a start-up mobile money company aspiring to become Nigeria’s leading mobile financial services brand by the end of 2015 by offering a paradigm shift in terms of operations from the conventional phone based, that rides on STK platform. Owing to the challenges inherent in the STK platform, e.g. mobile money operator’s unwillingness to open their platforms to other operators so as to retain market dominance as well as the capital investment required to operate a telecommunication company, Enzadi intends to use a low capex investment model to offer a seamless service that does not discriminate across mobile net work operators. The Enzadi business model will leverage on existing mobile network operators and a USSD functionality (real-time connection) to deliver to its customers mobile money services ranging from sending and receiving money, paying bills, cashing out or making transfers.
Enzadi has a competitive advantage due to its experienced team (support from successful M-Pesa team), its trusted platform (iCeni: the engine powering M-Pesa) and its key partners (leading mobile operators and banks) 30 Source: Enzadi Mobile Money Business Plan 2013 Appendix
31 II. Financial Inclusion in Nigeria Four distinct segments are identified with regards to access to financial products
All adults who have access to or use a deposit money bank in addition to having/using a traditional banking product, including ATM card, credit card, savings Formal account, current account, fixed deposit account, mortgage, overdraft, loan from a bank, or Islamic banking product; including indirect access
All adults who have access to or use other formal institutions and financial Formal products not supplied by deposit money banks, including Insurance companies, other microfinance banks, pension schemes or shares. It also includes remittances (through formal channels); including indirect access
All adults who do not have any banked or formal other products, but have access Informal to or use only informal services and products. This includes savings clubs/pools, only esusu, ajo, or moneylenders; as well as remittances (through informal channels such as via a transport service or recharge card)
Adults not in the banked, formal other or informal only categories, even though the Completely person may be using or have access to any of the following: loan/gift from friends excluded or family and loan from employers, as well as remittances via a friend/family member
Source: IMF: Financial Access Survey 32 II. Financial Inclusion in Nigeria Country fundamentals show that Nigeria has big potential for m-money
Mobile vs. banking reach1 9.5 B A 9.0 Nicaragua 8.5 8.0 Armenia 7.5 A Major potential 7.0 ▪ Large unbanked populations 6.5 ▪ High mobile vs. banking 6.0 Tanzania reach 5.5 B Quick risers 5.0 ▪ High to very high mobile 4.5 Belarus Kenya vs. banking reach Georgia 4.0 Pakistan C Giants Romania 3.5 ▪ Relatively low mobile vs.. Iraq Ukraine banking reach 3.0 Argentina Philippines Nigeria ▪ Very large unbanked 2.5 Mexico population in absolute Algeria 2.0 Vietnam terms South Africa 1.5 Brazil Indonesia 1.0 Bangladesh China 0.5 C India Myanmar Ethiopia 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 600 610 620 630 760 770 780 Unbanked population2 Mn 1 Mobile penetration (net of multi-SIM proxy) vs. % banked; average ratio of mobile penetration to banked share across markets shown is ~2 2 Based on World Bank “Access to Financial Services,” the average of unbanked population across markets shown is ~30mn 33 SOURCE: Wireless Intelligence; World Bank; WMM; Global Insight II. Financial Inclusion in Nigeria Kenya leads the world in m-money
34 SOURCE: The Economist, September 2014 II. Financial Inclusion in Nigeria M-Pesa’s success has spurred others products that ‘ride the rails’ of the m-money platform
Several players followed suit offering a suite of mobile services or links to savings accounts …
… while new players are integrating existing mobile payments platforms with online merchants, bank accounts, and microfinance platforms
Example: Jipange KuSave in Kenya
▪ Pilots now being run in small groups throughout Kenya, so final features and costs are still being defined ▪ Allows customers to save easily, while borrowing small amounts ($30-$200) at an affordable cost ▪ Marketing focused on ´financial independence´ (no need for group savings) and simple repayment rules ▪ During the pilot phase Jipange KuSave is also targeting potential dealers with messaging on leading the community and earning commissions
35 SOURCE: Safaricom/M-Pesa; The White African Blog - “The-Kenyan-mobile-money-ecosystem”, Oct. 12 2011 II. Financial Inclusion in Nigeria Non-bank-led m-money start-ups (1/4) Potential targets (Low attention/High potential)
• Nigeria's first award winning electronic transaction switching and payment processing platform • Global reach, developed products across all aspects of the e-payment industry; ATM, Internet, POS, and Mobile • Granted the license by the Central Bank of Nigeria to provide Mobile Money services to individuals with a special focus on the unbanked • Website: http://www.pocketmoni.com
• Secure mobile payment service designed to comply with the CBN’s regulatory framework on mobile payment services in Nigeria • Enables end users with GSM phones to operate virtual wallets, pay bills, transfer money or purchase good and services via their mobile phone • ReadyCash System is pre-paid based • Website: http://www.readycash.com.ng
• Virtual Terminal Network’s (VTN’s) Vcash allows people to transfer and receive money locally and through Western Union using their phone or online • VCASH is fully licensed by the Central Bank of Nigeria to deploy mobile payment service in Nigeria • Website: https://www.virtualterminalnetwork.com
36 SOURCE: Web Research II. Financial Inclusion in Nigeria Non-bank-led m-money start-ups (2/4) “Stars” (High attention/High potential)
• Nigeria’s first mobile money company • Founded by Tayo Oviosu, who has over twelve years of experience in High-tech and Private Equity • Paga enables people to send money via mobile phone or make payments without bank account • Funded by Acumen Fund, Aldevo Capital, Capricorn Investment Group, Goodwell West Africa, Omidyar Network, Tim Draper and received grant from EFinA • Website: https://www.mypaga.com
• UK company Monitise plc is a world leader in mobile money • In August 2011, the CBN granted Monitise a Mobile Payments System Provider licence to operate Mobile Money services in the country • Monitise’s vision is to help people without bank accounts interact with the wider world via their mobile phones • Website: http://www.monitise.com
• Service to buy airtime, transfer money and pay bills from the mobile phone • Licensed by the Central Bank of Nigeria (CBN) in December, 2012 as a Mobile Payments Operator, and was granted commercial approval by the CBN in July, 2013 • Winner of the Kalahari Awards for the 2013 ‘Best Mobile Money Startup in Nigeria’ • Website: http://teasymobile.com
37 SOURCE: Web Research II. Financial Inclusion in Nigeria Non-bank-led m-money start-ups (3/4) “Dogs” (Low attention/Low potential)
• Kegow offers a large variety of services such as: buy airtime, pay bills, transfer money, request money, withdraw money or send invoice • Kegow is a product of Chams Mobile, a subsidiary of Chams Group with special focus in mobile payment • Received operational license in December 2011 • Website: https://kegow.com
• MKudi has launched an electronic digital payments platform called MiMo. MKudi is a subsidiary of the Vanso Group that was formed to create an independent mobile money payment scheme in Nigeria • Was awarded a full operating license in November 2011 • Was awarded a grant by EFInA (funded by DFID & The Bill & Melinda Gates Foundation) to carry out the pilot • Website: https://www.mimo.com.ng
• MoneyBox Africa provides mobile savings and payment solutions in Nigeria • MoneyBox Africa subscribers purchase MoneyBox scratch cards from neighbourhood retailers to remotely save money into their bank accounts, pay bills, buy insurance, transfer money with a mobile phone or bank account, withdraw cash at agent locations, and pay for top ups, as well as to buy insurance, get access to credit, and make investments • Website: https://moneyboxafrica.com
• Mobile money product from Fund and Electronic Transfer Solutions (FETS) Ltd • Turns any mobile phone into a virtual point of sale portal, allowing using to do transactions that mostly required face-to-face interactions • A “do-it-yourself, anytime, anywhere” mobile commerce service • Website: http://mywallet.testingwebsite1.com
38 SOURCE: Web Research II. Financial Inclusion in Nigeria Non-bank-led m-money start-ups (4/4) “Dogs” (Low attention/Low potential)
• PiDO stands for “Payment Irrespective of Distance or Obstacles”. With PiDO, financial related activities are easy, convenient and secured • PiDO belongs to PayCom Nigeria Ltd, who is one of Nigeria's leading Mobile Payment Solutions providers approved by the Central bank of Nigeria to render mobile payment services to the Nigerian market • PayCom provides solutions for two major sectors: the business enterprise and the consumer segment • Website: http://www.paycom-ng.com
• QikQik is a service of Eartholeum Networks Ltd., an innovative Nigerian based international e-business company • QikQik provides financial products and services for the under-banked and unbanked populations in viable and profitable ways • Website: http://www.eartholeum.com/home.html
39 SOURCE: Web Research III. What Should Accion Do? Accion’s investment criteria (1/2)
Direct Impact Indirect Impact
• Is financial service core to offering? • Does this support and/or improve upon • Does it address key problems/ barriers to our strategic financial inclusion? Product Accion priorities/adjacencies? • Is it “good” for the consumers (i.e. creating • Are there any particular positive economic and social value for the reputational sensitivities individual/ community in the long run)? in this sector or market? • Does the entrepreneur intend to create Management social impact? • Is the core offering: • new/unique Industry/ Transaction • Are we positioned to influence the • “wave of the future” direction of the business (for social impact)? Innovation and/or • likely knowledge • Does the product/service have the potential creation/transfer? Scale to achieve scale impact?
• Does the product/service enhance value Customer of model at time of investment Quality* proposition, is it convenient, accessible, and affordable? • BoP/Poor consumer • Small/Micro enterprise • Does the product/ service have long-run Client potential to disproportionately add value • Trickle down innovation that allows them to to lives of the systemically underserved? better serve the underserved within 5 years • Systemically underserved for product that • Is there transparency, controls, and Governance generates some sort of social externality effective decision making? (outside the household)
*Quality as defined by the Center for Financial Inclusion. Quality includes affordability, convenience, product-fit, safety, dignity of treatment, and client protection. III. What Should Accion Do? Accion’s investment criteria (2/2)
Size of addressable market/need? Strength of value proposition? Attractive unit economics? Plausible execution? Well-suited, passionate team? Supportive/enabling market context – regulation, competition, other? Sensible budget and growth plans? Looming icebergs? Do-able deal? Nigerian start-up ecosystem Nigerian start-up ecosystem is burdened by issues along financing, infrastructure & policy
Entrepreneurship Assets Business Assistance Policy Motivations
• Requirements for obtaining capital • Thriving business ecosystem • Legislation • Entrepreneurship is are prohibitive for new businesses has emerged in Yaba, Lagos places significant viewed as a burdens on new desirable career (up to120% collateral requirements) • Accelerators, incubators, and businesses option due to poor co-working hubs provide early • Physical infrastructure challenges private sector stage funding options, business • Legislation is constrain business operations opportunities expertise and working spaces varied and not • Strong and growing talent pool consistently • Strong start-up spirit • Strong international business exists consisting of diverse skillsets enforced and limited fear of support exists failure Tech Financing Skills & Talent Support Services Legislation Mindset 3.5 /Infr Strong entrepreneurial 3 spirit exists
2.5 Nigeria
Index 2 Sub-Saharan Africa Strong networking Financing is Physical infrastructure is Poorly administered 1.5 opportunities and difficult to access inadequate and unreliable business spaces business regulations Global Peer Average 1
Source: Start-Up Nigeria: 1 - Opportunities, Challenges and the Future (Seedstars network) 2 - Omidyar Network, Accelerating Entrepreneurship in Africa. Nigerian start-up ecosystem Overview on accelerators, incubators, co- working hubs (1/2)
Creating businesses that positively Accelerating the application of social Addressing the business and impact lives and drive development in capital and technology for economic technology educational gap to drive Mission Nigeria, West Africa and the African prosperity in Nigeria business growth in Nigeria continent
Range of programmes focused on Provides essential support to accelerating successful development entrepreneurs to build software skills, Business accelerator services to early Overview & Focus of social tech ventures through solutions and businesses critical to stage growth companies business support focused on rapid their success prototyping
• Business mentorship & training • Business mentoring & training • Physical workspaces • Business mentoring & training • Physical workspace Services • Mobile testing laboratory for • Physical work space • Networking events testing applications • Candidate recruiting services
• Seed Stage • Early Stage • Early Stage Stage • Early Stage • Growth Stage
• Access to various funding schemes • Access to funding through IDEA • Seed funding through proprietary Funding through CC-Hub networking network fund and investment partners
43 Nigerian start-up ecosystem Overview on accelerators, incubators, co- working hubs (2/2)
Providing innovative entrepreneurs Powering companies in Africa by Making doing business in Nigeria with the resources to launch lean bridging the gap between start-up to practical, affordable and flexible for start-ups that can grow fast and Mission market dominance through seed Start- Ups, SMEs, Corporate and where success can be quickly capital funding Multinationals institutionalized
Core product development team Specializes in providing short, Provides affordable serviced co- builds initial products for each medium and long term funding to working spaces entrepreneurs. Along founder team; enabling the founder small and medium sized start-up Overview & Focus with trainings, seminars and access teams focus on business businesses in tech (software to pools of Angel Investors and development early so their startups applications, mobile applications, Venture Capital companies can quickly gain traction electronic payments and big data)
• Business mentoring • Serviced virtual / physical working • Basic entrepreneurship training • Physical workspace and start of spaces • Product development services the art facilities/labs • Networking events with business Services • Physical workspace • Shared business services (HR, Tax, SMEs, VCs, and Angels • Networking with VC funds Accounting, Legal)
• Ideation stage • Early Stage • Early Stage Stage • Seed Stage • Growth Stage • Late Stage
• No proprietary fund • Seed funding through proprietary • No proprietary fund • Access to investors through fund • Funding can be provided through Funding networking events and pitch • Average investment $25,000 to support network opportunities $100,000.00 for seed stage 44 Nigerian start-up ecosystem Africa’s payment innovations are attracting international investors
Examples of investor interest in African Investors are attracted for a number of payments reasons, and have different strategies
Attractions
▪ Established July 2010, with vision of building ▪ Gaining entry to a “last frontier” payments Africa’s leading e-payments platform market with exciting growth prospects ▪ Investments include: ▪ Potential acquisition with detailed market – Mediterranean Smart Cards Company –card knowledge, existing track record, and customer issuing, processing and ATM switching base that can be quickly and easily leveraged for services to +70 banks across 25 African growth and expansion countries – ACET Processing – card and credit processing Strategies services to consumer finance ▪ Typical PE acquisition with exit strategy organisations/retailers in Southern Africa ▪ Geographic extension of existing operations ▪ Acquisition of innovative products and technologies ▪ Helios acquired majority stake in Interswitch ▪ Interswitch is largest transaction switching and ▪ Local partner with detailed understanding of electronic payment processing service provide in market conditions and customer needs Nigeria and owner of the leading card scheme, Verve 45 INSEAD Project Team
Alexandra Albers David Bondatti Dominique Cina Omar Elassar Antoine Khawam Georges Nakhle
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
+41 78 617 04 75 +65 8361 0400 +65 9813 8241 +65 8149 6875 +65 9813 8234 +65 8607 5231
• 3 years experience • 3 years experience • 3 years experience • 4+ years • 3 years experience • 2 years of audit in Debt Capital in the McKinsey in the Boston experience in in consulting at experience at Markets and Rome Office, Consulting Group consulting at Booz & Company KPMG and 4 years Derivatives working in 10+ Zurich Office Deloitte Consulting in the Middle East; of corporate M&A Solutions Group, engagements for LLP’s Toronto worked mainly with in Canada (focus • Worked on a wide Credit Suisse global companies office focused in banks & insurance on services firm in range of projects in Financial Services companies EMEA) • In charge of • Relevant expertise various industries, interest rate in Banking, incl. Healthcare, • Significant • Raised USD 5m • Completed an business for Automotive and Private Equity, and experience for a PE fund, internship in German corporate Energy topics Consumer Goods working with tech- focused on real investment client accounts across Europe & focused VCs, estate banking at Morgan • Master of Science US accelerators, and development Stanley in London • Bachelor of Arts in in Computer start-ups Business Science from • Master of Science • Bachelor of • Bachelor of Administration, Columbia in Mathematics • B.A.Sc., Honours Science in Commerce from University of University from ETH Zurich Computer Mathematics from McGill University St.Gallen Engineering from the American the University of University of Beirut Waterloo