THE DIGITAL FINANCIAL SERVICES LANDSCAPE IN NIGERIA: ENABLING MARKET CONDITIONS FOR PAY- AS-YOU-GO SOLAR DISCLAIMER: This publication was produced by Nathan Associates Inc. and is made possible by the support of the American people through the United States Agency for International Development (USAID). Its contents are the sole responsibility of the author or authors and do not necessarily reflect the views of USAID or the United States government. 2 TABLE OF CONTENTS Part A: The PAYG Solar Opportunity .................................................................................................................................................................................................. 5 1. PAY-AS-YOU-GO Solar ............................................................................................................................................................................................................... 5 1.1 The Off-grid Solar Opportunity in Nigeria ............................................................................................................................................................... 5 1.2 Why Off-Grid Solar is the Most Cost-Effective Solution ...................................................................................................................................... 7 1.3 PAYG’s Value Proposition: The Customer Perspective ........................................................................................................................................ 7 1.4 Beyond Energy Access – Socio-Economic Impact ................................................................................................................................................... 8 2. PAYG Business Models .............................................................................................................................................................................................................. 10 2.1 Lease-to-Own vs. Energy-as-a-Service .......................................................................................................................................................................... 10 2.2 PAYG Payment methods .................................................................................................................................................................................................. 11 2.2.1 Full connectivity model – M2M connectivity and mobile money ................................................................................................................. 12 2.2.1.1 Country Market Reference Case: The Impact of Mobile Money Services in Kenya .............................................................. 13 2.2.1.2 The full connectivity “on-network” model ...................................................................................................................................... 14 2.2.1.3 Bill payments vs. merchant payments ................................................................................................................................................ 16 2.2.1.4 Payment performance is not only a matter of sophisticated technology ................................................................................. 17 2.2.2 The Prepaid credit agent-BAsed model ............................................................................................................................................................. 18 2.2.3 The use of airtime as a Prepaid credit model ................................................................................................................................................... 22 2.2.4 Mainstream payment channel Models ................................................................................................................................................................ 24 2.2.5 USSD Models ........................................................................................................................................................................................................... 24 3. The link between PAYG solar and financial inclusion in Nigeria ...................................................................................................................................... 26 3.1 Nigeria’s financial inclusion targets ................................................................................................................................................................................ 26 3.2 PAYG solar as a driver for financial inclusion ............................................................................................................................................................. 29 3.3 Inclusive mobile money uptake: Lessons learned from other country markets .................................................................................................. 30 3.3.1 Building agent network Coverage ....................................................................................................................................................................... 30 3.3.2 mobile money Exposure ........................................................................................................................................................................................ 31 3.3.3 Agent liquidity .......................................................................................................................................................................................................... 31 3.4 Optimizing Agent Networks: lessons learned from other country markets ....................................................................................................... 31 3.4.1 Sustainable Agent Network Growth .................................................................................................................................................................. 31 3.4.2 Tiered Agent Compensation ................................................................................................................................................................................ 32 3.4.3 Developing Asset-Based Lending Expertise ...................................................................................................................................................... 32 3.4.4 Agent Onboarding and Training: A Valuable Investment ............................................................................................................................... 32 3.4.5 Agent Performance Management and Retention ............................................................................................................................................. 32 3.4.6 Optimizing Agent Networks: Sweat the Small Stuff ....................................................................................................................................... 33 3.5 The Importance of Consumer Protection ................................................................................................................................................................... 33 Part B: The DFS Landscape: Enabling PAYG solar .......................................................................................................................................................................... 34 4. The Digital Financial Services Ecosystem in Nigeria ................................................................................................................................................................... 34 4.1 Infrastructure Readiness in Nigeria ................................................................................................................................................................................ 35 4.1.1 The Nigerian National Payment System ............................................................................................................................................................ 35 4.1.2 Modernization of the National Payment System ............................................................................................................................................. 36 4.1.3 Participants in the National Payment System ................................................................................................................................................... 37 4.1.3.2 Nigeria Interbank Settlement System Plc (NIBSS) ......................................................................................................................... 38 4.1.3.3 Interswitch ............................................................................................................................................................................................... 41 4.1.3.4 Payments Solution Service Providers (PSSP) (FinTechs) .............................................................................................................. 41 4.1.3.5 Mobile Money Operators (MMOs) ................................................................................................................................................... 42 4.1.3.6 Super Agents ........................................................................................................................................................................................... 44 4.1.4 Retail payments in Nigeria ...................................................................................................................................................................................