Mobile Money In Nigeria - The Case of Pessimistic Indeterminacy

I am sure there are very some very serious people at the Central Bank of Nigeria (CBN) and Sanusi Lamido Sanusi the Governor of the apex bank is on top of that list. He did a lot of things people did not like in his first year in office but he gave us a stronger financial sector and we are grateful for that. A lot of what his administration corrected was however due to flawed policies of previous ones.

The CBN also finally kick-started efforts towards greater financial inclusion by issuing mobile licenses and we were very hopeful. One year later however, there is more uncertainty than hope as none of the Mobile Money license holders have been able to reach any meaningful scale. The total number of Mobile Money users so far is less than the population of one suburb in Lagos. If Ernest Ndukwe (the former Executive Vice Chairman of the Nigerian Communications Commission) had been put in charge of the Mobile Money initiative the same way he presided over the GSM licensing process, we would have had all licenses revoked by now for dismal performance.

Nobody said it was ever going to be easy and nobody expected it to be but nobody also expected things to get so messed up that we will have over 20 players and not a single one with a clear plan or the clout to move things forward rapidly. It is now very obvious from the way the initiative has gone that a lot of the players are seemingly totally out of their depth in terms of financial clout and expertise and the regulator probably made a the wrong call with the framework.

The Nigerian Mobile Payments Problem Explained Using Peter Thiel’s Framework

The Mobile Payments framework document (on which the initiative is based) is sometimes ambiguous and vague in certain areas and was more like a school term paper with general guidelines than a visionary policy document. It is not determinate on expected outcomes and also not based on the realities of micro payments in the emerging markets. It seemed like a document crafted by bureaucrats to protect the interests of a few institutions at the expense of the greater purpose of the public it was meant to serve.

The Central Bank of Nigeria is pursuing a Cash-Less or (Cash-Light initiative) as they have termed it. The idea is to make the financial sector more efficient as cash management has become a burden to the system.

The fundamental flaws in the process by the CBN can be explained by the famous entrepreneur and venture capitalist Peter Thiel’s  “Determinate, Indeterminate, Pessimistic, Optimistic” framework described in his Stanford University CS 183 course. Details of the lecture can be found here and the diagrams below summarizes the framework



The NCC Telecommunications Approach

Using the framework and looking at the rapid growth of the telecommunications industry in Nigeria, the previous NCC’s options in licensing GSM companies could be explained as such:

·         Optimistic, Determinate: 

Nigeria needs solid telecommunications infrastructure to spur economic growth. The potential for success is high when done right and it will help a lot of people out of poverty. There is a clear plan for success in telecoms initiatives and only serious players with clout are allowed to play. We decide to bet on GSM technology, make the barriers to entry high to allow only serious players in but keep them strictly regulated.

·          Pessimistic, Determinate: 

Nigerians don’t really need phones and it would be a waste of time to craft a robust policy or invite bidders. “Phones are for the rich and not for the masses” - according to a former telecommunications minister. We should focus on building the public telephone monopoly NITEL and put enough payphones in public places for those who must use them but can’t afford them


·         Optimistic, Indeterminate: 

Nigeria needs telecommunications infrastructure but we don’t know how much it will cost to put it in place and what is best or will work. We do a whole portfolio of things, we try everything until we find what works best.  We allow all players in and give everyone a chance. Anyone who survives wins the race.


·         Pessimistic, Indeterminate:

We don’t know what the best way to provide telecommunications infrastructure and the investment required to provide basic infrastructure is more than what we can afford at this stage. Any serious players we may bring in will make the services costly as they will provide their own infrastructure and would want to recoup investments, the masses may not be able to afford it if we allow the big players to come in. Take a portfolio approach with many small players and let each one provide infrastructure for their own niche. Build regional or local networks all connected to the National Carrier Nitel.

The NCC decided to do two things, for GSM they took the “Optimistic, Determinate” option by licensing a limited number of players after inviting all prequalified players to bid for licenses.  For CDMA they took an “indeterminate, optimistic” approach allowing smaller niche players to build local or regional telecommunications entities. While people may argue that the technologies may have made the difference in the huge disparity in growth, the GSM companies fared much better than the CDMA companies as the players were more serious and committed.

Universal licenses were later introduced with the players not limited to technology and we are better off for it with subscriber growth now over 100 million from only 500,000 in 10 years. The financial sector has not seen the same growth because the Central Bank took a different approach.

The CBN’s Mobile Payments Approach

The problems with the financial sector started way back before Sanusi’s era when the foreign owned banks were nationalized and the financial sector left in the hands of local investors. One of the central bank regimes earlier took a portfolio approach with massive deregulation of the financial sector allowing players with a small capital base to enter the sector. A lot of licenses were issued for banks and non-bank financial institutions including boutique finance houses and primary mortgage institutions.

That approach led to several failures and almost total collapse of the financial sector with several costly corrective measures taken afterwards to consolidate the portfolio of institutions into more solid players. A lot of people lost their life savings (many I know personally) and it led to a crisis of confidence by consumers with the result that cash became the predominant transaction mechanism.

With the banking and the rest of the financial sector, the government had initiated a “Pessimistic, Indeterminate” approach with nationalization of institutions. The central bank later moved to the “Optimistic, Indeterminate” quadrant by choosing a portfolio approach with deregulation.

After several failures and almost systemic collapse they have adopted a more “Optimistic, Determinate” approach by consolidation, raising the barriers to entry with increasing capital requirements, liquidity ratio and stricter regulation. They also allowed the foreign banks back in as well. All the damage and backwardness in the financial sector could have been avoided if they did not embark on the costly experiment earlier.

We are seeing history being repeated again with the same portfolio approach that failed with banking being repeated again in mobile payments. The current mobile payment initiative that has failed to achieve scale in the last year can also be explained by Peter Thiel’s framework.

·         Optimistic, Determinate: 

Nigeria needs a solid and sustainable mobile payments infrastructure to spur financial inclusion and economic growth. There is a clear plan for success and only serious players with clout and can scale rapidly are licensed. Allow prequalified players to bid for licenses, the barriers to entry are high and the industry is well regulated.


·         Pessimistic, Determinate: 

Nigerians don’t really need a separate mobile payments framework, and it would be a waste of time to craft a separate policy. We should focus on bank consolidation and growth. The banks and companies like Interswitch, Etranzact  or NIBSS will drive payments.


·         Optimistic, Indeterminate:

Nigeria needs a mobile payments infrastructure to spur financial inclusion and economic growth but we don’t know what is best approach is and what may work. We invite all players and do a whole portfolio of things. We also don’t enforce strict regulation to allow the free market determine the best option or players.


·         Pessimistic, Indeterminate: 

We need to reduce the cash burden on banks and The Mint. Mobile payments is one of the options we have to tackle this but we don’t know the best way forward with it yet. We will take a portfolio approach and see if it will work but we will exclude the big players with existing infrastructure, as we don’t want monopoly or unfair advantage to the banks we regulate. We also can’t really regulate this sector properly with the telcos involved as it would mean reaching into NCC’s turf so we stick to our comfort zone with bank and non-bank players. Telecommunications companies will remain only as infrastructure providers and they must ensure that they work with the other players who will take the lead.

If historical antecedents in the financial sector have a predictive value of future prospects then we all know what will happen if we choose either an “Optimistic, Determinate” or “Pessimistic, Indeterminate” approach to mobile payments.

The same deregulation, portfolio approach, indeterminacy and pessimism that characterized banking in the early days is being replicated in mobile payments and it should come as no surprise that there is slow growth.  Excluding telecommunications companies from being primary license holders out of paranoia shows a tendency towards pessimism and the portfolio approach in issuing over 20 approvals indicates indeterminacy. 

The Nigerian Cash Problem And Paranoia By The Banking Sector

Money is a store of value while bank accounts, mobile wallets and other storage locations are repositories of value. Successful payment initiatives are simply those that allow value to flow between repositories with relative ease and convenience. If cards and cash are more convenient than barter then so be it. If other mechanisms come that make these flows more efficient and convenient, the market will adopt them.

Because we want a Cashless Policy to succeed, we basically cannot force a market into a default mode because theoretically it seems more efficient when all the evidence is to the contrary. You also cannot force people to use sub-optimal solutions on consumers when the banks and other financial sector operators are not ready or totally out of their depth. Efficiencies have to be discovered by the market itself. Mobile payments and other forms of electronic payments thrive when markets discover those efficiencies. What successful payment companies do is accelerate this speed of discovery after providing the infrastructure at scale. The scale problem is what plagues a place like Nigeria and current efforts to try to force market adoption from players not structured to cope with scale will fail

The infrastructure to enable mobile payments succeed in Nigeria is already in place as the telecommunications companies have put in a lot of investment to build it over the years. These same telecommunications companies are already doing a lot of micro-transactions in form of airtime transactions of immense magnitudes but they have strangely been excluded from participating directly. It does not take the wisdom of rocket scientists to observe that the only two mobile payments initiatives in Africa that have reached viable magnitude are led by dominant telecommunications companies - MPesa by Safaricom and MTN Mobile Money by MTN Uganda.

The first product telcos enable their mobile money for is always airtime purchases and doing this at scale takes out a lot of cash based transactions and makes them electronic. They do this not just because they want to reduce churn but because it also saves them a lot of distribution costs and the customer also benefits from it. The telcos can also roll out an agent network for Mobile Money faster than any player because they already have nationwide distribution networks in place. If we are serious about going cash-less this is a win-win-win scenario.

When a robust mobile payments framework is in place it seems the only losers will be the banks as they would be deprived of commission on turnover (COT) when telco airtime distribution becomes more efficient. Loss of COT is probably the only reason why the banks are scared and are fighting this. Dependence on COT is probably the main reason why banking has not evolved properly in Nigeria

One year is enough time to look seriously at the current Mobile Payments Framework and do a review. The role of the regulator is to act in the best interest of the consumers not in the interest of the banks or bankers.

Full disclosure:  Companies I am involved with do a lot of technical consulting work for telcos and I have been part of the startup team of a major telco while working for an investor in Nigeria.  The opinions in this blog post are mine as an observer and customer/subscriber they are not of my company,  partners or clients. 


With all due respect. This is a Bunch of Malarkey!
This article could have been more credible with a balanced approach.
CBN did the right thing by excluding the Telcos in Nigeria. Safaricom is driving and leading Mobile Payment in Kenya, but could not repeat same feat in other African countries, so meaning there is no evidence that only the Telcos can drive this. MTN is licensed in many other African countries including Ghana, are they scaling yet? No.

If you allow the Telcos to drive Mobile money in Nigeria, you might as well surrender and give up hope for other industry to develop. Think about the implications and think about where the loyalty of the Telcos in Nigeria is. The quality of Voice and data in Nigeria is very poor. Guess who is in charge? The Telcos!. Why do you want to saddle them with Mobile money responsibilities?

Now, is CBN doing everything right, probably not, are the banks the right driver, probably not.
The best drivers of Mobile payment are experts in this field, and in partnership with Banks and Telcos
Banks and Telcos are not creative, so the maximum potential cannot be reached.

Also Nigeria is a unique case. Trust , awareness and infrastructure are factors to be addressed

Watch out how the Telcos will try to sabotage the effort, although they will fail in the end

Think about the Interest of Nigerians and Nigeria and not just a few

I can see that the Irish and Joe Biden have a lot of fans.

I also dont see your point here and maybe we should take emotion out of this and look at Safaricom/Vodafone. Can you show me a market where they have not thrived and others have? Mobile Money in Kenya and Uganda had one thing in common, a dominant telco but that is not even the point of my article.

The point of the article is the decision making process to arrive at the CBN framework when compared to the decision making process of the NCC. The NCC "surrendered" the role of developing telecoms in Nigeria and we have over 100 million subscribers who still use telco services in spite of the infrastructure challenges.

We would rather have 50 million or more mobile money subscribers using a sub-optimal system than less than 1m after one year and no hope of scaling it to any meaningful levels.

All countries are unique and NCC Nigeria has already proven that the best role of a regulator is to allow serious players to drive a market rather than see imaginary problems which have not materialized.

Regulating an erring telco in a market with millions of active mobile money subscribers is a better problem to have than no growth and no hope of reaching meaningful scale.

CBN's decisions in the last year have already sabotaged MM already and the best course of action is to allow all players at this stage is to allow all players including telcos to do their best in the market.

The role of the CBN should not be to bet on wining or losing horses but rather to make the racetrack even..

The only point I intend to make is this:
Mobile money is not scaling in Nigeria for reasons other than not allowing the Telcos, after all, MTN and other Telcos are advising day and night in Nigeria.
The reasons for precluding the Telcos from leading are good reasons and will be proven over time. We can have discussions about what else the CBN needs to do or frown at mobile money selection procedure.

Safaricom could have started in Nigeria and may not scale as in Kenya.
Understanding the peculiarities in Nigeria is key. Unfortunately I can’t delve into details on this forum.

Nigeria is a vulnerable country.


I actually think any serious financial inclusion service will scale in Nigeria because of demand. Safaricom would have done an excellent job if they had also provided the same infrastructure MTN and others have.

I have seen telcos grow from a mere idea to millions of customers and been part of the process of building them. I have seen all it takes to raise money and build infrastructure while scaling very rapidly because of demand.

There are still queues in banks and at ATM locations. POS machines still dont work. The banks know next to nothing about managing infrastructure to cale a transactions business but the telcos have. It is still too easy to make money from other sources. Non-bank operators on the other hand are out of their depth as they have never done this before.

People talk about Mobile Money as if it is some different exotic type of transaction based platform but it is not. We have also worked directly on several MM projects across Africa and a telco that has tried in several markets winning in some and losing in others definitely has much more experience and clout to bring to the table.

Nice write-Up here.

I however think the existing setup might work if the right roll out approach was taken.

Reading it, i ask myself why i dont currently use MM in Nigeria. 2 reasons.

1. For some unfounded reasons, I am afraid of security
2. I dont know any merchants off the top of my head accepting MM

Reason 2 is Particularly of interest to me, My Barber, Grocery Store, Petrol station etc dont currently accept Mobile money, Im not aware if bigger supermarkets accepts it or not.

I believe getting Merchants on MM and making sure we know those merchants would be the key to success with the current system.

Advertising that we can send airtime and money to each other is not enough to encourage signups to MM

Nice write-Up here.

I however think the existing setup might work if the right roll out approach was taken.

Reading it, i ask myself why i dont currently use MM in Nigeria. 2 reasons.

1. For some unfounded reasons, I am afraid of security
2. I dont know any merchants off the top of my head accepting MM

Reason 2 is Particularly of interest to me, My Barber, Grocery Store, Petrol station etc dont currently accept Mobile money, Im not aware if bigger supermarkets accepts it or not.

I believe getting Merchants on MM and making sure we know those merchants would be the key to success with the current system.

Advertising that we can send airtime and money to each other is not enough to encourage signups to MM

But Victor, many Nigerians will disagree with you. The infrastructure of telcos still needs work - we still can't complete calls, texts disappear and mobile data is epileptic. Now going back to sleep.
Thanks for the Peter Thiel theoretical framework but often a key driver of momentuous change tends to be when there is a meeting of several factors - low regulation, sufficient risk capital, unmet demand and new technology.

One has to also factor in political interests because that often proves to be a major stumbling block in the Nigerian setting. For example, compare the fate of NITEL and the fumbling and bumbling of its privatization to the issuing of GSM licenses. One can argue that GSM licensing was smooth because political actors did not recognize in time the magnitude of the market in the country.

For mobile money in Nigeria, despite all the seeds required for success notably risk capital, unmet demand (70% of Nigerians dont use the banking system) and high speed mobile data networks, the key sticking point is regulation. So one has to focus on the CBN and ask why are they dragging their feet. Is it ignorance? Is it fear? Is it old-boy business plans? As it so happens I believe its a combination all three. You have the CBN staffed with ex-bankers who look at mobile money as another highly profitable version of e-business, who think that it will compromise their ability to monitor the monetary system, contribute to money laundering and who tend to ally with the thinking of their ex-colleagues at the banks in that they should lead it.

What they don't realize is that the banks stand to gain a lot more from a higher-growth telecom-led model than by the snail-style growth of the current convoluted regulatory model. After all, mobile money still requires operators and agents to keep deposits at banks. For the CBN it will help tremendously to transition Nigerians faster from a cash-based economy to a cashless one through a widespread use of electronic wallets as a store of value and payments in mobile money rather than in physical cash.

Thank you very much Franklin Nnebe! Your observations are quite correct. We have a situation in Nigeria where the "old boys" regret not seeing telecoms coming. I have actually heard some of them complain bitterly and swear that as long as they have anything to do with something similar will not happen again. The same fight is also shifting to the power sector where there is a mad rush and there has been a first casualty - the minister
@seyitaylor, quality issues are much easier to solve than scaling issues. See problems with telco call quality as growing pains rather than a hindrance. A lot of the Nigerians you mention have not gone back to NITEL in protest.
How can a solution work when its users do have agency over it? As of my last count, CBN had issued 16 mobile money licenses. Of the 16, only 1 team built its own platform and therefore has IP rights over the platform. How do you scale something that you do not control? How do you respond to changes in how people use a solution that you do not own - a solution that needs to move and change almost instantaneously? How many people behind this mobile money thing actually understand money and banking? There are many reasons why Mobile Money in Nigeria isn't scaling the way some of us thought it would; CBN regulations are the least of them.
Great point.....but.... this is a proven business model in other parts of Africa and while there are local nuances that determine the extent of scale, the fundamentals are also the same with any other product/service involving transacting and storing value. On the issue of IP, it is an important point but how useful is that IP when market strategies are wrong or funding is not enough? Agency does not require control, it requires efficiency and as I mentioned in the post: "Efficiencies have to be discovered by the market itself. Mobile payments and other forms of electronic payments thrive when markets discover those efficiencies. What successful payment companies do is accelerate this speed of discovery after providing the infrastructure at scale." We have an infrastructure and distribution problem with mobile money in Nigeria and not a core product problem
@RealityCheck I wrote a longer response but somehow Posthaven lost it. Great point on the issue of flexibility and IP but....... this is a proven model involving transacting and store of value. There will be local nuances that determine the extent of scale and those are tied to availability of infrastructure and distribution. Agency does not require control, it requires efficiency. Efficiency has to be discovered by the market itself. The Nigerian problem is an infrastructure and distribution problem and not a core product problem. IP is not much useful when the distribution and infrastructure or even funding are not at par with the challenge presented
Victor, I think time has proved your hypothesis largely correct, at the end of the day.

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