Nigeria’s mobile money system, while convenient, has a dark side: study finds risks

financial services play key roles In supporting economic activities. However, there are a large number of people in Nigeria no access For essential banking services.

This is what the World Bank’s 2021 report tells 45% Nigerian adults Have bank accounts. one more 2021 study shows that almost one in two adults do not use any formal financial services. And more than one in three Nigerian adults are completely financially excluded. Being financially excluded means that such adults do not have access to or access to any financial products or services – whether formal or informal.

They cannot enjoy all the benefits that come from being part of the formal financial system – such as keeping their money safe and accessing credit.

Some people turn to alternative systems like mobile money to meet their financial needs.

Mobile money can simply be described as a mobile human ATM. This is where a person operates a point of sale machine on the street or in a shop and people approach them to deposit or withdraw money. Operators charge customers for this informal banking service.

This service will often appeal to people who do not have access to internet banking, who do not have ATMs or bank branches around them. It is not just about having a bank account, but about accessing the money in the account. While ATM withdrawals may be free, mobile money operators may charge N100 (14 US cents) to withdraw N5000 (US$6.79).

By November 2022, 1.6 million point of sales machines were in use throughout Nigeria. were there 155,000 in 2017, mobile money operators also have a OrganizationAssociation of Mobile Money and Bank Agents in Nigeria. end of February 2023A total of 113.53 million transactions worth N883.45 billion (US$1.076 billion) were done through point-of-sale machines, while 96.35 million transactions worth N807.16 billion (US$984 million) were recorded in January this year.

Mobile money has its advantages, but it is also important to be aware of the potential risks. The point is to ensure that financial transactions are secure and that consumers are protected from fraud.

In our researchIn this article, we investigate the “dark side” of mobile money in Nigeria. We received valuable insights from customers, agents and financial technology (fintech) developers. We found that mobile money systems present challenges of fraud, insecurity, high cost, and poor infrastructure.

Mobile Money Risks and Challenges

Our objective was to highlight any risks and challenges associated with these business operations, as well as the implications for stakeholders. We interviewed 41 economically vulnerable consumers aged 20 to 70, 19 point of sale operators aged 20 to 49, and 11 fintech developers.

The study revealed several key issues related to mobile money operations.

fraudulent activities

Consumers who use point of sale machines acknowledge that they are insecure when interacting with operators. They know that their card details can be compromised as they are not connecting with traditional banks. But they consider it against profit and convenience and take precautions.

The developers also acknowledge that individuals may attempt to fraudulently register as operators. They will submit fake documents thinking that the developers will not check thoroughly. This highlights the need for stronger safeguards.

lack of security

Operators are aware of the risks they face because they have less robust security measures than traditional banks. They try to avoid risks, for example by working during daylight hours, working in shops with burglar proofs and installing CCTV systems.

high transaction cost

Developers deduct a fee from each transaction, and operators charge consumers for using their services. Although the Central Bank of Nigeria has Said The maximum total fee should be 1.25% of the transaction value, subject to a maximum of N2,000.00 (US$2.44), with consumers reporting instances where agents overcharge.

For example, during the recent naira shortagesome operator 30% fee charged for transaction.

There is little or no supervision of operators, especially in areas with little or no competition.

poor infrastructure

Poor infrastructure remains a major challenge to the financial services system in Nigeria. Internet connections and servers are often inadequate, which can hinder the smooth conduct of mobile money transactions. Transactions can be difficult to process. In some cases, agents have turned to developers due to lack of a reliable support system, which had a negative impact on their sales and resulted in customer loss.

Solution

Mobile money has had a positive impact in Nigeria, especially for individuals and businesses in areas with limited access to traditional banking services. Mobile money systems have effectively replaced cash and traditional bank accounts, enabling financial inclusion and improving the financial well-being of customers. The financial inclusion rate increased from 56.8% in 2016 to 63.2% in 2018.

But it is important to recognize that these systems are not without challenges.

One aspect that needs attention is security. Clients, especially those who are skeptical about technology and agents, prioritize the security of their financial activities. Strong security measures, such as secure encryption, authentication mechanisms and fraud detection systems, are essential to build trust and ease concerns. The developers are actively working to implement measures that can detect and prevent fraudulent activities, thereby ensuring a more secure environment for mobile money transactions.

Other steps include increasing transparency and providing education and awareness programs to ensure safe and responsible use of mobile money services.

Compliance with regulatory requirements is important to maintain the legitimacy and credibility of these services. Developers also have to navigate a complex regulatory framework to align their operations Government Guidelines and Policies, The growing fintech industry and point of sale agents in Nigeria create challenges in monitoring compliance. Regulators need to catch up with the growing trends and provide policies that support and drive financial inclusion. They should also do spotchecks to identify those who are not complying with the rules.

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