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DFS Customer Development Opportunities in Nigeria

25.05.2018Jacqueline Jumah, Senior Analyst, MicroSave & Irene Wagaki, DFS Consultant

This blog was originally published on the MicroSave website.

Customer development is a fundamental requirement for any business. In digital financial services (DFS), we can view customer development as a journey that comprises customer discovery, customer captivation and appropriating value. Customer discovery involves finding out about potential customers and understanding whether existing solutions are able to meet their needs. Customer captivation entails continuously sustaining the interest of the customer by ensuring a positive user experience. Appropriating value focuses on adding valued products, services and delivery channels that can deepen early market successes to generate revenue and thus profits.

So far, in customer discovery, many financial institutions replicate solutions to drive user adoption. A few financial institutions conduct initial market research to understand the pain points among DFS users. In customer captivation, the emphasis is on heavy marketing communication – creating awareness on the existence of different solutions. There appears to be a greater focus on the success of a transaction rather than on the user experience that drives adoption and long-term use. Providers often focus on the number of customers rather than the value per customer, which requires innovation. The adjoining diagram illustrates this:

Source: Adapted from the Open APIs in Digital Financial Services 2017 report by CGAP

Providers lose out on profitability by failing to optimise the customer value proposition that drives adoption, and in their inability to support this through the creation of appropriate mission-oriented structures. Examples of these structures include setting out autonomous DFS departments, appropriate budget allocation, operating with adequate teams, among others.

Customer Development in Nigeria

In Nigeria, Deposit Money Banks focus on raising deposits from the public to fund the corporate sector but typically do not offer a full range of products and services to the mass market. Agent banking can promote greater access to convenient and accessible transactional services throughout the country. The agent channel can be used by providers to significantly increase customer captivation and revenue per customer. At present, the primary focus of the financial institutions that have adopted agent banking is on the customer discovery phase – primarily through offering the channel for Cash-In and Cash-Out. There are few value-added services that customers use. To drive revenue per customer, Deposit Money Banks must combat the perception that they are only used for the storage of funds. This would encourage their customers to use the products and services that ride on the agent channel.

Providers must ensure that services can meet the actual needs of customers, provide an optimal user experience, and use agents as a Below-the-Line marketing channel to demonstrate the range of services available. This is essential if the aggressive Above-the-Line (in most cases) and Through-the-Line (SMS blasts) marketing communications that Deposit Money Banks typically use are to be effective.

Beyond deposits, many mass market customers’ needs are served by Microfinance Banks that provide a better user experience. But agent banking combined with customer-centric product development and appropriate partnerships with fintech companies could extend the range of personalised retail services that Deposit Money Banks offer. This would allow them to compete with the Microfinance Banks.

How Might Institutions Harness Opportunities in Customer Development in Nigeria?

One of the research focus pillars in the recently published Agent Network Accelerator Research: Nigeria Country Report 2017 by the Helix Institute of Digital Finance has been customer development. The report outlines the need for providers to use research to generate compelling value propositions beyond cash deposits and cash withdrawals. We have identified use-cases within the payments space, including social transfers from donors or government, person-to-business, for instance, payment of school fees and person-to-person funds transfer. Designing use-cases around pain points would drive customer adoption and thereby revenue per customer.

The survey finds that providers have been doing little to promote uptake and usage. Rather, innovative agents have themselves developed mechanisms to promote uptake and usage. Typically, these mechanisms are built around digitising locally accepted cash-management practices:

a) Providing Microloans to Customers

Agents offer passbooks to customers for record-keeping and use these records to provide loans to them. A good number of agents report that the act of filling up the passbooks themselves provides opportunities to interact with the customers, making them feel “special”. Agents value the customers’ body language and demeanour as additional information that is critical in the intuition-based assessment of customers for microloans – of course, in addition to the transactional patterns. The transaction sessions with customers also involve asking personal questions to unearth their financial needs. An agent reported that he would provide a higher value loan to a customer who was confident enough to share more about their personal business progress than one who provided guarded responses.

The takeaway for providers: This example shows how agents use their customer relationship and information available on the channel to reduce the risk of micro-lending. The options available to providers include lending to the agents for on-lending or adopting agents into micro-lending processes given that pure digital lending carries significant risks of non-recovery.

b) Digitising Esusu and Ajoo1 Using Roving Employees

Some agents employ roving staff to provide Esusu services and facilitate Ajoo services through the agent banking channel. From the Helix field interactions, agents report that considerable financial information is shared in the Ajoo meetings, and this could be helpful in product evolution to make solutions more meaningful to the daily lives of customers.

The takeaway for providers: Develop field-based applications to digitise the Esusu or Ajoo processes thereby improving the agent business-case and enhancing agent loyalty, and through their actions increase the transaction volumes and deposits mobilised. Digital tools such as tablets and smartphones that offer other intuitive interfaces could be used during these sessions to improve the interactions and ensure prompt data collection.

c) Facilitating Remote Transactions

Due to a lack of service reliability and limited access to liquidity experienced by agents, they have developed networks to aid in facilitating transactions remotely. This means that whenever a customer visits an agent who is unable to conduct transactions for any reason, another agent in the network conducts the transaction on that agent’s behalf. For example, a customer wants to deposit NGN 5,000 walks to an agent in his locality – agent A. Unfortunately, due to network issues, the service is unavailable and agent A is unable to conduct the transaction. Agent A then reaches out to agent B – who is in a different locality through a call. Agent A provides the customer's transaction details and agent B immediately conducts the transaction on his behalf. This is also practiced whenever there are liquidity management issues, and in both cases the agents reconcile through their network. These agent practises follow the principles of Hawala2.

The takeaway for providers: Providers could design products that facilitate remote transactions and the reconciliation between agents in such a way as to provide transparency on the underlying transaction to conform to Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) requirements, and to ensure consumer protection. These mechanisms could enhance services delivery especially in rural areas where access to agent rebalancing points is a challenge.

Where is the Prize?

Providers must create value for agents and customers if they are to benefit from increased transactions and deposits. Providers would be able to increase usage through digitising local use-cases and by enhancing the user experience. This is the key takeaway from M-PESA's ‘Send money home' campaign – it mirrors existing local financial practices. In this way, providers can maximise value per customers and ultimately be able to appropriate value which is pivotal for DFS business sustainability.

[1] Esusu is an informal and rotating saving association that involves collection of funds by a designated individual, while Ajoo is an informal and rotating savings and credit association (ROSCA) where money from members is raised in meetings and given to an identified member.
[2] Hawala is a popular and informal value transfer system based not on the movement of cash, or on telegraph or computer network wire transfers between banks, but instead on the performance and honour of a huge network of money brokers known as "hawaladars".


About the Authors

Jacqueline Jumah is a Senior Analyst within the Digital Financial Services (DFS) department at MicroSave Consulting Africa and a faculty member at The Helix Institute of Digital Finance based in Kenya. Jacqueline has over 10 years of experience in digital financial services, telecommunications and the banking sectors. She has been involved in various projects consulting across Kenya, Uganda, Ghana, Nigeria, India, among others. She has broad knowledge and experience in DFS Product and Strategy Development, DFS Policy Advisory, Agent Network Deployment and Scale-up, Market Research, Risk Management and Marketing.

Irene Wagaki is a Consultant in strategic operations for digital financial services. She has seven years of experience in supporting innovative financial solutions that have a real positive impact on the lives of the poor through viable payments and distribution channels, and government and social innovations in emerging markets. Irene also has proven track record in digital transformation, agent network distribution models, and mobile money product innovations across Africa and Asia.

Financial Education: The Key to the Development of African Stock Markets

15.05.2018Emmanuel Zamblé, Expert-Consultant in Capital Markets

In recent decades, there has been a rapid increase in the number of stock exchanges on the African continent. In 1990, there were only eight stock exchanges (three in North Africa, and an additional five in the sub-Saharan region). That number grew to 18 by 2000, and finally to 29 today—including two regional stock exchanges in Abidjan and Libreville. Following these consistent developments, each region of the continent now has at least one stock market, and should expect a corresponding boost to their respective economies. Unfortunately, the growing number of stock exchanges in the African region has not yielded the expected results.

Indeed, with the exception of the Johannesburg Stock Exchange, Namibian Stock Exchange, Malawi Stock Exchange and Casablanca Stock Exchange—which, with a total market capitalization of USD 1,302 billion, 119.655 billion, 14.620 billion and 68.398 billion respectively individually represent more 50% of the GDP of their countries. The 25 other stock exchanges of the continent still continue to play a modest role in their economies.

Moreover, when analyzing the number of companies listed on the stock market, we realize that there is little enthusiasm on the part of African securities issuers. Of the 29 stock exchanges, only 3 are currently home to more than 100 companies. These include Johannesburg Stock Exchange Limited (377 listed companies), Egypt Stock Exchange (222 listed companies) and Nigerian Stock Exchange (172 listed companies).

At the regional level, the development of stock exchanges has yielded different results.

The Southern African region currently boasts nine stock exchanges: The Malawi Stock Exchange, Johannesburg Stock Exchange Limited, Dar es Salam Stock Exchange, Lusaka Stock Exchange, Namibian Stock Exchange, Stock Exchange of Mauritius, Botswana Stock Exchange, Swaziland Stock Exchange and Zimbabwe Stock Exchange. With a total market capitalization of USD 1,460.524 billion as of December 31, 2017, Southern Africa which accounts 86% of the continent’s market capitalization, leads the continent in terms of capital market development. Excluding South Africa, the region's market capitalization, while remaining the largest, would be reduced to only USD 158.52 billion.

Four stock exchanges currently operate in North Africa. These include the Casablanca Stock Exchange, Egypt Stock Exchange, Tunis Stock Exchange, Algiers Stock Exchange, and Libyan Stock Market. This region of Africa has a total market capitalization of USD 124.431 billion, which represents 7.35% of that of the continent.

West Africa has five stock exchanges: The Nigerian Stock Exchange, Ghana Stock Exchange, Regional Stock Exchange, Bolsa de Valores de Cabo Verde, and the Sierra Leone Stock Exchange. Its market capitalization is USD 69.90 billion (4.13%).

East Africa has the largest number of stock exchanges after Southern Africa. Its eight markets include the Nairobi Securities Exchange, Uganda Securities Exchange, Rwanda Stock Exchange, Bolsa de Valores of Mozambique, Seychelles Securities Exchange, Somalia Stock Exchange, Khartoum Stock Exchange, and the ALTX East Africa Exchange. It has a market capitalization of USD 37.745 billion (2.23%).

Central Africa has two stock exchanges; however, recent developments indicate that they will soon merge into a single market. These are the Securities Exchange of Central Africa and the Douala Stock Exchange. The stock market capitalization of this region amounts to USD 0.414 billion (0.02%).

Total market capitalization of African stock exchanges by Region

Sources: Stock Exchanges Websites; African Securities Exchange Association

Regarding the listed companies of the aforementioned stock exchanges, their number also varies from one sub-region to another.

Southern Africa possesses the largest number of listed companies, with 669 companies appearing across its nine stock exchanges—however, when we remove South Africa from our calculus, the number of listed companies in the sub-region drops to 292 and ranks second after North Africa, which has 392 listed companies. The West African sub-region has 265 listed companies, while East Africa and Central Africa have 190 and 4 listed companies, respectively.

Number of listed companies by region

Sources: Stock Exchanges Websites; African Securities Exchange Association

An analysis of this situation reveals that the majority of African stock exchanges are small, and therefore their contribution to the development of the state economy remains marginal; despite numerous legal, regulatory, and operational reforms made to revitalize and develop financial markets throughout Africa. In view of these circumstances, it should not be surprising to note that transaction volumes in these markets are also low.

One of the main causes of this sluggishness in the African financial sector is the inadequacy of stock culture in the region. This is reflected by, among other things, the reluctance of companies to use the stock market as a preferred route for financing their investments, the non-spontaneity of the dissemination of financial information, and the scarcity of growth capital transactions to be carried out through the stock market. The lack of a stock market culture is also expressed by the mistrust of many economic operators who still consider that the stock market is the ‘territory of specialists and especially rich.’ These actors therefore prefer to use their savings for other purposes, such as real estate and trade, rather than in stocks and bonds, which they are less familiar with.

The stock market problem can also sometimes arise in the form of an open competition between the banking sector and the financial market: Some banks consider long-term finance to be their sole purview, and perceive the stock market as a permanent competitor, despite having complementary roles in reality.

The remedy to these challenges is financial education.

There is a mounting, urgent need for regular educational campaigns with savers and company executives to help them deepen their understanding of how the stock market, financial products, and investment risks all interact. Similarly, money managers, advisers and, financial intermediaries should be included in any proposed financial market training programs. This would avoid any confusion with regards to the respective roles of commercial banks and the stock market in financial transactions such as public offerings. The training received by market players could spur adoption of good practices, build self-confidence in the investment decision process, and reinforce trust in their work, reassuring both domestic and foreign investors.

Our main objective is to make every African an informed speaker for the development of his country or even the continent. To do this, African stock market authorities should focus primarily on local investors. This has the advantage of protecting domestic markets against speculation from foreign capital flows. Of course, if investors are active enough in those stock markets, trading volumes and liquidity ratios will improve. In turn, this would attract foreign investors and encourage other companies to get listed on the stock exchange.

It should also be noted that no reform will lead to concrete, permanent developments of African stock markets without involving the majority of Africans. We can only achieve that by voluntarily accepting the daunting task of educating the public about money and financial market. Education must therefore be a cornerstone in any financial development strategies if African stock market leaders are to succeed in their goals.


About the Author

Emmanuel Zamblé has been a consultant in the capital markets industry for more than fifteen years. He has conducted studies on initiatives for bond markets development in ECOWAS, CEMAC and AMU (Arab Maghreb Union) regions, on behalf of international financial institutions. He began his career in 1992 at the Abidjan Stock Exchange (BVA) as a Senior Account Manager, Head of Public Offering and Quotation; in 1998, after having contributed to setting up the WAEMU Regional Stock Exchange (BRVM), he held the position of Director of Operations and Financial Information until 2011. Additionally, to presenting and delivering a number of international seminars and conferences, Mr. Zamblé also contributes to the training of African financial executives.


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