Mobile Banking Takes Off in Nigeria
STANFORD GRADUATE SCHOOL OF BUSINESS — When he graduated from the Stanford Graduate School of Business with an MBA in 2005, Nigerian-born Tayo Oviosu said advice from the business world in his home country was loud and clear—"don't come back."
At that time, he explained, "Nigeria was still about who you knew, and people did not yet properly value experience from abroad."
That opinion has now changed, he said, and he's one of many Nigerians coming home to address opportunities. He is betting that the fast-growing ranks of mobile phone users will make Africa's most populous nation "the next frontier" for the mobile payments industry.
Oviosu, MBA '05, and fellow GSB alum and company cofounder Jay Alabraba, MBA '07, launched mobile payments business Pagatech in Lagos in 2009. The business officially opened in early 2011 after receiving approval from the Central Bank of Nigeria.
Paga now employs 68 and has more than 42,000 Nigerian customers who can transfer money, purchase airtime credit, and pay bills with their cell phones using the system. Investors in the company include Timothy Draper, founder of global venture capital firm Draper Fisher Jurvetson; Lagos-based Alitheia Capital; and Goodwell West Africa, a microfinance investment vehicle co-managed by investment manager Goodwell Investments of the Netherlands.
"I really believe mobile is to Africa as computing was to the Western World," Oviosu told a group of GSB students on January 18 during a talk sponsored by the student-led Africa Business Club. "The question that we asked ourselves in 2009 was, 'Can the phone become the primary means of electronic transactions?' and we believe that it can. Our mission is to transform lives by delivering innovative and universal access to financial services."
According to industry tracker MobileMonday, the number of mobile phone subscribers in Africa more than doubled from 246 million in 2008 to 500 million last year. Nigeria alone has more than 75 million mobile phone subscribers today, Oviosu said.
Several factors affect how Nigeria's residents conduct their finances. Most merchants don't accept debit cards, about 60% of Nigeria's ATMs are located in just one region of the nation, the state of Lagos; and 80% of Nigeria's residents don't have formal bank accounts. Nigeria's mobile customers also don't receive a bill at month's end and then settle up. In Africa and much of the rest of the world, Oviosu said, cell users must prepay, purchasing service in advance before they can use their phones.
All that explains why Oviosu believes Paga is the answer.
To understand how Paga works, Oviosu says to envision blending the money transfer ability of Western Union with the electronic payment ease of PayPal.
Customers can use Paga to send money to anyone in Nigeria, either from their mobile phone or other internet-enabled device, or by going directly to a Paga agent. The company has a network of 550 agents, typically mom-and-pop merchants who already run grocery stores or pharmacies. Customers can go to those agents to deposit cash into their Paga accounts, and then conduct mobile transactions using those funds. The company also has a partnership with several Nigerian banks that accept Paga account deposits. So far, Oviosu said the average transaction size is modest, about 3,000 Nigerian naira, which is the equivalent of about $20 U.S.
As the GSB audience watched, Oviosu demonstrated live how the service works. He dialed a colleague's cell phone number in Nigeria and punched in the amount of money he wanted to transfer to her from his Paga account, followed by his PIN number. After a few moments, a recorded voice confirmed the transaction, while a text message alerted his colleague about how much money had been sent. The entire process took about 35 seconds. There's no charge to pay bills or add cell phone airtime, but mobile money senders are charged a fee based on the amount transferred.
Last year, Paga completed $3 million in transaction volume, with $1 million of that business occurring in December alone. Most were bill payments for DStv, the country's multichannel digital satellite TV service, as well as for mobile phone airtime purchases, Oviosu said.
The business is also considering other consumer offerings, including life insurance and insurance to pay an employee's salary if they miss work to visit their doctor. "A lot of people will be sick, but they won't get care because they don't want to take a day off" and not be paid, he said. "The whole idea is we want to offer a variety of services at the agent point."
Oviosu earned his Bachelor of Science degree in electrical engineering from the University of Southern California. Before founding Paga, he was vice president at Travant Capital Partners, where he was responsible for executing the firm's investment strategy in West Africa. He also worked at Cisco Systems in San Jose, where he helped lead the company's investment expansion in Africa and was responsible for the private sale of 22% of Cisco's South African operations to a consortium of investors in 2007.