Despite pushback from the CBN, fintech, and customers, PoS operators will implement a price hike this week. Will the business model survive the price increase?

Every morning, Mrs Adetunji sells food at a shop in front of her house in the Agege area of Lagos. To drive traffic to her shop, she doubles as a PoS agent, allowing her neighbours, who live far away from bank ATMs, to withdraw money. She is one of the 1.5 million Nigerian agents that allow customers to access cash quickly. In a country where informal trade accounts for a significant part of GDP, cash is king. In the first quarter of 2023, a cash scarcity ended 31 months of growth in the private sector. 

Despite the importance of cash, there are not enough ATMs to meet Nigeria’s demand, and point-of-sale (PoS) agents step in to fill the gap. While there are less than 2,000 physical bank branches in Lagos, one of Nigeria’s busiest cities, there are over 320,000 banking agents. PoS agents are to Lagos what yellow taxis are to New York. 

There are 17 automated teller machines, 147 point-of-sale devices, and four bank branches for every 100,000 Nigerians, according to a 2022 Mckinsey report.

Last month, the Association of Mobile Money and Bank Agents in Nigeria (AMMBAN) announced that they would increase the charges for withdrawing cash. Before the imminent increase, the charge for withdrawals below ₦5,000 was ₦100, but with the increase, it would double. The charges rise to ₦800 for ₦18,000 to ₦20,000. The increase also exceeds the official Central Bank of Nigeria’s recommended charge for PoS transactions (1%).

Image Source: TechCabal

Criticism from all parts

Fintechs like Moniepoint, OPay, and PalmPay are some of the dominant players driving the agency banking business. On a call with TechCabal, Edidiong Uwemakpan, the global marketing head for Moniepoint, told TechCabal that the company was not consulted before the announcement. A Facebook post from the official OPay account said “any agent found overcharging will be blacklisted and may face legal consequences.” PalmPay told TechCabal that it was not informed of the decision made by AMMBAN. 

The fintechs all agree that the price increase contradicts the unique selling points of PoS operators—the ease of withdrawals and the cheap charges. Leveraging their ubiquity and large customer base, these fintechs are able to offer cheap charges on transactions to attract more customers and agents. But a hike in the price might change all that.

Martin, a student based in Lagos, told TechCabal that he would rather spend time in lengthy ATM queues than pay the extra charges. His position is understandable, given Nigeria’s persistent inflation. While the removal of fuel subsidies has doubled the price of fuel, food prices are also at a 7-year high. 

Last week, the Federal Competition and Consumer Protection Commission (FCCPC) barred PoS operators in Nigeria from increasing the PoS charges and threatened a sanction. If those sanctions go ahead, it may impact Nigeria’s financial inclusion drive. The agency banking model has been the most successful stab at banking the unbanked. In Taraba, there are only 20 bank branches but over 15,000 PoS agents. Anyone living in Taraba is more likely to bank with a fintech than a commercial bank.

Image Source: The Nigerian
Financial Services
Market Report by Intelpoint

While Martin can afford to use an ATM in Lagos instead of paying the new charges, Nigerians in other states do not have the same luxury. Moji, a 72-year-old woman who lives in Akure, told TechCabal that she would still use her PoS agent because it takes her 2 hours and a ₦300 transport fare to withdraw money from the nearest bank. “I do not have a choice,” she said. 

This is not the first time that PoS agents have increased their prices. In Q1 2023, as Nigerians felt the pinch of the cash scarcity, PoS agents increased the price because the demand for Naira was greater than the supply, and they had to resort to unconventional ways to get cash, such as buying cash from fuel stations. 

Not all PoS agents are in support

Unlike the last temporary price hike, this week’s price action is not driven by cash scarcity, and some PoS operators do not think the new rates are sensible. Most of the PoS agents that TechCabal spoke to rely on the charges as a secondary source of income, which is why they do not support the increase. Mrs Adetunji told TechCabal that she does not want to increase the charges for withdrawing money because she thinks it’s wrong to increase the price. “How would I explain to my neighbours that I want to increase the charges?”

Image Source: The Nigerian
Financial Services
Market Report by Intelpoint

“I heard on the news that the association has increased the charges due to the current economic realities. But since I don’t belong to any associations, I still charge the normal withdrawal fees—₦100 for ₦5,000 and ₦200 for ₦10,000,” Shola Hafeez, a PoS operator in Ikorodu, a city in Lagos, told TechCabal. Mariam*, a PoS operator in Yaba, told TechCabal that while she has heard about the increase in the news, she does not know when it will take effect. She added that she does not take the increase seriously because she cannot force customers to patronise her and she does not rely on the PoS device for her income. 

When asked how the union will enforce the new prices, the national publicity secretary of the association, Elegbede Segun, told TechCabal that the implementation has kicked off. “The directive is that each state chapter should come up with its own pricing list that will reflect its realities. Since the implementation just started, we will be getting an update from the state chapters later today,” he told TechCabal.

The law of demand and supply

Agents are not employees of the fintechs that own the devices they use to transact, and as such, the fintechs have limited control over them. PalmPay told TechCabal that, while it does not support the increase, it respects the autonomy of its agents. “What we can control is our commitment to keeping our own fees as low as possible. This helps ensure that our network of agents can offer competitive rates to their customers.”

In a response shared with TechCabal, OPay said that it does not think the charges would be permanent because they are not backed by regulators. The company added that should a reduction in patronage occur because of the high charges, it would have to resort to “charg[ing] agents for the services rendered in order to make up for the loss in revenue caused by low patronage.”

Unlike the last time around, when prices were increased, Nigerians have the option of seeking out other alternatives. There is no scarcity of cash, and there are thousands of PoS agents in even the most remote states in Nigeria. Their supply outweighs the demand. While PoS agents have a valid reason to increase their prices because of the high cost of living, that same reason is why Nigerians are resisting the increase.

AMMBAN appears to have an enforcement problem. If PoS agents like Mrs Adetunji, Hafeez, and Mariam* refuse to increase their price and others do, customers will naturally choose the cheaper option. In truth, PoS operators have established themselves as a painkiller for financial services for the majority of Nigerians in five years. While the price increase will certainly be met with initial pushback from PoS customers, the agency banking model will survive.

Ganiu Oloruntade Reporter, TechCabal

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