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An early blow for MTN Nigeria's mobile money business

  • MTN Nigeria's mobile money operation has reportedly lost NGN22bn (US$53.7mn) to fraud or an operational error

  • Whatever the details of the loss, we view fraud as a significant threat to the success of digital banking in Nigeria

  • The loss represents c7.3% of MTN Nigeria's FY 21 profit but we maintain our Buy recommendation on the stock

An early blow for MTN Nigeria's mobile money business
Tellimer Research
28 June 2022
Published byTellimer Research

Leading mobile network operator, MTN Nigeria (MTNN), is suing 18 Nigerian banks in court over a NGN22bn (US$53.7mn) loss for its mobile money business. Media reports claim that NGN22bn was transferred to 8,000 accounts (across the 18 banks) fraudulently or in error, and the banks have refused to reverse the transactions. In this report, we highlight the likely impact on MTNN.

Fraud – digital banking's big challenge

A few weeks ago, MTNN and Airtel Nigeria secured final approval to commence payment service bank (PSB; or 'mobile money') operations in the country, but it has been a rocky start for MTNN.

It is unclear who is responsible for the loss, or whether it is an operational mistake rather than an instance of fraud, but it is relevant to a risk for the digital banking sector that we have previously discussed – the alarming growth in online fraud in Nigeria.

Fraud is a significant problem for digital banking operators and customers in the country, with fraudsters adopting various techniques, ranging from direct system attacks to 'social engineering' (tricky users into giving away security information, etc.). An outcome of this is that it has reduced the trust Nigerians have in financial services providers, in turn inhibiting the progress of efforts to improve financial inclusion.

Our recent survey on where fintechs need to improve underscores the importance of security for propsective customers. 

Classification of fraud techniques in Nigeria

A big blow, but MTNN has a cushion

Marketing efforts for MTNN's PSB services seem to have been ineffectual and customers were not able to register for accounts for a period of time. These factors, combined with the lack of trust in the sector and the huge loss, have made for a rocky start.

If the NGN22bn is not recovered and MTNN has to bear the loss, this represents c7.3% of its FY 21 profit and c2.1% of its FY 21 cash flow from operations – a singificant hit, but bearable. And the telco will likely continue with its mobile money activities after strengthening its operational and security framework.

We are still optimistic about MTNN's mobile services business and mobile money operations. Despite the hiccup, mobile money is still a strong product and it is needed to improve Nigeria's financial inclusion landscape. Moreover, MTNN, through its agency network and offline capabilities, is best positioned to fill the gap.

We reiterate our Buy recommendation on the stock based on:

  1. MTNN's positive revenue and profit outlook;

  2. Its strong positioning in terms of maintaining market leadership; and

  3. The potential upside from PSB approval.