What Telecoms’First Time GDP Contraction Portend for Fintech Growth in 2017 - Sundiata Tech


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Friday, September 8, 2017

What Telecoms’First Time GDP Contraction Portend for Fintech Growth in 2017

A first time contraction in telecommunication sector’s gross domestic product could have a ripple effect for old and new industries that depend on it, like financial technology (fintech).

The recently released National Bureau of Statistics data showed that Nigeria has finally exited recession with real GDP growth of 0.55 percent – although the number may fall below some analysts’ prediction of 1.6 percent.

Unlike sectors such as oil, manufacturing, agriculture etc, the telecommunications sector poled a disappointing -1.9 percent due to plunge in subscriber base growth from April to June (Q2) 2017. Data from the Nigerian Communications Commission, showed that subscriber numbers dropped by 11 million representing a massive -6.7 percent drop year-on-year.

In a recent post, Experts atc Research stated on the financial conglomerate’s website that fresh regulatory onslaught on SIM card registrations which triggered another round of line disconnections should be blamed for the decline.

“The surprise negative pattern in telecommunications sector (10% of output) due to the SIM de-registrations is unlikely to unwind over the rest of 2017 which implies that the sector will constitute a drag on overall GDP growth,” they said.

Nigeria’s fintech landscape which accounted for 1 percent of the global growth rate in Q2 2017, according to ThreatMetrix new report obtained by BusinessDay, is projected to at least double its growth from the previous year in 2017. KPMG noted in its report that by 2016 fintech investment had reached $200 million in 2 years.

A Statista report on the emerging African fintech market put transaction value at $59.776 million by middle of 2017. PricewaterhouseCoopers (PwC) also noted that Nigerian stand to gain significantly from a $3 billion fintech growth projection in 2020. The number of potential users of fintech products according to Statista is expected to reach 150.9 million by 2021.

On one hand, fintech and telecommunication companies share many things in common while on the other appear like competitors. But both are bonded by the digital revolution.

In recent times, banks have come to realise the existential threat they face in the digital age, from pure channel adaptation to radical changes in their business models. In the same vein, telecom companies have been experimenting with converging communication and media offerings with financial services. However financial services foray by telecoms have been slow and less successful compared to core fintech firms which has resulted to more collaboration in the market.

‘SIM de-registration will not stop telephony’

Deji Olowe, Executive Director of SystemSpecs the company behind fintech application Remita, says the impact may be minimal on the fintech space.

According to him since actual users grew while number of multiple SIMs reduced what the contraction succeeded in accomplishing was removing “the extraneous SIMs and not that people stopped using telephony.”

He also observed that the numbers of SMS and talk minutes crashed significantly because many customers have migrated their communications to over the top (OTT) applications such as Whatsapp.

“For example, as many as 70 percent of people who travel abroad frequently, use Whatsapp voice and video calls to keep in touch as against roaming. Many people no longer send SMS message as OTT applications are faster, assured of delivery and more engaging,” Olowe said.

Massive increase in data revenue, however represent a silver lining for telcos in Q2. But the increase was not enough to offset the revenue lost to reduced usage of talk minutes and less usage of SMS.

More rough roads for telecom operators

Olowe aligns with Ecobank’s conclusion that negative tide is not about to change in the coming quarters.

“Next year would be an even rougher year for telecoms provider. It is estimated that banks and other service providers send over one billion SMS per month at an evrage cost of N2.5. Infobip is the market leader and sends over 400 million per month.

However, Whatsapp just announced that they would be entering the market with an enterprise tool which would allow companies to deliver messages directly to customers. In a world where banks can deliver Whatsapp messages for free or at very minimal cost, would see the likes of VAS providers dying out and telcos taking further hits,” Olowe said.

In view of fintech, he believes the issues facing telecoms would not affect them in any form.

“Fintech services ride over data plans/internet and has no bearing to the revenue that telcos make. However, if GSM providers are not able to maintain quality network because of financial performance, then quality of service, such as internet, would adversely affect everyone, social media, fintech, etc,” he said.


 NOTE: Our Fintech product review will return next week with Access Bank and Stanbic IBTC mobile applications.


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