What If MTN Ghana Became a Bank? Would It Be Bigger Than Your Bank?

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Title: What If MTN Ghana Became a Bank? Would It Be Bigger Than Your Bank?

Last week, I spoke at the ACI Financial Markets on the fintech revolution, a really interesting conversation with a very capable panel of regulators and industry actors. I discussed in my submissions why I believe one of the critical success factors of the fintech revolution is the telco industry, specifically MTN, because of its market size and its Chenosis platform.

I left the conference thinking about what it would look like if telecom companies in Ghana could get banking licenses. I conducted an analysis of the potential effects, focusing on MTN due to its significant market share. It is important to note that MTN has clearly stated it is not seeking a banking license.

My analysis is based on data from the Ghana Banking Industry Report 2023 (A Report by LIMA Partners), the NCA data subscription analysis for December 2022 to January 2023, MTN Ghana’s FY 2023 results, and the BFT Banking Industry’s Performance in 2023 at a glance article, which is based on the summary of macroeconomic and financial data released by the Bank of Ghana (BoG).

See Below my Analysis of MTN Ghana Gaining a Banking License

If MTN Ghana were to obtain a banking license (I reiterate MTN has been clear it will not), the potential impacts on the financial landscape in Ghana, both positive and negative, could be significant. By analyzing the data from the provided documents and the banking sector’s performance, here is my projection of what could happen.

This first question what would the size of an MTN Bank look like?

Comparative Size with Existing Banks:

• Asset Size: If MTN Ghana enters the banking sector and captures even a small portion of its subscriber base as banking customers, it could quickly amass significant assets. For instance, assuming MTN could mobilize deposits at a rate similar to the top banks, it might achieve an asset base close to that of the largest banks, such as Ecobank (GHS 25.77 billion) and GCB Bank (GHS 21.35 billion)​
• Profitability: MTN’s strong revenue from its telecom and mobile money operations could provide a solid foundation for profitability in banking. However, the current banking sector faces challenges with profitability due to high impairment losses and the impact of the Domestic Debt Exchange Program (DDEP). MTN would need to navigate these challenges to achieve sustainable profitability.

• Projected Numbers: To provide specific projections on MTN Ghana’s potential market size and scale in the banking sector, I used the following assumptions and methodologies:

1. Customer Conversion Rate:

• Scenario A (Conservative): 10% of MTN’s MoMo users convert to banking customers.
• Scenario B (Moderate): 25% of MTN’s MoMo users convert to banking customers.
• Scenario C (Aggressive): 50% of MTN’s MoMo users convert to banking customers.

2. Average Deposit Per Customer:

• Assume the average deposit per customer is GHS 1,500, based on the average deposit levels observed in the Ghanaian banking sector.

3. Asset Size Projection:

• Scenario A:
  • Conversion Rate: 10% of 15.2 million MoMo users = 1.52 million banking customers.
  • Total Deposits = 1.52 million customers * GHS 1,500 = GHS 2.28 billion in deposits.
• Scenario B:
  • Conversion Rate: 25% of 15.2 million MoMo users = 3.8 million banking customers.
  • Total Deposits = 3.8 million customers * GHS 1,500 = GHS 5.7 billion in deposits.
• Scenario C:
  • Conversion Rate: 50% of 15.2 million MoMo users = 7.6 million banking customers.
  • Total Deposits = 7.6 million customers * GHS 1,500 = GHS 11.4 billion in deposits.

4. Market Share and Comparison:

• Scenario A: With GHS 2.28 billion in deposits, MTN would hold a significant portion of the market but would be smaller than Ecobank (GHS 25.77 billion in assets).
• Scenario B: With GHS 5.7 billion in deposits, MTN could become a mid-sized bank, surpassing some of the smaller indigenous banks in asset size.
• Scenario C: With GHS 11.4 billion in deposits, MTN could become one of the top 5 banks in Ghana, rivaling banks like GCB and Stanbic Bank, though still smaller than Ecobank.

5. Loan and Investment Portfolio:

• Assuming MTN leverages its deposits to create loans and investments at a conservative ratio of 70%, we can project the potential loan portfolio size:
  • Scenario A: 70% of GHS 2.28 billion = GHS 1.596 billion.
  • Scenario B: 70% of GHS 5.7 billion = GHS 3.99 billion.
  • Scenario C: 70% of GHS 11.4 billion = GHS 7.98 billion.

6. Revenue and Profit Projections:

• Assume a net interest margin (NIM) of 7.3% (based on industry average):
  • Scenario A: GHS 1.596 billion * 7.3% = GHS 116.5 million in annual net interest income.
  • Scenario B: GHS 3.99 billion * 7.3% = GHS 291.3 million in annual net interest income.
  • Scenario C: GHS 7.98 billion * 7.3% = GHS 582.5 million in annual net interest income.
• Assuming a profit margin of 20% (given the potential for lower operational costs due to MTN’s existing infrastructure):
  • Scenario A: GHS 116.5 million * 20% = GHS 23.3 million in profit.
  • Scenario B: GHS 291.3 million * 20% = GHS 58.3 million in profit.
  • Scenario C: GHS 582.5 million * 20% = GHS 116.5 million in profit.

Summary of Projections:

1. Scenario A (Conservative):
   • Asset Size: GHS 2.28 billion
   • Loan Portfolio: GHS 1.596 billion
   • Annual Net Interest Income: GHS 116.5 million
   • Annual Profit: GHS 23.3 million
2. Scenario B (Moderate):
   • Asset Size: GHS 5.7 billion
   • Loan Portfolio: GHS 3.99 billion
   • Annual Net Interest Income: GHS 291.3 million
   • Annual Profit: GHS 58.3 million
3. Scenario C (Aggressive):
   • Asset Size: GHS 11.4 billion
   • Loan Portfolio: GHS 7.98 billion
   • Annual Net Interest Income: GHS 582.5 million
   • Annual Profit: GHS 116.5 million

Depending on the customer conversion rate, MTN Ghana could potentially rival mid to top-tier banks in the country. In the aggressive scenario, MTN Ghana could be among the largest banks in Ghana, comparable to GCB Bank and Stanbic Bank, though likely still smaller than Ecobank. However, even in the conservative scenario, MTN would establish itself as a significant player in the banking sector, leveraging its existing customer base and infrastructure to grow rapidly.

 

Positive Impacts:

1. Expansion of Financial Inclusion:
   • Leverage of Existing Infrastructure: MTN Ghana, with 26.8 million subscribers and 15.2 million active MoMo users , is in a strong position to drive financial inclusion, particularly among the unbanked and underbanked populations. This would be a significant boost, considering the banking industry’s ongoing efforts to increase financial inclusion
   • Increased Competition: MTN’s entry into the banking sector could intensify competition, forcing existing banks to innovate and lower costs, ultimately benefiting consumers. The telecom giant’s digital infrastructure and customer base could challenge the traditional banks’ hold on the markeet.
2. Market Disruption and Innovation:
   • Innovative Financial Products: MTN Ghana could introduce innovative financial products that are more accessible and tailored to the needs of different customer segments. This could include micro-loans, insurance products, and digital savings accounts, integrated seamlessly with its existing mobile money services.
   • Technology Integration: By leveraging its existing mobile money platform, MTN could offer a more integrated and seamless banking experience, reducing the cost of service delivery and potentially lowering fees for consumers.
3. Scale and Market Size:
   • Market Size Projection: With MTN’s large customer base, the company could quickly become one of the largest financial service providers in Ghana. If we consider that Ecobank, the largest bank in Ghana, had total assets of GHS 25.77 billion in 2022 MTN could potentially rival or surpass this if it successfully converts a significant portion of its user base to banking customers.

 

Negative Impacts:

1. Regulatory Challenges:
   • Compliance and Oversight: Gaining a banking license would subject MTN Ghana to the rigorous regulatory framework of the Bank of Ghana. This includes meeting capital adequacy requirements, managing liquidity ratios, and adhering to anti-money laundering (AML) regulations, which could be challenging and costly to implement
   • Operational Complexity: Integrating banking services with its telecom operations could increase operational complexity. MTN would need to invest significantly in new infrastructure, risk management systems, and staff training to meet regulatory standards.
2. Impact on Traditional Banks:
   • Disruption and Market Share Loss: Traditional banks, particularly those with weaker digital platforms, could lose market share to MTN. Smaller banks might struggle to compete, potentially leading to consolidation in the banking sector.
   • Liquidity and Capital Adequacy Pressure: Given MTN’s potential to attract a large number of depositors, traditional banks might face increased pressure on their liquidity and capital adequacy ratios, especially if they lose a significant portion of their customer base to MTN.
3. Cybersecurity and Data Privacy Risks:
   • Increased Risk of Cyber Attacks: With the expansion into banking, MTN would need to bolster its cybersecurity measures. The financial sector is a prime target for cybercriminals, and any breach could have severe consequences for both the company and its customers.
   • Data Privacy Concerns: Managing and protecting the financial data of millions of users would require MTN to implement stringent data privacy policies, ensuring compliance with local and international regulations.

 

 Examples

While few telecom companies have become fully-fledged banks, those that have succeeded faced significant challenges but also achieved impressive results.

Kakao Bank (South Korea)

• Market Entry: Launched in 2017 by Kakao Corp, Kakao Bank attracted 300,000 subscribers within 24 hours and surpassed 2 million customers in two weeks. It now has over 17 million users, making up 22% of South Korea’s population.
• Market Share and Growth:
  • Assets and Revenue: By 2021, Kakao Bank had assets of KRW 40 trillion ($34 billion) and reported net profits of KRW 220 billion ($190 million).
  • Impact: Kakao Bank disrupted traditional banking with its seamless integration with KakaoTalk, quickly becoming profitable due to its large user base and low-cost digital operations.

Telenor Microfinance Bank (Pakistan)

• Market Entry: Telenor( wireless network operator) acquired a 51% stake in Tameer Microfinance Bank in 2008, rebranding it as Telenor Microfinance Bank in 2016, focusing on digital services through Easypaisa.
• Market Share and Growth:
  • Customer Base: By 2021, the bank had over 35 million Easypaisa users and assets of PKR 75 billion ($480 million).
  • Impact: It played a key role in financial inclusion, particularly in rural areas, but faced challenges with regulatory compliance and profitability.

Orange Bank (France and Africa)

• Market Entry: Orange launched Orange Bank in 2017 after acquiring Groupama Banque, leveraging its mobile and internet customer base.
• Market Share and Growth:
  • Customer Base: By 2021, Orange Bank had 1.6 million customers, with deposits of €2 billion.
  • Impact: Orange Bank drove digital banking expansion in France but struggled with profitability due to high acquisition costs and infrastructure investments.

 

Conclusion

The convergence of telecom and financial services, particularly through mobile money platforms, is reshaping the financial landscape, offering unprecedented opportunities for financial inclusion. Telcos are well-positioned to provide accessible financial services, especially in emerging markets where traditional banks often struggle to reach underserved populations. However, this transition is not without challenges, including regulatory compliance, operational complexity, and cybersecurity concerns.

To ensure a harmonious coexistence, both banks and regulators need to adapt. For banks, embracing digital innovation and forming strategic partnerships with telcos can help them stay competitive. By focusing on niche services, banks can differentiate themselves and offer specialized products that cater to specific customer needs. For regulators, it is crucial to maintain a level playing field, ensuring that both banks and telcos adhere to fair and transparent rules. Promoting collaboration through regulatory frameworks and adapting regulations to the realities of digital finance will be essential.

As telecom companies like MTN explore deeper integration into financial services, the boundaries between telecom and banking will continue to blur, driving innovation and expanding access to financial services. By working together, banks, telcos, and regulators can create a financial ecosystem that benefits all stakeholders, fostering a more inclusive and dynamic financial environment.