In Africa’s largest economy, the boundary of banking is shifting and the reach of financial services radically redefined in the spirit of an inclusion wave that is bent on tailoring financial needs of consumers from low to high-income households, rural to urban centres to the types of banks that can fill them.
The disclosure this week of permit issuance for MTN’s Momo Payment Service Bank (Momo PSB) is the latest push by the regulator, the Central Bank of Nigeria (CBN), to widen the fold of operators in the payments market and could signpost Nigeria’s arrival at the cutting edge of the payment service banking model after nearly a decade of adopting it.
Momo PSB will be venturing into a territory already occupied by early entrants like 9PSB (owned by rival wireless operator Etisalat) and Hope PSP, both yet to make a remarkable impression since getting the nod to run in August 2020 and starting operation.
Globacom’s Moneymaster has a permit also but has not launched, while Airtel’s licence is in the bag, with an approval-in-principle from CBN already in place.
Payment Service Bank (PSB) model
Because setting up a typical commercial bank branch can be capital intensive and because passing on the cost to customers if the outlet were to be situated in a rural area could discourage patronage, PSBs have been designed to function on a scale smaller than conventional banks and within a range of services also narrower.
The idea is to bring financial products closer to rural households and businesses, leveraging faster channels like mobile services and digitalisation to make banking services available and affordable to those only able to access them at rates lower than what their relatively rich urban peers can afford.
The CBN is taking a cue from India, where one of the most successful PSBs called Digibank “enables customers to open an account in less than 2 minutes and authenticate their identity by stopping at any one of the extensive network of outlets run by DBS partners including over 500 cafes,” according to the consultancy KPMG.
As permitted through their regulatory framework, PSBs are empowered to drive financial inclusion by extending small deposit and withdrawal services to those deprived of basic banking services.
They can issue debit cards and handle cumulatively big but individually small remittances but are exempted from facilitating much more complex banking operations such as lending and foreign exchange transactions.
If rigorously developed, this banking model has the potential of quickening the pace of capital inflow into the largely informal rural economy from outside and could help bring transformation and sophistication to countryside commerce on a scale so vast that it will be no longer easy to tell the economies of cities and villages apart.
That is hoped to scale down to the lowest possible level the teeming population of the unbanked in Nigeria, where 35.9 per cent (38.1 million) of the total adult population lack access to financial services, according to a 2020 survey by Enhancing Financial Innovation & Access (EFInA), a Nigeria-focused advocacy group supported by Bill & Melinda Gates Foundation.
The campaign could in turn deepen penetration of insurance, pension, mortgage, mobile money and non-interest banking products among rural folks.
“Evidence worldwide shows that access to financial services contributes both to economic growth and wealth creation and is therefore key to tackling the ‘poverty’ trap in Nigeria,” according to EFInA.
How PSBs work
The framework for operating PSBs as approved by the central bank enables them to:
- Operate dominantly in the rural areas and unbanked areas with the financially excluded as target and have no fewer than 25 per cent financial service outlets in those locations.
- Forge direct synergy with card scheme operators but the cards issued in that process are not fit for conducting foreign currency transactions.
- Set up Automated Teller Machines (ATMs) points within such locations.
- Run Point of Sale services
- Run service using banking agents
- Establish customer care units at their head offices as well as in coordinating centres
- Deploy agent networks after receiving endorsement from the CBN
- Leverage e-channels to bring service to customers
- Create coordinating centres to oversee and control the operations of service outlets and banking agents
- Adopt technology-powered systems and comply with best practices on data storage, security as well as integrity.
The spectrum of services they offer also has in its mix financial advisory services and electronic operation, but they are not empowered to take any closed scheme electronic value (for instance airtime) as a mode of payment or deposit. The apex bank gives the leave to PSBs to invest in FGN and CBN securities.
Given the complicated nature of underwriting risk, PSBs are forbidden from insurance underwriting.
Customers of these banks enjoy the CBN Consumer Protection Framework like other types of bank within the apex bank’s regulatory purview.
Will the telco-bank war kill the goose that lays the golden egg?
Nigeria’s payments market appears to have been framed for trouble and contention before the idea to launch it was even mooted.
The precursor of PSBs were originally units in commercial banks providing basic banking services to meet the needs of the retail end of legacy banking until the burst of ever-adventurous fintech firms into the scene disrupted how banking has long been conducted.
That surely came at a cost.
Slow to the kind of aggressive digitalisation that takes banking services pretty close to consumers and enables them to a great deal of the transaction process themselves by way of mobile devices e-channels, commercial lenders are now staging an 11th hour effort to gain a portion of the market more than 10 years after peers in like South Africa and Kenya have tapped the sub-sector to astounding result.
Fearing Nigerians’ robust appetite for practically anything having to do with digital devices could open up payment services and allow telecom operators to reach rural and remote places where setting up bank branches could be costly, a good number of them like Access Bank and GTB have joined FirstBank, FCMB Group and Stanbic IBTC Holdings to adopt the holdco structure.
Michael Adenuga’s backed Sterling Bank is also on course to enter the fold.
That permits them to branch out into services outside core banking operation including payments, pension, insurance and asset management.
Nigerian banks control 94 per cent of the banking industry by assets, according to Chris Ogbechie and Lilac Nachum, both researchers at Lagos Business School.
The country has the world’s most locally controlled banking sector after Israel, suggesting that foreign participation is thin and that a financial exclusion that works will hinge on separating payments from the exclusive preserve of conventional banks and devolving its services to the remotest areas and small population centres.
Support PREMIUM TIMES' journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
TEXT AD: To place an advert here . Call Willie - +2348098788999