The recently introduced Payment Service Banks (PSBs) by the Central Bank of Nigeria (CBN) to facilitate transactions in remittance services, micro savings and withdrawal services in rural areas could disrupt the local banking industry, according to GTBank in newly released report.
The report titled “Nigeria: Macro-economic and Banking sector Themes for 2019,” says the PSBs are prohibited from providing lending services and participating in the Foreign Exchange market, but points out that they will be able to offer other services, “thus competing with commercial banks for the pool of earnings and also ensure that the battle for retail is won using digital and mobile strategy and this could negatively impact on the banking industry.”
Ayodeji Ebo, MD, Afrinvest Securities Limited, agrees with the report, pointing out that the introduction of PSBs licence will further pressure the deposits of the banks in addition to the continued pressure from public awareness to Treasury Bills investments.
The CBN on October 5, 2018, released an exposure draft guideline in which it proposed the licensing of PSBs with the aim of deepening financial inclusion in a country where only half of its total adult population has access to the financial sector.
PSBs is a payment service initiative proposed by CBN in which Banking agents, Mobile Money Operators (MMOs), Retail chains (Supermarkets), telecoms companies who are able to present an initial capital of N5 billion will be given licence to operate under the structures and guideline specified by the apex bank, with the motive but not limited to ensuring access to financial services for the unbanked rural segments of the society.
On the positive side, the report stated that it will be beneficial for customers of the banks as it will improve customer service, increase product and service offerings, enhance financial inclusion, and drive the adoption of digitization of banking services.
According to the World Bank Fintech Database 2017, financial inclusion in Nigeria declined in the last four years to 39.4 percent in 2017 from 44.2 percent in 2014 while sub-Saharan countries on average gained across the region as the number of bankable people increased to 42.6 percent in 2017 from 34.2 percent in 2014.
Additionally, there is an expectation that there will be an increase in competition amongst banks to capture market share in the retail and micro or small business space over the course of 2019.
“Financial Technology companies and other non-bank companies offering a wide range of financial services to the retail and Micro, Small and Medium Enterprises segments leveraging on technology will continue to create competition amongst the banks,” the report stated.
In order to avoid this threat to the banking sector, Gbolahan Ologunro, an equity research analyst at Lagos-based CSL Stockbrokers, advised that collaboration with the Fintech companies will likely preserve and expand the market share of banks
“They just have to improve the quality of their service in terms of cost and speed of delivery and in addition, they will need to reinforce their strategies in capturing the retail segment so that they can preserve their market share,” Ologunro said.
Ologunro further elaborated that this can be done through the provision of cutting-edge solutions to the complex problems that customers encounter while carrying out transactions through digital channels.
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