PSBs are good for Nigerian banking sector, but concerns remain
As part of measures aimed at enhancing financial inclusion in the country, the Central Bank of Nigeria (CBN) in October 2018 introduced the Payment Service Banks (PSBs) to provide financial services to rural dwellers and stimulate economic activities at the grassroots through mobile and digital services.
PSB is a payment service initiative proposed by CBN in which banking agents, mobile money operators (MMOs), retail chains (supermarkets) and telecoms companies who are able to present an initial capital of N5 billion will be given licence to operate under the structures and guidelines 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.
The introduction of PSBs comes with a lot of opportunities, according to experts who spoke with BusinessDay. But there could also be challenges, they added
The PSBs are expected to maintain savings accounts and accept deposits from individuals and small businesses, carry out payments and remittances services through various channels within the country, issue debits and pre-paid cards, operate electric purse and invest in government and CBN securities.
They would leverage on their capacity to perform more informal transactions than the banks, but that would likely become a big deal in the future when economic value increases in real terms, a source familiar with the matter told BusinessDay.
“With the PSBs, people will be able to perform transactions without necessarily getting their hands on cash. These transactions will be recorded in a way that the government or tax system can monitor it,” said the source who spoke on condition of anonymity.
While this could help in getting more people to be financially included, the PSBs still have some setbacks which include their inability to give credit or loans at the initial stage.
“But when you form up the database by building the knowledge, it allows you to know who to give loans too,” he said.
Nigeria currently battles a high financial exclusion rate at 36.5 percent, according to the CBN, but the apex bank said it remained determined to reduce the rate to 20 percent by 2020 through innovations like the PSBs. To achieve this, low income earners and rural dwellers, who are mostly unbanked, are assigned non-Bank Verification Numbers.
Companies have to create a separate entity, according to guidelines released by CBN about the initiative, and this is a shortfall for companies who want to apply as they cannot leverage on their brand.
“This guideline by the CBN is understandable because of the nature of banks. You have to create a separate entity that the CBN can regulate,” Yinka Ademuwagun, a macro-economic analyst at United Capital, said.
“For example, MTN, the largest telecommunication network in Africa who has announced plans to apply for the PSB licence, cannot leverage on its MTN name because that name is known for telecommunications which is not within the purview of regulation by the CBN,” Ademuwagun said.
Some analysts who spoke to BusinessDay raised concerns of possible threats the PBSs could pose to traditional banks in the country.
A 2019 report by Guaranty Trust Bank plc stated that the PSBs could have a negative impact on the banking industry as they would compete with the banks.
“PSBs are prohibited from providing lending services and participating in the Foreign Exchange market, but they will be able to offer other services,” GTB said in the report themed ‘Macro-economic and Banking Sector Themes for 2019’.
“They will be 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,” it said.
But financial experts said rather than threats, the PSBs will complement the traditional banks, adding that banks need to be innovative with their products.
Ademuwagun said as people gradually begin to access the platform and their transaction processes start to increase, they will need to shift away because there is a limitation to what they can do with the PSBs.
Having been captured by the PSBs and having enjoyed the advantage of having a bank account in the traditional bank, the people could see reasons to shift to traditional banks.
Ayo Akinwunmi, head of research at FSDH Merchant Bank Limited, said most banks do not establish in rural areas because it is not economically viable for them, noting that the PSB can operate in those areas and thus help them to deepen the financial system.
“The majority of the 35-37 million people with BVN numbers do banking transactions and they are already served by their banks. The people who benefit from the PSBs are those that are not served by their banks. Which means that banks will have to focus on what they are good at,” said the anonymous source quoted earlier.
Furthermore, there are also concerns around how the products offered by the PSBs would be delivered to the financially excluded Nigerians, according to some analysts.
“My concern is the medium by which the CBN plans to reach them. They plan to reach them through mobile phones. But the reality is many of these people in the rural areas don’t even know how to use their mobile phones to make calls not to talk of doing banking transactions,” said Ayorinde Akinloye, a consumer goods analyst at Lagos-based CSL Stockbrokers.
“The PSBs are, however, expected to have some physical branches, but it is yet to be seen if people can go there to deposit funds just like traditional banking. If that is the case, then I just feel CBN would be creating new banks as against the initial plan.
“They are not allowed to give loans. So their major source of revenue would come from investing in government assets and commission fee because the CBN keeps hyping ‘higher volume small size transaction’. How much transaction would a rural farmer do in a month that would generate enough commission revenue to take care of operations,” Akinloye queried.
He said the accounts, when matured into a full-fledged BVN account, is a concern as it remains unclear who would determine whether it would mature to PSBs or the banks.