The Central Bank of Nigeria’s (CBN) move to open the banking system to non-financial companies and register mobile money operators could be the biggest innovation to hit Nigeria’s beleaguered financial services industry in decades, and it is attracting a lot of takers.
No less than 30 business names are currently undergoing registration as payment service banks at the Corporate Affairs Commission (CAC), in a move that could prove a game changer for tens of millions of financially excluded Nigerians.
For non-banks, registering a subsidiary unit is the first step in applying for a payment service bank license under a new set of mobile money guidelines launched by the CBN in October, as it attempts to replicate a system that has succeeded in bringing large swaths of people from Kenya to India into the formal financial fold.
According to data obtained from the Abuja-based CAC, the thirty business names undergoing registration include financial technology companies, Verve, Quick teller, Interswitch, Paga and Paystack.
Mitchell Elegbe, the General Managing Director of Verve, did not immediately respond to a text message seeking confirmation.
READ ALSO: CBN issues licence to Glo, 9Mobile, UP subsidiaries for PSB services(Opens in a new browse
The names of Telecommunication companies, MTN and Bharti Airtel also feature, as well as Glomoney and Glocash Payment Service Banks- possible subsidiaries of Globacom.
Orange S.A. also wants a piece of the pie, CAC data showed. That confirms an earlier article by Business Day which reported interest from the French telecom company in Nigeria’s mobile money market.
“We have a game changer in our hands,” said Obadiah Malaifia, a former deputy central bank governor.
“More than 20 percent of financially excluded Nigerians could have access to formal financial products and services for the first time in their lives,” said Malaifia, a development economist who has done extensive work on how to increase financial inclusion in Nigeria, especially drawing on lessons from West African neighbour, Ghana.
Other business names undergoing CAC registration include MPS, Cryto, Roger, Zuma and Probity Payment Service Banks (PSB).
Others are IFIS, Touba, Hope, Goals, MOMO, A-Tel, Wazobia, Aventel, Switch and Vela.
Opening up the mobile money space to non-financial companies breaks the monopoly of commercial banks after years of haggling between stakeholders.
The CBN hopes the regulatory tweak will make basic financial services accessible to some 50 million people in the country who have no bank account.
The regulatory guidelines however restrict the non-financial companies to accepting deposits, as they are barred from giving loans and offering credit facilities.
PSBs can be thought of as stripped-down versions of traditional deposit money banks, with limited functionality and a focus on on-boarding more of the excluded and marginalised population.
Unlike deposit money banks (DMBs) and microfinance banks (MFBs), from day one, PSBs have a heavy reliance on technology via digital financial services, complemented with a strong agent banking model, which is meant to reduce overhead costs.
The PSB model borrows a play from the Reserve Bank of India’s playbook. The concept of Payment Banks was first introduced in India in 2013 when a committee on Comprehensive Financial Services for Small Businesses and Low Income Households was formed, and the committee recommended a new bank category called Payment Banks.
In 2014, invitations were sent out for interested parties to apply.
The following year, the RBI granted licenses to 11 applicants, despite receiving a total of 41 applications.
That could hint that not all the companies that will apply for a PSB license in Nigeria will get one.
Of the 11 licensed PSBs in India, three have given up their licenses, while six PSBs have commenced operations, albeit only four are prominent.
The reason some of the PSBs walked away was primarily because of challenges with their earnings potential and a lack of infrastructure, particularly power, which increased the cost of PSBs and reduced their reach.
Nigeria would also need to pay attention to addressing an infrastructure deficit if the PSBs must succeed and more people are financially included.
Post-implementation of the model, the number of account holders in the country rose from 53 percent in 2014 to 80 percent in 2017, according to World Bank data.
Hard-pressed to meet an 80 percent financial inclusion target set out in 2012, the CBN will be hoping the model replicates the success achieved in India.
Subsidiaries of mobile network operators, mobile money operators, retail chains (supermarkets) and banking agents are all welcome to apply for the PSB license, provided they can meet certain requirements, including a N5 billion capital base, and a combined N2.5 million application and license fee which are non-refundable.
Temitope Akin-Fadeyi, head of the financial inclusion secretariat at the CBN says Fast Moving Consumer Goods companies and other interested parties can apply for a payment service bank license if they met the required criteria.
“As regulators, we are after providing a level playing field for interested parties to move the needle on financial inclusion,” Akin-Fadeyi said at the Lagos Business School and Business Day financial inclusion conference, Thursday.
“Fast consumer goods companies and other interested parties can apply for a license,” Akin-Fadeyi said.
“We want everyone that is interested and able to drive financial inclusion ahead of 2020 when we expect to achieve the national target of 20 percent exclusion,” Akin-Fadeyi added.
