Future of payment service banks in limbo, 14 months after

A year and two months after the Central Bank of Nigeria (CBN) loosened its policy to accommodate new players in Nigeria’s financial services industry; the direction of the mobile money initiative remains unclear.

Since October 2018 when the apex bank requested that industry players should apply for the licence to operate as a Payment Service Bank (PSB), only three firms; Hope PSB a subsidiary of Unified Payment, Globacom’s Money Master and 9Mobile’s 9PSB have been issued Approval-in-Principle (AIP).

The attempt by BusinessDay to get the three firms and the CBN to comment on the current state of the young industry was unsuccessful as they were yet to respond at the time of filing this report.

Telecommunication operators’ push to offer mobile money services in Nigeria received the official nod of the regulator, the Central Bank with the issuance of guidelines for players to apply for the licence.

A PSB license will allow the companies to among other things; maintain savings accounts and accept deposits from individuals and small businesses, which is covered by the deposit insurance scheme; carry out payments and remittance (including cross-border personal remittance) services through various channels within Nigeria; issue debit and prepaid cards, and operate an electronic purse or wallet.

“The roll-out of Payment Service Banks guidelines that allows licensing of telco subsidiaries is welcome and should be implemented,” International Monetary Fund (IMF) said in April 2019.

Before October 2018, only banks and licensed financial institutions were allowed to provide financial services. Although telecom operators and other Fintech companies indicated interests to operate in the market, the CBN policy would not allow them. The regulator eventually shifted because of the increasing rate of financially excluded people in Nigeria and the lack of progress in getting banks to provide financial services to people living in areas that lack access.

The apex bank has a target to ensure that 80 percent of the country’s adult population is financially included in the financial cycle by the year 2020. The CBN had in a circular on July 2018, lamented that Nigeria was not meeting any of the financial inclusion targets agreed and contained in the 2012 Financial Inclusion Strategy.

Not only was the country not meeting its targets, but it was also declining in growth. For instance, while Nigeria achieved 60.3 percent in 2012, it declined to 58.4 percent in 2016 against a target of 69.5 percent translating to financial exclusion of about 41.6 percent.

The World Bank Global Findex Report 2017 estimates that of the 1.7 billion adults who are unbanked and financially excluded worldwide out of the estimated world adult population of billion, Nigeria has 3.4 percent even though its population is 2.6 percent of the world population.

In a bid to grow the number of financially included people, the CBN released an exposure draft 14 months ago in which it proposed the PSB aimed at deepening financial inclusion in Nigeria.

At least 30 business names applied for registration as PSBs as of December 2018, according to data from Corporate Affairs Commission (CAC) which BusinessDay saw.

The latest figures by EFInA put Nigeria’s financial inclusion rate at 63.2 percent, meaning as much as 36.8 percent of adults still lack access.
Telco-led financial inclusion model in African countries has led to tremendous progress in the number of people with access to financial services owing to the already existing large customer base of the Telcos.

Kenya has about 60 percent mobile money service penetration, while Ghana has about 40 percent service penetration, and Nigeria with a lot more population numbers remains at 1 percent owing to its bank-led model.

Ghana’s decision to have a Telco led model resulted in a 73 percent increase in registered mobile money customers in just one year, according to World bank data, and has helped lift financial inclusion rates in Ghana to 58 percent in 2017 from 41 percent in 2014.

This was not different for Ivory Coast who has experienced a mobile money revolution. As a result, there are now more adults with mobile money accounts of 24.3 percent than with bank accounts of 15 percent.

Ivory Coast has the fifth-highest rate of mobile money accounts in the world behind Kenya (58 percent), Somalia (37 percent), Uganda (35 percent), and Tanzania (32 percent), according to Brookings Institute, a Washington-based nonprofit public policy organization.

Kenya also improved to 81.6 percent financial inclusion rate in 2017 from 74.7 percent in 2014, Ivory Coast improved to 41.3 percent from 34.3 percent and South Africa increased marginally to 69.2 percent from 70.3 percent.

“It is safe to say that Nigeria is playing catch-up when it comes to achieving inclusion and must look to learn from success stories like Ghana and Kenya if we are to achieve our goal of 80 percent inclusion by 2020,” said Gbenga Adebayo, Chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON) centered on Financial Inclusion.

Data by the Nigerian Communications Commission (NCC) shows that the country’s telecommunications industry has a reach of 86 percent, and with 182.7 million customers, the industry has the single largest customer base in Nigeria.

With combine presence in 773 local government areas across Nigeria, industry players are optimistic that the Telco industry can provide access especially the hard to reach areas of the country.

The communication service providing companies in Nigeria also have about 1million unique agents already in place, selling airtime across the country, and analysts say this can quickly be converted to establish mobile money agent networks which can help reach out to the unbanked Nigerians especially those in the rural areas.

According to London based Group Special Mobile Association (GSMA), “from a regulatory perspective, one basic requirement for mobile money to succeed is to create an open and level playing field that includes non-bank mobile money providers such as Mobile Network Operators (MNOs).”