After waiting for over two years to get a mobile money licence, Payment Service Banks (PSBs) would have to relinquish a significant portion of the deposit from customers to the Central Bank of Nigeria, unattractive treasury bills market, and other government debt instruments.
An update of the guide which had been in existence since 2018 mandates that PSBs shall maintain not less than 75 percent of their deposit liabilities in CBN securities, Treasury Bills (T-Bills), and other short-term federal government debt instruments at any point in time.
The CBN says the update and review of the Guidelines for Payment Banks became necessary due to the latest market developments since 2018.
Leaving a 25 percent deposit with PSBs may make the license economically worthless especially for telcos which are mostly funded by foreign investors. Investors have in recent times stayed away from CBN securities like the Open Market Operations (OMO) auction mainly due to global market sell-offs which have left foreign investors with no choice but to exit emerging markets drying up any future security sale. In March for instance the financial regulator recorded a no-show as investors shunned the auction.
Meanwhile, the latest data on treasury bill auctions shows that it has plunged to 3.39 percent per annum from a high of about 15 percent from early last year. The federal government’s bond instruments are not doing better to encourage potential investors that putting their money in firms with Payment Service Bank licenses will be a good decision.
Adedeji Olowe, CEO of Trium, a venture capital firm, describes the 75 percent provision as “disastrous” and makes the licence “useless”.
Financial inclusion is primarily the reason the CBN is issuing licenses to non-banking non-financial services firms to provide mobile money services. At a press conference in 2018, a senior official with Nigerian Interbank Settlement System (NIBSS), a CBN subsidiary, told BusinessDay that telcos have no business in financial services when they should be focusing on building network infrastructure to make customers’ experience of mobile services seamless.
But the slow growth in financial inclusion has forced the CBN’s hands. The apex bank has a target to get 80 percent of bankable Nigerians banked.
“So far we have been talking about this possibility of getting those that unbanked banked for the past 12 years and in spite of the improvement in the number of ATMs, digital platforms or mobile apps and the utilisation of USSD codes, there is still a very high percentage of Nigerians, last estimates is 63 percent of the population have no access to a bank account,” Olusola Teniola, President of Association of Telecommunication Operators of Nigeria (ATCON) told BusinessDay. “Why is this? Lack or deficit of infrastructure. What is the infrastructure? Well, repeating the old banking model of bricks and mortar in every area of Nigeria is not viable and unfeasible. So having a mobile device, whether it is a feature or a smartphone enables those that have a device to be able to access a bank account.”
Kenya’s MPesa which for many experts exemplifies the best model for mobile money uses a SIM card. Once the SIM has been inserted into the card slot of the mobile device, users can make payments and transfer money to vendors and family members with SMS messages. In other words, rather than be excluded from financial services from not having a bank account – often for no fault of theirs – owners of SIM cards simply use their numbers to receive or send money.
Kenya’s mobile money industry has seen significant growth because it was telco led and not bank-led. Safaricom, the company behind M-Pesa has since exported the service to other countries including Tanzania; Mozambique; DRC; Lesotho; Ghana; Egypt; Afghanistan; South Africa; India’ Romania, AND Albania.
In Nigeria, however, the CBN sees a future of financial inclusion led by commercial banks. Hence, over the years its approach to running the mobile money industry is to constantly put banks forward.
For instance, in 2019, while it was yet to address the licence request by telcos and other players, the apex bank in July gave banks the go-ahead to run mobile money wallet services without prior approval. They are only required to notify the CBN before the commencement of the services.
When it finally decided to issue an Approval-in-Principle (AIP) the financial regulator chose only two telcos with a little or no footprint in mobile money services and one bank-led payment outfit. 9Mobile, one of the recipients of the licence has never offered a mobile money service before and is only recently putting together a business model for the service which it already has an AIP for.
The two biggest telcos -MTN and Airtel – with well-established footprints in mobile money services across Africa were ignored.
“What they should have done was to approve in principle for all the mobile operators so that will allow a level playing field because every mobile operator showed and demonstrated their interest in improving financial inclusion using this licence,” said Teniola. “This is because the infrastructure that is laid out in the rural and urban areas which are all owned by the mobile operators is what is needed to connect those that have mobile services to a bank account whether to a traditional bank or the new sector as being pushed by the fintech firms.”
While the CBN’s guideline in 2018 is considered a step forward, it put an impediment in the path of PSBs by restricting them from issuing loans or offering insurance services. Access to credit is one of the challenges facing rural communities in Nigeria and one of the reasons millions of them are not banked. Interestingly, the guideline mandates PSBs to focus primarily on people in rural areas, yet it limits their participation to mere deposit and withdrawal of money without the provision of credit which could be the attraction.
In the latest update, the CBN also includes two new restrictions. Apart from the 75 percent of deposit in the aforementioned liabilities, the PSBs are also barred from accepting foreign exchange deposits and to accept any closed scheme electronic value (airtime) as a form of deposit payment. The ban leaves them as fringe players in the remittance business which is very lucrative.
“The issue to the PSB is not so much as we have people holding this licenses but is the licence becoming worthless because if you put far greater restrictions on the value of what we are trying to achieve which is the social development issue can we afford to have millions of Nigerians who have no access to any microfinance, micro-credit or any banking facility and we have a growing population that needs access to these services and they cannot access them because there isn’t any bricks and mortar close to them the only option is through the mobile device in Nigeria,” Teniola said.
