Since the Central Bank of Nigeria (CBN) announced the final approval of MTN’s Payment Service Bank (PSB) licence application, many have tried to define the role the telecommunication company will play in the financial services industry in Nigeria.
MTN’s fintech business is known as MoMo, short for ‘mobile money’. Hence, the conversation has been that the PSB licence enables MTN to become a mobile money operator.
However, a PSB is not entirely a mobile money operator. In fact, the CBN has a guideline for mobile money, separate from the one it issued for payment service banks.
“No matter how they try, and although MoMo means mobile money, MTN’s MoMo is still a payment services bank and not a mobile money operator. But considering everyone is conflating both, they are surely on to something,” said Edmund Olotu, founder and CEO of TechAdvance.
Defining mobile money
The International Monetary Fund defines mobile money as a pay-as-you-go digital medium of exchange and store of value using mobile money accounts, facilitated by a network of mobile money agents. It is a financial service offered to its clients by a mobile network operator or another entity that partners with mobile network operators, independent of the traditional banking network.
In 2019, there were 15.3 million mobile money customers in Nigeria, according to Statista. Compared to previous years, the number of users increased significantly. Nigeria, however, still lags its peers in West Africa in the growth of mobile money, according to Ericsson’s Consumer and Market Insight report, titled ‘Mobile Financial Services on the Rise’.
The report found that Nigeria made progress from the 3 percent mobile money adoption rate in 2015, its 30 percent in 2021 lags Ghana’s 90 percent, Angola’s 47 percent, Ivory Coast’s 79 percent, and Senegal’s 75 percent, as gathered from the latest Ericsson.
A bank account is not required to use mobile money services — the only prerequisite is a basic mobile phone. In many countries, phone numbers are used in the place of bank accounts for mobile money.
The MTN Mobile Money, for example, stores funds in a secure electronic account linked to an MTN mobile phone number.
While licensed operators can use phone numbers to receive and send money, the phone numbers must be linked to a bank account where the money eventually resides.
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In fact, there are only three scenarios in which mobile money can take place including a bank account (savings, current, and domiciliary accounts), a card account (credit, debit, and pre-paid), and a stored value (e-wallet: reloaded stored value account and pre-paid account).
Mobile money operators offering savings wallet services are only allowed to operate a Savings Wallet Principal Pool Account and a Savings Wallet Interest Pool Account in a settlement bank with the funds having the protection of the Nigeria Deposit Insurance Corporation under the pass-through insurance.
What is a PSB?
India first introduced the payment bank model in 2013 as a measure to tackle over 40 percent financial exclusion growth.
The initiative has helped to accelerate financial inclusion. According to the World Bank’s Global Financial Inclusion database or Global Findex Report (2017), 80 percent of the Indian adult population have a bank account as of 2017, up from the 53 percent in 2014.
The Guideline for Payment Service Bank (PSB) released by the CBN in 2018 was heavily influenced by the Indian Guideline for Payment Banks. In 2021, the CBN released a supervisory framework for payment service banks to streamline their operations and deepen financial inclusion.
The apex bank defines a PSB as a type of bank that operates on a smaller scale by harnessing technology services via mobile and agency banking to mobilise deposits and facilitate transfers from unbanked customers in rural areas and any location where they exist in Nigeria.
The CBN mandates, among other things, PSB operators to deploy at least 25 percent of their services to rural areas to be defined by the regulatory body from time to time and other underbanked areas. PSBs will also need to deploy automated teller machines and point-of-sale (PoS) centres to the areas.
The apex bank, however, banned PSBs from granting loans or advances or guarantees, accepting deposits in foreign currencies, underwriting risks, establishing a subsidiary, except as prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters.
Mobile money vs PSBs
Some experts say the difference between the two concepts is very subtle.
Tosin Eniolorunda, co-founder and CEO of TeamApt, says what separates the two is that while mobile money services need a deposit money bank as a settlement bank, a PSB is allowed to deal with the central bank directly.
“A PSB is like a retail bank, except it doesn’t give loans. A super agent initiates transactions to and from your third-party bank account. Mobile money initiates transactions to and from your mobile money wallet with them,” said Olotu.
PSBs have more in common with mobile money services. For instance, mobile money depends on wallets; most banks are prioritising mobile wallets. MoMo is also a secure electronic service that enables MTN Mobile Money wallet holders to store funds, send and receive money, make payments and do a number of other transactions simply using their mobile phone.
Both mobile money services and PSBs use banking agents or PoS terminal operators. MTN currently has the largest agent network in Nigeria, with about 770,000 agents across the country. It is expected that the operator will be utilising this asset to push its payment services.