Explainer: What are Payment Service Banks?

Payment Service Banks (PSBs), EFInA says, hold great potential to advance financial inclusion through their inherent strengths: large amounts of capital, strong brand presence, technological advancement, market presence, effective marketing and communication strategies, and ability to scale, among others. While these characteristics are not uniform among all potential PSB applicants, these are evident among telcos that have so far taken the lead in applications for the licence.

Nigeria’s central bank is keen to scale-up financial inclusion in Nigeria.

In 2018, PSB operations were proposed by the CBN to help impact Nigeria’s financial inclusion drive.

According to the CBN, the key objective of setting up PSBs is to enhance financial inclusion by increasing access to deposit products and payment/remittance services to small businesses, low-income households, and other financially excluded entities through high volume low-value transactions in a secured technology-driven environment.

There is a strong consensus among financial and economic experts that the recent approval-in-principle (AIP) granted to MTN Nigeria plc and Airtel Africa plc towards the process of commencing PSBs license could enhance the availability and equality of opportunities to access formal financial services, thereby helping the country to achieve its goal of ensuring that 95 percent of Nigerian adult population are financially included by year 2024.

What is a PSB?

A PSB is 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.

A PSB also offers payments and remittance services, issue debit and prepaid cards; deploy automated teller machines (ATMs) and other technology-enabled banking services.

Read Also: Don’t grant loans, advances, CBN instructs payment service banks

History of PSBs

In 2011, only 58.7 percent of households had bank accounts in India, while the remaining 40+ percent did not have access to banking services. This was due to the fact that operational costs of running a traditional bank branch in rural areas were very high, as deposit mobilisation was very low.

In a bid to reduce the number of Indians without bank accounts, the Reserve Bank of India (RBI) began exploring different interventions, including PSBs.

They were first introduced 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 for payments banks.

In 2014, invitations were sent out for interested parties to apply. The following year, the RBI granted licences to 11 applicants, despite receiving a total of 41 applications. Of the 11 licensed PSBs, three have surrendered/given up their licences, while six PSBs have commenced operations, albeit only four are prominent.

So far, 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 Indian adult populations have a bank account as of 2017, up from the 53 percent in 2014.

Currently, India has six payment banks namely, Airtel Payment Bank, India Post Payment Bank, Fino, Paytm Payment Bank, NSDL Payment Bank, and Jio Payment Bank.

How PSBs operate

According to the CBN guidelines of operation, PSBs are encouraged to operate mostly in rural areas and unbanked locations, targeting financially excluded persons.

PSBs are also expected to deploy ATMs and Point of Sale devices in some of these areas. Such cards should not be eligible for foreign currency transactions.

While they are at liberty to operate through banking agents, the CBN expects the PSBs to be technology-driven and conform to best practices on data storage; security and integrity. Just like traditional banks, they are expected to also set up consumer help desks (physical and online) at their main office and coordinating centres.