In its recent Macro-Economic and Banking Sector Themes for 2019, Guarantee Trust Bank (GTBank) described the decision in 2018 by Central Bank of Nigeria (CBN) to open up a segment of banking services to telecommunication operators as “a more compelling threat.” It was a big admission coming from one of the top five commercial banks in Nigeria although the reality may say otherwise.
The CBN first proposed the establishment of Payment Service Banks (PSBs) in a letter addressed to banks, telecommunication companies, mobile money operators, banking agents and Nigerian Communication Commission (NCC). The title of the letter was ‘Exposure Draft on the Guidelines for Licensing and Regulation of Payment Service Banks.
In the letter, the CBN said it was establishing PSBs “in furtherance of its mandate to promoting a sound financial system in Nigeria as well as being innovative in deepening the financial services sector.” MTN and Airtel have already made their intentions to kick off their mobile money operations by 2019 known to everyone.
The PSBs license empowers them to facilitate transactions in remittance services, micro-savings, and withdrawal services in rural areas. The primary idea is to drive financial inclusion by leveraging the capacity of other entities, like the telecoms companies with existing infrastructure in the areas not easily reached by bank networks.
It should be noted that PSBs is not a Nigerian innovation. Payment Service Banks have always existed in countries like India where they were first introduced in 2013. The Reserve Bank of India (RBI) issued 11 licences to Payment Banks – as they are called in the country – in 2014 despite receiving a total of 41 applications. Currently, only 6 PSBs have commenced operations with four becoming prominent in India.
Although banking agents, mobile money operators, retail chains fall among the PSB category, as it stands, only telecoms companies have the capacity to earn that name given that the N5 billion capital requirements make it almost impossible for the others to participate. Aside from having the capital requirements, telecoms companies like MTN, Glo and Airtel also possess the infrastructure to go into rural areas, places where banks’ networks are unable to reach.
But the PSB license does not necessarily give them so much leverage to challenge banks. First, they are prohibited from lending services and participating in the forex market, which are the most lucrative aspects of the banking industry. It should also be noted that high transfer fees have been one of the challenges hindering financial inclusion. Thus, unless the telecoms companies crash prices significantly they are likely to face difficult times convincing millions of Nigerians to embrace their innovations.
Collins Onuegbu, executive vice chairman of Signal Alliance and director at Lagos Angels Network (LAN) told BusinessDay that it is still early days to fret over telecoms coming into mobile money. He recalls that fintechs were once viewed as threat to banks but over time this is proving not the case as many of the banks have assumed fintech roles in their strategic investment in digital banking.
“In reality fintech companies have not disrupted banking as we know it,” he says.
Second, the PSBs will most likely be funding government instead of using their deposit to make money off the money market. Ninety-seven per cent of the deposit put together would be tied up in 22 per cent Cash Reserve Ratio (CRR) and 75 per cent to be used to buy treasury bills (lending money to government) at the lowest rate of money market investment.
Third, most of the benefits of urban rollout would also elude many of the PSBs as they commit 50 per cent of their offices and agents to the rural areas. MTN may be the exception as it already has significant infrastructure in the hinterlands.
It should also be said that running a bank is different from running mobile money or even running a telecommunication company. The transactions and data may be many, but the complexity is nothing compared with banking. The PSBs will be dealing with anti-money laundering, compliance, capital adequacy, things that look simple on paper but extremely difficult in practice. They will also be employing bankers who will bring the not-so-likeable banker mentality.
Finally, the CBN is one of the toughest regulators in West Africa who treat dissent or mediocrity lightly. MTN may have dealt with mobile money regulators in Ghana, Uganda and had much success, but the bruises left from the recent fine imposed on it by the CBN is likely to take a while to forget. It is possible that just like in India; some PSBs will return their licenses after facing the CBN scrutiny.