What you should know about PSBs as CBN delays licence

The Payment Service Bank (PSB) licence is seen by many people as the last hurdle to unleashing a new era of pervasive mobile money in Nigeria, led by mobile network operators (MNOs).

The Central Bank of Nigeria (CBN) is also desperate to include millions of more Nigerians who are financially excluded by 2024.

However, since October 2018 when the apex bank released guidelines for PSBs, it has yet to issue a license to MNOs that have applied. But operators continue to nurture hope and they may be justified. In 2019 the CBN issued a ‘Full Super Agent’ licence and an ‘Approval in Principle’ for a PSB licence to Glomobile, 9Mobile and Unified Payment, a fintech company owned by banks.

An Approval in Principle (AIP) does not mean the CBN has granted the licence to the three entities. It is merely a stepping stone and an indication that the regulator is willing to issue the licence subject to specific conditions.

Nevertheless, while a PSB licence may change a lot of things in terms of deepening mobile money accounts and opening more access to financial access to millions who are unbanked or underbanked, concerns remain as to the extent the new players will go given the limitations already placed in their way by the licence.

It should be said that the PSB is a borrowed playbook from India, which first introduced it in 2013.

Read also: POS or USSD which is a cheaper way to include 40m unbanked Nigerians/

A PSB can be defined as a new category of banks with smaller-scale operations and the absence of credit risk and foreign exchange operations. Usually, PSBs can offer nearly every service a deposit money bank can provide from accounts (current and savings), payments and remittance services, to issue of debit and prepaid cards and deployment of ATMs.

In the case of Nigeria, PSBs are expected to have not less than 50 percent of physical access points in rural areas. While this can easily be achieved by the telcos with their robust distribution network, the impediment would likely be the requirement to deploy ATM infrastructure in the rural communities.

Apart from the added cost of moving ATMs to places where they have never existed before, the requirement makes telcos more technical than they are digital. Not only would telcos have to physically install ATMs as banks do, but they would also need to print and issue cards to their customers instead of having a purely digital proposition. This means more operational costs apart from running a wide network of banking agents.

The CBN guideline also specifies the following:

Permissible activities

Under the proposed Guidelines, PSBs are required to carry out the following permissible activities:

Operation of savings accounts and acceptance of deposits from individuals and small businesses;

Carry out payments and remittance (including inbound cross-border personal remittances) services through various channels within Nigeria;

Issue debit and prepaid cards as well as operate electronic purse;

Invest in the Federal Government of Nigeria and CBN securities and carry out such other activities as CBN may from time to time prescribe.

Non-permissible activities

Paragraph 4.2 of the proposed Guidelines prohibits PSBs from carrying out activities like the grant of any form of loans, advances, and guarantees or trade-in the foreign exchange market except as permitted. This is a sore point for many industry stakeholders as credit is considered the most profitable aspect or the sweet spot of financial services. It is also a critical factor for financially including unbanked populations.

PSBs are not permitted to undertake insurance underwriting or any other transaction, which is not prescribed by the proposed Guidelines.

They are also not allowed to establish any subsidiary except as prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters, No 3, 2010.

Eligible promoters

The nature of persons permitted under the proposed Guidelines to act as promoters of PSBs are: banking agents (within the meaning of the Banking Agent Guidelines); telecommunications companies through their subsidiaries; and supermarkets and retail chains.

Furthermore, Mobile Money Operators that intend to convert to PSBs are required to comply with the requirements of the proposed Guidelines. However, CBN may from time to time, consider the eligibility of other entities as the above list is not exhaustive.

Financial requirements

The financial requirements for the registration of a PSB, which are subject to variation by CBN, include minimum capital of N5 billion; non-refundable application fee of N500 million; and nonrefundable licensing fee of N2 million.

It’s been fourteen months since the CBN made an indication it will issue licences, but is yet to make it a reality. Nonetheless, stakeholders are hopeful that 2020 would usher in the era of pervasive mobile money in Nigeria.