The approval in principle for payment service bank licenses granted by the Central Bank of Nigeria (CBN) to the two major telecommunications firms, MTN Nigeria and Airtel Africa should help to unlock a N2 trillion revenue opportunity for the Telcos.
A payment Service Bank is an institution, licensed by the Central Bank of Nigeria (CBN) to leverage on mobile and digital channels to enhance financial inclusion and stimulate economic activities at the grassroots through the provision of financial services.
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.
This is exactly where the telecommunications companies have an edge over the banks.
“I think we need to put this in the context of Telcos customer base, which outstrips any bank in Nigeria and the prospect for cannibalising bank’s mobile and USSD payment channels, which have been a major source of non-funded revenue over the past few years and which have grown in double digits in the past 2 years across most banks,” an analyst speaking to MoneyCentral on the implication of the PSB licenses said.
“We may also put this in the contest of the strong performance of Telco payments services offerings in markets like Kenya and recent in-roads in Ghana.”
The top 10 Banks covered by MoneyCentral earned a combined N533.17 billion in fee and commission income in 2020, according to data compiled by MoneyCentral.
While there is an estimated Bank Verification Number (BVN) database of 43 million people, the two Telco’s MTN Nigeria and Airtel Africa have a combined customer base of 124.6 million people as at September 2021, according to data from the Nigerian Communications Commission (NCC).
Meanwhile, while only 45% of Nigerians are banked, 35 million unbanked Nigerians own mobile phones and could be reached with mobile money, according to the latest EFInA Access to Financial Services in Nigeria 2020 Survey.
The survey shows that only 64% of Nigerian adults were financially included by the end of 2020. This means that 36% of Nigerian adults, or 38 million adults, remain completely financially excluded.
Nigeria has only 4.3 commercial bank branches per 100,000 adults and 16.93 ATMs per 100,000 adults.
The high cost of using formal financial services makes people use cash and other informal methods. An example of this is an “in-kind transaction”, where the sender, due to the high cost of sending money, sends goods to an exchanger who receives and sends the local currency equivalent to the intended recipient.
The Central Bank of Nigeria (CBN) put the value of such transactions at $2.19 billion or N906 billion in 2019. Bringing on board the 38 million unbanked Nigerians and cannibalising fees and commissions from formal banks could add an additional N1 trillion in revenues for Telcos making a total of N2 trillion.
MTN Nigeria in a statement said it received its Approval in Principle (AIP) on November 4, 2021 from the CBN for a license application for the proposed MoMo Payment Service Bank Limited.
This is the first step in the process towards a final approval, subject to the fulfilment of certain conditions as stipulated by the CBN.
“The decision to issue a final approval is firmly within the regulatory purview of the CBN and we respect their right and judgement in that regard,” MTN said.
“MTN Nigeria affirms its commitment towards the financial inclusion agenda of the CBN and the Federal Republic of Nigeria and continues to explore means whereby it can contribute to its fulfilment. While we look forward to the eventual grant of a final PSB license, we will continue to communicate material information in accordance with regulatory obligations and guidelines.”
Airtel Africa, a provider of telecommunications and mobile money services, with a presence in 14 countries across Africa, on its part announced that its subsidiary SMARTCASH Payment Service Bank Limited (“Smartcash”) has been granted approval in principle to operate a payment service bank business in Nigeria.
Final approval is subject to the Group satisfying certain standard conditions within six months.
“I am very pleased that Smartcash has been granted an approval in principle to operate a service bank business in Nigeria. We will now work closely with the Central Bank to meet all its conditions to receive the operating licence and commence operations,” Segun Ogunsanya, CEO, Airtel Africa, said.
“The final operating licence will enable us to expand our digital financial products and reach the millions of Nigerians that do not have access to traditional financial services. I am looking forward to working closely with the Government, the Central Bank and traditional financial institutions to expand financial inclusion and meet the evolving needs of our customers and the economy.”
The payment Service Banks (PSBs) are to maintain not less than 75% of their deposit liabilities in the Central Bank of Nigeria (CBN) securities, Treasury Bills (TBs) and other short-term federal government debt instruments at any point in time.
The minimum capital requirement, application and licensing fees for PSBs are minimum capital N5 billion, non-refundable application fee of N500,000.00, non-refundable licensing fee N2 million and change of name fee of N1,000,000.00.
Payment service banks are expected to carry out the following activities : accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme, carry out payments and remittances, (including inbound cross-border personal remittances) services through various channels within Nigeria, sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers, issue debit and prepaid cards on its name, operate electronic wallet, render financial advisory service, invest in FGN and CBN securities and carry out such other activities as may be prescribed by the CBN from time to time.
Three Payment Service Banks have already been licensed to date namely: Hope PSB, MoneyMaster PSB and 9PSB.
The final licensing of MTN Nigeria and Airtel Africa is however going to be a game changer and have a disrupting effect in the payments, mobile money and financial inclusion space in Nigeria.