The Payment Service Bank (PSB) License is a new license category introduced by the Central Bank of Nigeria (CBN) to promote financial inclusion of the unbanked population of the Nigerian economy. In essence, PSBs are small-scale banks that are authorized to provide banking services to customers by capitalizing on technology. In July 2021, the CBN issued a Supervisory Framework for Payment Service Banks in Nigeria (the Framework), following the issue of the Guidelines for the Licensing and Regulation of Payment Service Banks in Nigeria, 2018 (revised 2020).
The grant of approvals-in principle for PSBs to MTN Nigeria Communications Plc and Airtel Africa Plc in connection with their respective PSB subsidiaries, MoMo Payment Service Bank Limited and SMARTCASH Payment Service Bank, has created a buzz in Nigeria. Is this a trojan horse or a welcome development in the future of the digital economy?
The jury is still not yet out on its true nature and full effect, but the following include the implications of the PSB license for the financial services industry:
1. New entrants in the Nigerian financial service delivery industry: in addition to commercial banks, microfinance banks and Mobile Money Operators (MMOs), PSBs will provide deposit taking, electronic transfer, payment and remittance, e-wallet issuing, automated teller machine (ATM) and point of sale (POS) terminal services to consumers.
Apart from telcos, who are permitted to obtain PSB licenses through their subsidiaries, other eligible entities include banking agents, retail chains (supermarkets, downstream petroleum marketing companies), postal services providers and courier companies, financial technology companies, Mobile Money Operators (MMOs), financial holding companies and any other entity approved by the CBN. In 2020, the CBN granted final approval for PSB licenses to Hope PSB (a subsidiary of Unified Payments), as well as Globacom Limited’s Money Master PSB and 9Mobile’s 9PSB, respectively.
The entry of telecommunications companies (telcos) into the financial services industry may not necessarily translate to heightened competition for traditional banks yet, especially given the restrictions which apply to the operations of PSBs. For instance, PSBs are precluded among others from granting any form of loans, advances and/or guarantees; accepting foreign currency deposits; and insurance underwriting, despite their huge regulatory capital requirement of NGN5 billion.
2. Increase in digitization of financial services: enhanced access to digital financial services of financially excluded persons would result in a corresponding increase in electronic commerce and an attendant decrease in overreliance on cash.
3. Enhancement of financial inclusion for the unbanked: PSBs are required to operate majorly in rural areas, maintaining at least 25% of financial service touch points in such areas. This would increase the access of unbanked and underbanked persons to financial services.
The ability of these new entrants to deepen financial inclusion has been questioned due to a number of factors, including the aforementioned regulatory restrictions on their operations, and the underwhelming performance of previously licensed telco-led PSBs. However, the PSB license category is a commendable development in the financial services delivery industry. Hopefully, the new entrants can leverage their experience, wide-reaching customer base and technological prowess to further the goal of financial inclusion.
Authors:
Ukamaka Anyadiegwu
Head, Corporate & Commercial Services
u.obiorah@unc-legal.com
Hannah Ozieme
Associate, Financial Services
h.ozieme@unc-legal.com