Financial Inclusion: MTN, Airtel Join the Fray

With the recent approval-in-principle granted MTN Nigeria and Airtel Networks Limited by the Central Bank of Nigeria (CBN) to operate Payment Service Banking, the coast is now clear for the apex bank to deepen financial inclusion by leveraging the ubiquitous nature of the services of the two telecoms giant in the nooks and crannies of the country, reports Festus Akanbi

Given the level of excitement trailing the decision of the Central Bank of Nigeria (CBN) to approve in principle (AIP) to MTN Nigeria and Airtel Networks Limited, qualifying the two telcos to become licensed Payment Service Banks (PSBs), advocates of financial inclusion in Nigeria agreed that the apex bank may have scored a big point this time.

Subject to meeting specific requirements over the next six months, the two leading telecom operators would receive approval to operate PSBs.

Payment Service Banks are banks that take deposits from people and small businesses, provide payment and remittance services within Nigeria, issue debit and prepaid cards, run electronic wallets, and engage in other CBN-approved operations. To lawfully engage in these operations, a PSB licence from CBN is required, which these Telcos have now obtained.

Financial industry experts explained that the main goal of PSBs is to increase financial inclusion by providing small businesses, low-income households, and other financially excluded entities with access to deposit products and payment/remittance services through high-volume low-value transactions in a secure technology-driven environment.

Deepening Financial Inclusion Efforts

Chairman. The Association of Licensed Telecoms Operators of Nigeria, (ALTON) Gbenga Adebayo, in his reaction heaped praises on the Governor of CBN, Mr, Godwin Emefiele, for giving considerations to the recommendations from telecoms operators. He also acknowledged the bridge provided by the Minister of Communications and Digital Economy, Prof Isa Pantami in the struggle to get the apex bank’s attention.

In an exclusive interview with THISDAY, Adebayo believed the approval in principle given to MTN and Airtel would deepen the drive for financial inclusion in Nigeria.

Explaining that the spread of the two giant telecoms firms will make it possible for financial services to reach all the nooks and crannies of the country, Adebayo said, “We believe this will give access, as you may be aware, the current infrastructure of the financial institutions is being run on infrastructure of telecom operators. In essence, operators are the only ones who have infrastructure presence across all local governments of the country.

“In essence, if you are looking at access by way of availability to the people, telecoms services will certainly provide more availability for everyone.

“Again, we have a large number of unbanked Nigerians, and statistics from the CBN has shown that a lot of them, about 90 per cent of them have one form of mobile services or the other. So, in essence, somebody may not have a bank account but he has a mobile phone and therefore this should be an easy point of entry for those kinds of people who are currently not financially included to be able to benefit from financial inclusion services and that is another side.”

Boost to e-Commerce

The ALTON chief believed the new dispensation will attract more people into the financial net as well as serve as a boost to eCommerce which he described as the rave of the moment in Nigeria.

According to him, “The other side of it is that currently, many people who live in remote parts of the country have to travel several miles to be able to access financial services. With these players now in this space, these people will readily have access to the services and even the CBN itself will be able to capture them under the umbrella of those who should be financially included.

“Today we know about e-commerce which is thriving, so with all of this availability, it shows the licensing will be able to offer more benefits to the average Nigerians.”

No Threat to Banks

He was quick to address the fear in certain quarters that the coming on board of telcos into the system would affect the revenues of banks. Adebayo explained “Banks will remain the financial institutions, they are the backbone for all of these. No operator has a bank and so these infrastructures, no matter, what we call it, will still ride on the financial infrastructure and mechanism of the banks, and therefore, it will be more volume for the banks because those who are not currently financially included will now be included. The backbone for this is still the banks and I think it’s a win-win for everyone.”

Corroborating Adebayo’s position, Co-Founder of Nairametrics, Mr. Edward Okonkwo was quoted as saying that “The banks have nothing to worry about because the way the PSB is structured is like the midwife situation since the PSBs would be subordinate to the commercial banks.”

He also stated that the banks shouldn’t be concerned about sharing revenue because the funds would still be with the bank.

“Banks should start thinking about how to create more loans and use the lower-cost infrastructure to distribute the loans. With new initiatives on the way such as the credit agency, fintech AI or credit profiling services, it means there are a lot of opportunities appearing in the space and enough revenue for everyone to share.

Writing on the genesis of the National Financial Inclusion Strategy (NFIS) which sought to ensure that over 80 per cent of the bankable adults in the country had access to financial services by 2020, a telecoms expert, Mr, Okoh Aihe noted that NFIS was launched on October 23, 2012, by the Central Bank in collaboration with other stakeholders. The primary target, according to him, was to reduce the exclusion rate to 20 per cent by the year 2020.

He recalled that on October 5, 2018, Exposure Draft on the Guidelines for Licensing and Regulation of Payment Service Banks, addressed to industry stakeholders, the Central Bank confessed that despite taking sundry measures, including the introduction of Micro Finance Banking, Agent Banking, Tiered Know-Your-Customer Requirements and Mobile Money Operation (MMO) in pursuit of the objective, the Central Bank confessed the results have not been good.

In doing that reality check the Central Bank, along with other stakeholders which include: Nigerian Communications Commission, commercial banks, mobile money operators, and telecommunications companies conducted some research to determine the way forward, and voted for PSBs as an attractive critical element of growth since the telcos have a wider reach and more robust network than all the banks combined.

“The key objective of setting up Payment Service Banks,” according to the CBN documents, “is to enhance financial inclusion in rural areas by increasing access to deposit products and payment/remittance services to small businesses, low-income households, and other entities through high-volume low-value transactions in a secured technology-driven environment.”

Targeting the Underbanked

The PSBs can target the underbanked and remote communities to provide very simple banking services which include but are not limited to, savings, deposits, transfers, remittances, investment in bonds, and other services to make life easy financially in any location in Nigeria where there is a telecommunications network. They can also issue debit cards.

Industry experts believed that apart from helping to include 40 million adult Nigerians outside the financial services industry, the new move by the apex bank could create over one million direct jobs in 2022.

They contended that the current realities are in favour of the two telcos just brought on board. For instance,

MTN Nigeria and Airtel combined boast 124.6 million voice subscribers and 96.1 data subscribers. Another positive development is the fact that MTN Nigeria through its MoMo Super Agent network has amassed 230,000 agents across the country, and given its experience as the second-largest mobile money operator in Africa, after Safaricom, deploying the same service in Nigeria would not be so difficult for the telco. Airtel is expected to bank on its airtime resellers in its bid to grow its agent network.

In September 2019, three PSB licenses were issued as follows: Globacom’s Money Master, 9Mobile’s 9PSB, and Hope PSB, a subsidiary of Unified Payment. From all indications, they have seemed to underperform.

What the Rules Say

According to the CBN rules, the Payment Service Banks can, among others, 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; sell foreign currencies realized from inbound cross-border personal remittances to authorised foreign exchange dealers; issue debit and pre-paid cards in its name; operate electronic wallets; render financial advisory services; invest in FGN and CBN securities and carry out such other activities as may be prescribed by the CBN from time to time.

However, according to the apex bank’s regulations, the PSBs cannot grant any form of loans, advances, and guarantees (directly or indirectly); accept foreign currency deposits and trade in foreign exchange except for remittances. In addition to these, insurance underwriting would not be possible for PSBs and PSB would not accept any closed scheme electronic value (e.g. airtime) as a form deposit or payment.

From whichever angle one looks at the CBN’s action, it is clear that the decision was intended to give the apex bank’s financial inclusion project a boost.