Financial Inclusion: PSBs to the Rescue

With the entrant of two telco giants, MTN and Airtel as operators of Payment Service Banks, financial inclusion is set to leap further writes Nume Ekeghe

Last week the number of Payment Service Banks (PSBs) in the country grew to five with the final approval given to Airtel Africa by the Central Bank of Nigeria (CBN) to operate its subsidiary, SmartCash PSB.

The telecommunication giant had earlier in the year been given approval in principle along with MTN Nigeria, which also got the final nod for its Momo PSB some weeks back. These two telecommunications giants joined Hope PSB, 9PSB and Moneymaster PSB, which are already up and running in the country.

Objective of PSBs

CBN had in 2019 introduced PSBs as a measure to increase financial inclusion in the country particularly in rural areas. Specifically, PSBs were fashioned to cater for those in the rural areas, helping to bring the unbanked into the financial system from areas where commercial banks have been unable to breach. 

Operating just like banks with smaller scale operations and the absence of credit risk and foreign exchange operations, PSBs were borne in view of the challenges in reaching rural areas as well as an effort to complement other initiatives and are expected 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 guideline for the operation of PSBs show that they are aimed at breaking the traditional barrier preventing financial inclusion and promoting low cost, secure and convenient financial services across the country. The objective of 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.   

PSB and Conventional Banking

On what a PSB can and cannot do, the guideline stipulates that PSBs focus on facilitating high-volume low-value transactions in remittance services, micro-savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion and help in attaining the policy objective of 20 per cent exclusion rate.   

In addition to opening accounts both current and savings, offering payments and remittance services, PSBs can also issue debit and prepaid cards, deploy ATMs and other technology-enabled banking services.    

PSBs are however, according to the central bank, are not allowed to grant any form of loans, advances and guarantees (directly or indirectly) or accept foreign currency deposits; deal in the foreign exchange market except as prescribed by the CBN.   

They are also not allowed to participate in insurance underwriting; undertake any other transaction, which is not prescribed by these guidelines, and shall not accept any closed scheme electronic value (e.g. airtime) as a form deposit or payment        

Basically, PSBs are stripped-down versions of traditional deposit money banks, with limited functionality and a focus on onboarding more of the excluded and marginalised population. This is because they would operate mostly in the rural areas and unbanked locations with the financially excluded persons as targets including not less than 25 per cent of financial service touch points in such rural areas as may be defined by the CBN.   

Entrance of Giants

Late last year when MTN and Airtel Africa got approval in principle for the operation of PSBs, many had noted the change that the telcos would be bringing to the PSB sector which is targeted at driving increased financial inclusion particularly in the rural areas.

Commenting on the final approval granted it by the CBN last week, the Chief Executive, Airtel Africa; Mr. Segun Ogunsanya said the company was working on full gear to kick-start the Smartcash PSB.

“I am very pleased that Smartcash has been granted approval for a full PSB licence to operate a service bank business in Nigeria and we are now working towards commencement of business.

“This licence enables us to expand our digital financial products and reach the millions of Nigerians that do not currently have access to traditional financial services. We are delighted to be able to pursue our shared agenda with the Nigerian Government, the CBN and traditional financial institutions to further deepen financial inclusion in the country for the benefit of all citizens and the Nigerian economy.

“With its expansion rate acres Africa, Airtel Africa offers an integrated suite of telecommunications solutions to its subscribers, including mobile voice and data services as well as mobile money services both nationally and internationally. The group aims to continue providing a simple and intuitive customer experience through streamlined customer journeys,” Ogunsanya said.

Similarly MTN Nigeria upon the announcement of the final approval for its Momo PSB to commence operations, had affirmed its commitment towards the financial inclusion agenda of the CBN and the Federal Republic of Nigeria adding, “we are excited at this opportunity to support its fulfillment.”

Targeting Increased Profit

The Chief Executive Officer, MTN Nigeria, Karl Toriola in a statement said: “2021 was a significant year for our company. We commemorated our 20th anniversary with a celebration of our customers and all the stakeholder relationships that enabled our journey. In addition, we made good progress towards our Ambition 2025 objectives, demonstrating the strength and resilience of the business. This reflects the firm foundations on which our business is built, the tenacity and commitment of our people, and the support of our stakeholders.

“Our fintech business continued to gain traction with approximately 770k registered mobile money (MoMo) agents and active users more than doubling to 9.4 million. This provides a solid foundation on which to launch the MoMo Payment Service Bank (PSB), for which we have received an Approval in Principle.

“The MoMo PSB will provide a powerful platform to drive digital and financial inclusion in Nigeria. In recognition of our progress in the fintech space, we received a $500,000 grant from the African Development Bank to fund research on financial inclusion for women.

“Driven by the strong operational performance, we delivered growth across all revenue lines, demonstrating the underlying strength and momentum of the business. Service revenue grew by 23.3per cent, exceeding our mid-teen target, driven mainly by growth in voice, data and fintech service revenue lines.”

Impact on Financial Inclusion

Nigeria currently has 35.9 per cent of the total adult population lack access to financial services, according to a 2020 survey by Enhancing Financial Innovation & Access (EFInA), a Nigeria-focused advocacy group supported by Bill & Melinda Gates Foundation. According to a 2021 report by EFInA, 38.1 million of Nigeria’s 106 million adult population remains financially excluded.

Financial inclusion refers to efforts aimed at making financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size.

Head, Products and Innovation, 9PSB, Akeem Salam, speaking at an event last week had noted that for effective financial inclusion to happen, there must be a concerted effort by all stakeholders in the sector to work together to improve ease of access to financial services. 

According to him, “Though Nigeria is beginning to witness a noticeable effort in the drive to bring on-board everyone into the financial ecosystem, inclusion is still grossly low, with about 40 per cent of the population either excluded or under-served.”

Also speaking during a Clubhouse series, “On the Money”, an analyst, Emmanuel Orji, noted that quite a number of people do not own bank accounts due to the lack of information or sensitization on the ease and importance of opening an account and most banks are more focused on reaching the already-banked rather than the unbanked percentage of the population.

 “Even with the whole trying to make the bank processes easy as it is now, there is no incentive to pretty much address the ignorance on the streets. We hardly see banks hosting seminars on how to open a bank account in those low-income areas and that is just focusing on those that already have some sort of knowledge about how the banking app and account opening works. I think the PSB license is given to Airtel and also to MTN is definitely going to play a huge role”.