MTN Nigeria and Airtel Africa – two of Nigeria’s largest telecommunications companies – announced in November they have received approval in principle from the Central Bank of Nigeria (CBN) to operate payment service banks (PSBs).
PSBs offer financial services, including deposit-taking from individuals and small businesses, providing payment and remittance services, issuing debit and prepaid cards, running electronic wallets, and other services. The CBN PSB Licence prohibits the banks from engaging in granting any form of loans, advances or guarantees directly or indirectly to customers.
The approval granted to the telcos is the first step in the process to get the final approval from the CBN. To get the full licence, the telcos will need to fulfil certain regulatory requirements stipulated by the CBN within six months.
“We will now work closely with the Central Bank to meet all its conditions to receive the operating licence and commence operations. The final operating licence will enable us to reach the millions of Nigerians that do not have access to traditional financial services,” said Airtel Africa’s chief executive officer, Segun Ogunsanya, in a statement on 5 November.
MTN will operate through MoMo Payment Service Bank Limited while Airtel will operate through its Smartcash Payment Service Bank Limited.
Bridging the financial inclusion gap
According to Enhancing Financial Innovation and Access, an organisation dedicated to deepening Nigeria’s financial sector, about 38m Nigerians, representing about 36% of the adult population of the country, do not have access to financial services.
Paul Alaje, senior economist at SPM Professionals, says traditional retail banking it is not enough to help the CBN achieve its target of reaching 95% financial inclusion by 2024.
The CBN wants things to change. In 2012, it adopted the National Financial Inclusion Strategy (NFIS). The NFIS was built on four strategic areas of banking – mobile banking and mobile payments, linkage models, and client empowerment – to ensure that over 80% of the bankable adults in the country have access to financial services by 2020.
In 2018, the NFIS was revised and the CBN decided that PSBs will be a critical element of banking sector growth given the wide reach and robust networks of telcos.
Olushola Teniola, former president of the Association of Telecommunications Companies of Nigeria (ATCON) and Nigeria national coordinator for the Alliance for Affordable Internet, says that the ability of telcos to operate financial services will be a great advantage to the CBN’s plans.
“It is more likely that the only way to access those who have a mobile phone and are unbanked is by allowing telco-led mobile money services, especially in terms of increasing financial inclusion in digital financial services. It is an opportunity for the banking sector to partner with the telcos to ensure that those that are unbanked have every likelihood of accessing financial services through their mobile devices,” he says.
Teniola says that the PSB licence also gives telcos an incentive to invest in infrastructure so that customers can access their PSB services.
Threat to traditional banks
While there are arguments about the positives of the PSB for the banking sector, Alaje thinks the traditional retail banking sector will have to brace for a major challenge. Many Nigerians, especially those in rural areas, will be attracted to the ease of banking with telcos instead of conventional banks, he predicts.
However, Olusola sees no immediate threat to the banks but an opportunity to partner with the telcos who have the customer numbers and infrastructure to penetrate far-flung areas the banks have historically strugged to reach.
The synergy, he says, will create a win-win situation for both sectors. Competition among financial institutions will increase, largely to the benefit of customers, says Godwin Ibe, a banking and finance lecturer at the University of Nigeria, Nsukka.
“Banks will now be on their toes because these telcos will have a level playing field to compete with them in some categories of service and the cost of transactions will likely go down,” he says.
MTN and Airtel are not the first telcos to receive this licence in Nigeria. Last year, the CBN issued licences to Globacom’s Money Master and 9Mobile’s PSB. But Olusola says MTN and Airtel are particularly well placed to succeed given the success they have achieved in other African countries where they operate mobile money services.
MTN values its mobile money division, which had over 46m users by 2020, at $5bn-$6bn as it considers an IPO. Earlier this year, Airtel Africa sold minority stakes in its mobile money business, which then valued it at more than $2.6bn excluding cash and debt.
In November, Airtel announced a second closing relating to the stake sales to TPG’s The Rise Fund, Mastercard and QIA. The company has raised $500m of cumulative proceeds from the three investors.
Other large telcos have had similar success. In Kenya, Safaricom’s M-Pesa has helped the country achieve an 83% financial inclusion rate as of 2020. From its modest start 12 years ago as a SIM card-based money transfer application, it has grown to offer financial services, loans and savings in collaboration with banks.
The success of M-Pesa could be replicated in Nigeria, says Alaje, because there are no significant differences between the needs of the customer in rural Kenya and those in rural Nigeria. But he warns that an inconsistent policy framework by the government could slow progress.
Nigeria is one of the poorest countries in the world with about a third of its total population living below $2 a day. For Ibe, the new drive will help power small and medium enterprises and “help create more jobs and reduce poverty”.
He says the financial system will benefit as PSBs draw more Nigerians into the banking net.
“What it does is to mop up the funds from the unbanked so that they can come into the safety net… This money would now get into the financial system and from there it can be channelled to the real sectors which are priority areas to increase growth,” he says.