Introduction
The Central Bank of Nigeria (CBN) introduced regulations and guidelines for the licensing and operations of Payment Service Banks (PSBs) in the country. This was in furtherance of the apex bank's efforts to leverage technology to promote financial inclusion and enhance access to financial services for the unbanked and underserved segments of the population.
PSBs are a new category of banks with smaller scale operations and the absence of credit risk and foreign exchange operations. In addition to having savings and current accounts, PSBs can also offer payment and remittance services, issue debit and prepaid cards; deploy Automated Teller Machines (ATMs) and other technology-driven financial services. They, however, do not offer loans and credit facilities to customers but merely receive deposits.
Nigeria launched the National Financial Inclusion Strategy (NFIS) in 2012 in line with her commitment to reduce the adult financial exclusion rate from over 46% to 20% by 2020. The CBN set a target to ensure 80% of Nigeria's adult population have access to financial services by the end of 2020. Data from the Central Intelligence Agency (CIA) reveals that Nigeria's adult population makes up 58.3% of the total population.2 This means approximately 117 million Nigerians make up the total adult population of the country.
To meet the NFIS target, it would mean that over 94 million adult Nigerians must have access to financial services but unfortunately, this is not the case. In 2018, the World Bank noted a rise in financial inclusion but observed that around 2 billion people worldwide do not use formal financial services. The Report proceeds by stating that 1.7 billion adults are unbanked despite their ownership of mobile phones. 3 These reports clearly portray financial inclusion as a global issue of serious concern. Upon realizing the marginally improved financial inclusion index of 41.6%, the Guideline was launched to further hasten the realization of the 2020 target.
Assessing the Impact of PSBs
The draft guideline for the licensing and regulation of the PSBs4 specifies the limited functions of PSBs. PSBs are allowed to offer only high-volume, low-value transactions in remittance services, micro-savings and withdrawal services and their target customer base is restricted to individuals and small businesses.5
PSBs cannot give loans, advances or trade in foreign exchange markets except for remittances within the country.6 They can't evaluate the risk and exposures of potential clients, which is obvious since they cannot offer loan services.
PSBs not being allowed to take on credit risk is a major disadvantage to them as well as their customers. The PSBs, by virtue of their license, forfeit the profit margins they could potentially make by lending to their customers and, there seems to be no incentive for their customers to bank with them when they could be getting much-needed financial assistance from their microfinance bank competitors.
Thus, while the introduction of Payment Service Banks would increase the population of Nigerians with a bank account, this does not necessarily equate to financial inclusion as envisaged. Financial inclusion encompasses a broad range of formal financial services asides savings, and is not limited to payments, loans, insurance, and pension products and services.7
The operational challenges of PSBs
Since the licensing of PSBs, there has been little impact on the financial inclusion scene, and they are beginning to look like a surplus arrangement to the CBN's financial inclusion drive, and for good reasons too, as the newly authorised PSBs are bound to face stifling operational and profitability problems in their financial inclusion campaign.8
PSBs face operational challenges as they lack the infrastructure that commercial banks already have in place, and cannot rely on the government's non-existent infrastructure in the rural areas where these PSBs are supposed to amass their targets. Challenges with insecurity and poverty are also major sources of concern in banking in the rural areas, mostly the northern parts of the country where poverty rates are as high as 77% and insecurity has become a booming industry.9
Introduction of E-naira
The CBN had made many attempts at improving financial inclusion in the country but all to no avail. For instance, in 2018, the CBN proposed PSBs which are meant to strengthen the country's financial inclusion drive by leveraging mobile and digital channels. Unfortunately, after more than two years of the release, not much has changed.10
With the e-Naira, individuals can have access to financial services with just their phone numbers. However, many are asking why the CBN will expend so much to launch a Central Bank Digital Currency (CBDC), instead of directing valuable resources towards strengthening the infrastructure in rural areas. This would assist PSBs in amassing the financial inclusion targets as they would have greater access to the financially excluded.
The introduction of the e-Naira only spells further doom for the future of PSBs in Nigeria. With e-Naira being seen as the future of financial inclusion, resources are being poured into the CBDC. This means that there will be difficulty getting funding for the proper implementation of PSBs, which have already been deemed a failure by many.11 This means that PSBs will continue to face operational challenges, which in itself, could contribute to their failure.
Conclusion
In conclusion, the introduction of Payment Service Banks seems a well-intentioned idea. While PSBs would increase the population of Nigerians with a bank account, this does not necessarily equate to financial inclusion. Their limited functions and operational challenges only serve to stifle their operations and limit their potential success. In addition, the introduction of the e-Naira, the CBN's latest innovation to end financial exclusion, only spells further doom for the future of PSBs in Nigeria. Valuable resources are being poured into the CBDC while PSBs continue to face operational challenges with respect to matters such as poor infrastructure. This means that there will be difficulty getting funding for the proper implementation of PSBs. Thus, while the CBN may be persistent in its search for ways to end financial exclusion, the abandonment of PSBs leaves their future looking bleak.
However, with the grant of approval in principle to MTN and Airtel12 to operate payment service banks (PSBs) across the country by CBN, the entrance of the two telecom companies into the PSB space could help revitalize the sector as they are expected to deploy their huge resources and vast networks to deepen financial inclusion in the country.
Footnotes
1 Uche Matthew, Associate Corporate Finance & Capital Market Department, SPA Ajibade & Co., Lagos.
2 https://www.cia.gov/the-world-factbook/countries/nigeria/ Accessed on 22nd November 2021.
3 Ajibola Akamo," e-Naira: CBN's trump card to financial exclusion", available at: https://nairametrics.com/2021/10/13/e-naira-cbns-trump-card-to-financial-exclusion/ accessed on 26th November 2021.
4 https://www.cbn.gov.ng/out/2020/ccd/approved%20reviewed%20guidelines%20for%20licensi ng%20and%20regulation%20of%20payment%20service%20banks%20in%20nigeria-27aug2020.pdf accessed on 17th November 2021.
5 Ibid, page 5.
6 Ibid, page 7.
7 Yinka Awosanya, "Why Payment Service Banks might not impact Nigeria's financial inclusion drive", available at https://techpoint.africa/2018/10/23/payment-service-banks/ accessed 26th November 2021.
8 Kelly Ushedo, "Are Payment Service Banks key to Emefiele's financial inclusion legacy" available at https://nairametrics.com/2021/07/17/are-payment-service-banks-key-to-emefieles-financial-inclusion-legacy/ accessed on 26th November 2021.
9 Ibid.
10 Aderemi Ojekunle, "Report: 38m Nigerian Adult lack access to financial services", available at https://www.thecable.ng/report-38m-nigerian-adults-lack-access-to-financial-services accessed on 28th November 2021.
11 Since they began operation in September 2020, 9PSB has been able to garner only 1,930 agents across the country. Whereas on Google Play Store, its agent app show 5,000+ downloads. And its user app has 10,000+ downloads and 3.6 out of 5 rating. Hope PSB app shows 10,000+ downloads with a 4.1 rating. Surprisingly, Glo's MoneyMaster does not have an online presence — no website or application.
12 Emma Okonji, "CBN Grants MTN, Airtel Approval in Principle to Operate Payment Service Bank" https://www.thisdaylive.com/cbn-grants-mtn-airtel-approval-in-principle-to-operate-payment-service-bank/ accessed on 27th November 2021.
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