The Central Bank of Nigeria has published new bank regulations that may allow mobile network operators (MNOs) to establish payment service banks allowing them to provide mobile money services for the first time. Prior to the October decision, Nigeria was in the unique position in Africa of prohibiting MNOs from providing this service.
MNOs, retailers, mobile money operators and banking agents with sufficient capital (USD 14 million or more) may apply to become a payment service bank (PSB), which can provide payment services and collect deposits that can be invested in government securities or placed on deposit with a bank. They are excluded from providing credit or insurance products. A welcome feature of the regulations is they can now also provide the domestic payment leg of international remittances (BCEAO please take note!).
Whereas the regulations open the way for the emergence of mobile money products that are not dissimilar to those provided in other markets, there are a number of anomalies that increase the costs and reduce the attractiveness of the proposed model.
For example, the regulations require PSBs to issue cards and install ATMs rather than giving them the option of a purely digital proposition. Also, although PSBs are only permitted to hold assets that have no risk weighting (i.e. government paper), the regulations include a capital adequacy requirement against risk-weighted assets. Furthermore, each PSB needs to be part of the payments system (a costly integration) and all services received from a parent company not only need to be provided on an arm's length basis but also have to be available to other market participants.
It is these last provisions that will have the most impact, as they will prevent MNOs from leveraging their telecommunication distribution channels and platforms to the advantage of their PSB. In other markets, it has long been suspected that the ability to price USSD and to cross-subsidise cash-in and cash-out services at airtime sellers plays a key role in the success of a mobile money proposition.
Together, these aspects of the regulations would severely undermine the attractiveness of the market were it not for the sheer size of the Nigerian population.
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