MTN Nigeria and Airtel Africa launch payment service banks

MTN Nigeria and Airtel Africa – two of Nigeria’s largest telecommunications companies – announced in November that they had received approval in principle from the Central Bank of Nigeria (CBN) to operate payment service banks (PSBs).

PSOs provide financial services, including collecting deposits from individuals and small businesses, providing payment and remittance services, issuing debit and prepaid cards, managing electronic wallets and other services. . The CBN PSB license prohibits banks from engaging in the granting of any form of loans, advances or guarantees directly or indirectly to customers.

The approval granted to telecom operators is the first step in the process to obtain final CBN approval. To obtain the full license, telecommunications operators will have to fulfill certain regulatory requirements stipulated by the CBN within six months.

“We will now work closely with the Central Bank to fulfill all of its conditions to receive the operating license and begin operations. The definitive operating license will allow us to reach the millions of Nigerians who do not have access to traditional financial services, ”Airtel Africa Managing Director Segun Ogunsanya said in a statement on November 5.

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 organization dedicated to deepening Nigeria’s financial sector, around 38 million Nigerians, representing about 36% of the country’s adult population, do not have access to financial services.

Paul Alaje, senior economist at SPM Professionals, says traditional retail banking is not enough to help CBN meet its goal of achieving 95% financial inclusion by 2024.

CBN wants things to change. In 2012, it adopted the National Financial Inclusion Strategy (SNIF). The NFIS was built on four strategic areas of banking – mobile banking and mobile payments, linkage models and customer empowerment – to ensure that more than 80% of bankable adults nationwide have access to financial services by 2020.

In 2018, the NFIS was revised and the CBN decided that PSBs will be a critical part of the growth of the banking sector given the broad reach and robust networks of telecom operators.

Olushola Teniola, former president of the Association of Telecommunications Companies of Nigeria (ATCON) and Nigerian national coordinator of the Alliance for Affordable Internet, said the ability of telecommunications operators to operate financial services would be of great benefit to the plans. of the CBN.

“It is more likely that the only way to access those who have a mobile phone and who are not banked is to allow mobile money services run by telecom operators, especially in terms of increasing financial inclusion in digital financial services. This is an opportunity for the banking sector to partner with telecommunications operators to ensure that those who are unbanked have every opportunity to access financial services via their mobile devices, ”he said.

Teniola claims that the PSB license also provides an incentive for telecom operators to invest in infrastructure so that customers can access their PSB services.

Threat to traditional banks

While there are arguments about the benefits of PSB for the banking sector, Alaje believes that the traditional retail banking sector will have to prepare for a major challenge. Many Nigerians, especially those in rural areas, will be drawn to the ease of banking with telecom operators instead of conventional banks, he predicts.

However, Olusola does not see an immediate threat to the banks, but an opportunity to partner with telecom operators who have the number of customers and the infrastructure to enter remote areas that banks have historically strived for. ‘to reach.

The synergy, he said, will create a win-win situation for both sectors. Competition among financial institutions will increase, largely to the benefit of clients, says Godwin Ibe, professor of banking and finance at the University of Nigeria, Nsukka.

“Banks will now be on their guard because these telecommunications operators will have a level playing field to compete with them in certain categories of services and the cost of transactions will probably drop,” he said.

MTN and Airtel are not the first telecom operators to receive this license in Nigeria. Last year, the CBN licensed Globacom’s Money Master and 9Mobile’s PSB. But Olusola says MTN and Airtel are uniquely positioned to be successful given the success they have had in other African countries where they operate mobile money services.

MTN values ​​its mobile money division, which had more than 46 million users by 2020, between $ 5 billion and $ 6 billion as it considers an IPO. Earlier this year, Airtel Africa sold minority stakes in its mobile money business, which then valued it at over $ 2.6 billion excluding cash and debt.

In November, Airtel announced a second close on the sale of shares to TPG’s The Rise fund, Mastercard and QIA. The company has raised $ 500 million in cumulative proceeds from the three investors.

Other large telecommunications companies have experienced similar success. In Kenya, Safaricom’s M-Pesa has helped the country achieve an 83% financial inclusion rate in 2020. From its humble beginnings 12 years ago as a SIM-based money transfer app , it grew to offer financial services, loans and savings. in collaboration with banks.

M-Pesa’s success could be replicated in Nigeria, says Alaje, as there are no significant differences between the needs of clients in rural Kenya and those in rural Nigeria. But he warns that an inconsistent policy framework on the part of the government could slow progress.

Nigeria is one of the poorest countries in the world with around a third of its total population living on less than $ 2 a day. For Ibe, the new dynamic will help fuel small and medium-sized enterprises and “help create more jobs and reduce poverty”.

He says the financial system will benefit as the PSBs attract more Nigerians to the banking network.

“What it does is mop up the funds of the unbanked so that they can fit into the safety net… This money would now go into the financial system and from there it can be funneled into the real sectors that. are priority areas for increasing growth, “he says.

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