Central Bank of Nigeria CBN said it will grant more licences for payment service banks but set a minimum capital base of N5billion, which could deter telecoms firms and some other potential new entrants to the digital financial services sector.
The central bank in a circular said that telecom firms, banking agents, retail chains and postal services could apply for licences to become payment banks. To do so they must set up a separate company for it with a minimum capital of N5 billion and run it as an independent entity from their existing operations.
The bank has granted three licences so far to 9PSB, a unit of local telecom firm, 9mobile, and two others. Nigeria wants to open up its digital financial services sector, which will help millions of Nigerians who do not have bank accounts. But regulation has been caught up with intense lobbying from lenders seeking to protect their turf in the wake of intense competition and weakening asset quality. MTN, Nigeria’s biggest telecoms firm, which is yet to receive approval, last year launched a mobile money transfer service, targeting those without bank accounts in a bid to secure the central bank’s approval for a payments licence.
More than half of Nigeria’s population of 180 million do not have a bank account.
The success of mobile money in east Africa has convinced investors and the industry that financial services are the next growth area for the telecoms sector, where prices for basic services are falling. But the licensing requirement in Nigeria risks putting off telecom companies. When the central bank issued preliminary guidelines for payment banks in 2018 for discussion, telecom companies argued that they are not banks and do not need a capital base. The central bank said in its circular that it could ask payment banks to recapitalise for specific risks. Payment banks should operate mostly in rural areas and unbanked locations, accepting deposits from individuals and small businesses, the central bank said. They cannot grant loans, it said.
According to CBN guidelines; Payment Service Banks shall:
i. Operate mostly in the rural areas and unbanked locations targeting financially excluded persons, with not less than 25% financial service touch points in such rural areas as defined by the CBN from time to time; enter into direct partnership with card scheme operators. Such cards shall not be eligible for foreign currency transactions; deploy Point of Sale devices; be at liberty to operate through banking agents (in line with the CBN’s Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria); roll out agent networks with the prior approval of the CBN; use other channels including electronic platforms to reach-out to its customers; establish coordinating centres in clusters of outlets to superintend and control the activities of the various financial service touch points and banking
agents; be technology-driven and shall conform to best practices on data storage;
security and integrity; and set up consumer help desks (physical and online) at its main office and coordinating centres.
The CBN guideline said “The Payment Service Banks shall use the words “Payment Service Bank” in its name to differentiate it from other banks. Furthermore, the name of a PSB shall not include any word that links it to its parent company”.
The CBN said that Payment Service Banks shall carry out the following activities: accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme; carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria; sale of foreign currencies realised from inbound cross-border personal
remittances to authorised foreign exchange dealers; issue debit and pre-paid cards on its name; operate electronic wallet; render financial advisory services; invest in FGN and CBN securities; and carry out such other activities as may be prescribed by the CBN from time to time”.
It further said that Payment Service Banks shall not carry out the following activities:
grant any form of loans, advances and guarantees (directly or indirectly); accept foreign currency deposits; deal in the foreign exchange market except as prescribed in 4.1 (ii & iii) above; insurance underwriting; undertake any other transaction which is not prescribed by this Guidelines; accept any closed scheme electronic value (e.g. airtime) as a form deposit or payment; establish any subsidiary except as prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters, No 3, 2010.
The following may promote PSBs: Banking Agents; Telecommunications companies (Telcos), through subsidiaries; retail chains (supermarkets, downstream petroleum marketing companies); postal services providers and courier companies; Mobile Money Operators (MMOs that desire to convert to Payment Service Banks shall comply with the requirement of this Guideline); Switching Companies; Financial technology companies (Fintech); Financial Holding Companies; and Any other entity on the merit of its application subject to the approval of the CBN. Where the promoter of a PSB is a regulated entity, it shall be required to obtain approval or a ‘no objection letter’ from its primary regulator and submit same at the licensing application stage to the CBN.
