Recently the Central Bank of Nigeria (CBN) granted MTN and Airtel Approval-in-Principle (AIP) to run payment service banks (PSB). This led to many people asking what this means and how it will affect them.

Payment Service Banks are banks that accept deposits from individuals and small businesses, carry out payment and remittance services within Nigeria, operate electronic purses, and do other activities prescribed by the CBN.

The CBN is focused on promoting financial inclusion and this step to add the telecoms giants is a welcome development across board, especially for the unbanked. Hence, the proposed banks can register their names with the Corporate Affairs Commission (CAC) once an AIP has been obtained from the CBN in writing, a copy of which shall be presented to the CAC for registration.

What CBN PSB license means for MTN and Aitel 

It is important to note that the AIP is not the final step. Not later than six (6) months after obtaining the AIP, the promoters of a proposed bank are required to apply to the CBN for the grant of a final license.

To better understand what is expected from MTN and Airtel, based on the apex bank’s approval of their Payment Service Banks, we look into the CBN’s “GUIDELINES FOR LICENSING AND REGULATION OF PAYMENT SERVICE BANKS IN NIGERIA.”

According to the Central bank of Nigeria, the PSBs can do the following:

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 realized from inbound cross-border personal remittances to authorized 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.
Carry out such other activities as may be prescribed by the CBN from time to time.

What Payment Service Banks (PSB) can’t do 

Payment Service Banks (PSB) shall not carry out the following activities:

PSBs would not be able to  grant any form of loans, advances and guarantees (directly or indirectly)
PSBs would not accept foreign currency deposits.
PSBs would not deal in the foreign exchange market except for carrying out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria and the sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers.
Insurance underwriting would not be possible for PSBs.
PSBs would not accept  any closed scheme electronic value (e.g. airtime) as a form deposit or payment.

Bottomline

The main goal of Payment Service Banks is to deepen financial inclusion by providing small businesses, low-income households, and other financially excluded entities with access to deposit products and payment/remittance services through high-volume low-value transactions in a secure technology-driven environment.

Analysts at the Nairametrics OnTheMoney Series held on Clubhouse App, on Saturday, November 6, 2021, discussed the newly licensed PSBs and concluded that the licences would go a long way in the CBN’s goal of financial inclusion. Also, fintechs may be hit with a lot of competition that would rapidly reduce transaction costs for everyday users.

The analysts also advised banks to focus on loans and be more innovative about revenue generation since they would experience increased competition as well.

MTN and Airtel’s entry into the Nigerian financial services industry, according to analysts, will increase competition, particularly among commercial banks and Fintechs, however, this competition would propel growth and foster the CBN’s objective of reducing the unbanked population in Nigeria.