The launch of MoMo, the payment unit of MTN Nigeria, and SmartCash of Airtel Nigeria have many operators in financial services sitting on the edge.
Mobile money transactions in the country grew to 8.06 trillion naira last year from 3.05 trillion naira in 2020, according to data from Nigeria Inter-Bank Settlement System Plc.
The two telecommunications companies do not hide the extent of their ambitions for the payment market. For MoMo, which already has an edge through its agent network business and has seen it amass more than 10 million consumers, transactions are done at no cost.
The company would also draw on the extensive agent network already developed by MTN through its super agent license, which it obtained in 2019. The telecommunications company said it currently has more than 700,000 banking agents , of which more than 100,000 were added last quarter .
SmartCash’s parent company, Airtel, is currently the most valuable company in the Nigerian Exchange Limited.
The PSBs are mandated to focus on underserved areas of the country, given the scarcity of banking services in these locations. This is where some experts say banks may have an advantage over telecom operators.
According to Chris Ogbechie and Lilac Nachum, both researchers at the Lagos Business School, Nigerian banks control 94% of the banking sector through their assets.
However, Ayo Akinwunmi, a corporate banker at FSDH Merchant Bank, told BusinessDay that while competition between telecom providers and banks is healthy, it should additionally put banks on their toes to improve the delivery of their services. services, particularly in terms of financial inclusion.
“When there is competition, the introduction of better performing systems improves the service delivery of existing systems and ensures that customers get better value for money from a wider range of options. The ultimate goal is to deepen financial inclusion and make products and services more affordable for a wider population,” Akinwunmi said.
Telecom providers say the idea is to bring financial products closer to rural households and businesses, leveraging faster channels like mobile services and digitalization to make banking services available and affordable to those who cannot. access only at lower rates than their wealthy urban peers. offer oneself.
Precursors to Payment Service Banks (PSBs) were initially units of traditional banking systems providing basic banking services to meet the needs of the retail banking end until the emergence of fintech companies, and now MoMo and SmartCash on the scene have disrupted the way banking has long been conducted.
While it may be too early to predict the merger of fintechs that provide payment services due to the pace at which MoMo and SmartCash will operate following final licensing approval, “each has its place and roles within of the financial system to deepen financial inclusion by making it more accessible,” said Akinwunmi.
“As more and more operators are allowed to bring innovative products to market, this enables consumers to enjoy more value and provides them with a range of choices and alternatives to choose from,” he said. -he adds.
If developed, experts say, PSBs as a banking model have the potential to accelerate the pace of capital inflow into the largely informal rural economy and could help bring transformation as well as sophistication to space on such a large scale that it will no longer be easy to tell the difference between the economies of towns and villages.
It could also deepen the penetration of insurance, pensions, mortgages, mobile money and interest-free banking products in rural communities.
With 35.9% (38.1 million) of the total adult population lacking access to financial services, according to a 2020 survey by Enhancing Financial Innovation & Access, a Nigeria-focused advocacy group supported by the Bill & Melinda Gates Foundation, this will help expand the number of unbanked people in Nigeria.
Read also: Explanation – Mobile money vs PSB: where is the difference?
As Ernst and Young reported, 50% of banks are behind when it comes to upgrading outdated IT systems. However, Akinwunmi said banks are complementary as they also invest in technology to deliver their services cost-effectively.
“There are services that banks can provide that PSBs cannot compensate for; they just need to figure out how to do what they do better and reach those less advantaged when it comes to banking,” Akinwunmi said.
Contrary to popular belief that banks are lagging behind in innovation, Isaac Kamuta, Group Head of Payments, Cash Management and Customer Access at Ecobank, who spoke at a series of fintech breakfasts in April, believes that banks are innovative.
According to him, fintechs can choose partners who will help them scale and when they grow, they should continue to collaborate.
He said: “It would help to avoid working in silos in each country they travel to, instead they just activate their services in those countries.
“Part of the reason fintechs have been able to scale very quickly is that they are not as heavily regulated as banks. This heavy regulation is why banks have thousands of compliance officers and spend billion for compliance, which ultimately slows them down.
How PSBs Work
PSOs are empowered to foster financial inclusion by extending retail and small business small deposit and withdrawal services, providing payment and remittance services in Nigeria, issuing debit and prepaid cards, operating e-wallets and other activities prescribed by the Central Bank of Nigeria.
They must operate primarily in rural and unbanked areas, targeting financially excluded people and having no less than 25% of financial service outlets in these locations.
There must be a direct synergy with the card scheme operators, but the cards issued in this process are not suitable for carrying out foreign currency transactions, setting up ATMs in these locations and performing point services. of sale.
With the use of banking agents, PSBs will manage their services, leverage electronic channels to deliver service to customers, establish customer service units at their head offices as well as coordination centers, and deploy agent networks after receiving CBN approval.
The coordination centers will help the PSBs to oversee and control point-of-service and bank agent operations, adopt technology-enabled systems, and comply with best practices in data storage, security and integrity. data.