Nigerian telecommunications companies are in line to benefit from a change in banking regulations that will allow them to collect deposits, carry out payments and remittances, issue debit and pre-paid cards, provide financial advisory services and invest in government and central bank securities.
Under the new scheme, they will be able to apply for a licence to become a payment service bank (PSB), creating new financial institutions in Nigeria.
Previously, any mobile money activity could only be carried out by banks or in conjunction with a bank.
|Ayokanmi Aderibigbe, Templars|
Discussion around whether or not telcos should be allowed to offer banking services has been ongoing in Nigeria, particularly after the mobile money revolution spearheaded in Kenya by M-Pesa, a mobile phone-based money transfer, financing and microfinancing service established in 2007.
Years of lobbying by the Nigerian banking sector has, however, prevented local telcos from offering banking services until now.
The National Communications Commission and the Central Bank of Nigeria finally signed a memorandum of understanding in 2017, while guidelines for the licencing and regulation of PSBs were approved in October 2018.
“So far, the [telco-led mobile money] model is yet to be implemented, although we have heard that a lot of the Nigerian telcos are interested in applying for the PSB licence,” says Aderibigbe.
Meanwhile, mobile phone penetration is high at 84%, according to a report published by Nigerian online retailer, Jumia.
Uptake and awareness of mobile money and agency banking services remain low at 1% and 16% of the population respectively, according to the financial sector development organisation, Enhancing Financial Innovation & Access (Efina). The Central Bank of Nigeria aims to raise the financial inclusion rate to 80% by 2020.
In other African countries such as Kenya, Uganda, Tanzania, Rwanda, Senegal and Ghana, mobile money has grown to include broader products such as credit, cross-border transactions and insurance.
In Kenya, 93% of the population has access to mobile money payments and nearly half of the country’s GDP is processed via M-Pesa.
|Funmi Akinluyi, Silk Invest|
But the change won’t necessarily mean that banks will lose out on business, says Olabisi Ayodeji, analyst at Exotix Capital. This is something that the banking sector is concerned about.
“Interestingly, the regulations guiding the establishment of the payment service banks force the telcos and other PSBs to meet the same minimum documentation and data requirements for new customers as the banks,” says Ayodeji.
“The telcos’ current customer database does not meet this criteria, meaning that they do not necessarily currently have an edge in terms of number of existing customers.
“According to some banks that I have spoken to, this levels the playing field for all the participants, and is likely a product of their lobbying,” she adds.
While they might take some time to implement, it is hoped that the new rules will be a win-win for banks and telcos alike.
Unfortunately, however, PSBs will probably not result in cheaper financing for the Nigerian population in the short term. Interest rates remain one of the biggest barriers to accessing credit in Nigeria and PSBs are not currently permitted to grant loans.
In Nigeria, where interest rates on personal and business loans are between 20% and 30%, fintechs such as Paylater, Branch, Kiakia and Aella Credit have streamlined the credit application process. As a result, interest rates via these new fintechs can be as low as 5% and offered in real time without collateral. Customers are identified instead through bank verification numbers, employment details and even mobile phone contracts.
“Entrepreneurs, students and even people wanting to buy or build a house are more likely to turn to an app than to a bank,” says a Nigerian banker based in Lagos. “Banks will need to innovate.”