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.
Bharti Airtel Nigeria and MTN Nigeria are two of the main telecommunications companies in Nigeria to apply for such a licence – though the latter has been involved in a number of high-profile disputes with the central bank.
Previously, any mobile money activity could only be carried out by banks or in conjunction with a bank.
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| Ayokanmi Aderibigbe, Templars |
“Nigeria has lagged behind its African peers in terms of financial inclusion, and the government is finally taking the necessary action to close this gap,” says Ayokanmi Aderibigbe, finance associate at Templars, a Nigerian law firm headquartered in Lagos.
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.
Competition
Bank penetration is relatively low in Nigeria: some 60% of the population of 200 million remains unbanked, according to World Bank research in 2017.
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.
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| Funmi Akinluyi, Silk Invest |
“Banks don’t have the reach or the coverage the telecoms have,” says Funmi Akinluyi, head of frontier and Africa investments at Silk Invest. “MTN alone has 64 million subscribers and 60.4% mobile phone penetration in Nigeria. This is definitely a game changer and will assist the central bank in reaching its financial inclusion targets.”
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.
Positive outcomes
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.
“Due to the new regulation, banks and telcos will be able to offer services previously unavailable to both the banked and unbanked,” says Akinluyi at Silk Invest. “Inclusive banking will result in a positive long-term outcome for all while forcing innovation.”
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.
“They will, however, provide Nigerians with easier, quicker and safer means to deposit, withdraw and transfer money” says Aderibigbe at Templars.
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.”