Emmanuel Okoegwale reviews the licensing of Payment Services Banks in Nigeria and suggests policy options to deliver financial services that meet the needs of the underserved across the country.
In furtherance to enhance access to basic financial services for underserved and unbanked segments of the society, the Central Bank of Nigeria created a new licence category, called the Payment services Bank (PSB).
The key objective of setting up the PSB category is to enhance financial inclusion by increasing access to deposit products, payment, and remittance services to small businesses, low-income households, and other financially excluded entities.
To achieve the purpose, PSBs are expected to leverage mobile and digital channels of mobile network operators which will be provided on commercial market rates, to licensed providers irrespective of relationship as a subsidiary, partner or competitor. Diverse promoters are eligible to promote a PSB such as mobile network operators through their subsidiary, Banking agents, Retail chains, mobile money operators and many other entities that the regulator may be deemed meritorious of the licence.
Relationship between the Mobile network operators, subsidiary and market operators
In order not to give extra advantage, appropriate risk and prevent commingling, where the PSB is affiliated to a mobile network operator, they are not permitted to include any word that links it, to its parent company.
A parent company or any other related entity of a PSB, which renders services to its PSB shall extend similar services to other entities that so desire on the same terms and conditions therefore on arm’s length basis without preferential treatment to its subsidiary, not offering a lower quality of service to subsidiary’s competitors or offering differential pricing etc.
Scope of the Arm’s length
The framework is upfront with access channels and infrastructure’s use and pricing but vague in other areas such as agent and distribution networks which is a compelling component for the design and delivery of basic financial services products. To avoid the pitfall of the current mobile money sector where interoperability is mandated by regulation but market operators shy away from its implementation, therefore, denying the entire ecosystem, a key driver for growth since wallet holders of diverse mobile money operators can’t transact with agents outside their network, seamlessly in some cases.
Without a clear definition, market operators can make poor judgement where they are unsure of what they can access or not access such as subscribers database, CRM, Agency and distribution network, etc of the mobile network operators.
To improve operational effectiveness and resource allotment, organisations need to create certainty and appropriate risk but where arm’s length is not properly defined, market operators tread with extreme caution to avoid regulatory landmines which can stifle innovation, increase cost, delay product developments, which ultimately impacts negatively on the market robustness to meet the compelling needs of the underserved population and the nation, missing the financial inclusion targets.
There is need for clarity at inception, what services are classified under arm’s length for the benefit of potential entrants that might be constrained by such policies while planning to apply for licence or business implementation, post-licensing.
A PSB is a combination of a bank, mobile money, remittance, and payment provider without the ability to give credit which is a major revenue driver, in low-value and high-volume business financial segment.
With such restriction which reduces the scope for sufficient earning already hence the need to reduce cost by leveraging as much resources from the mobile network operator’s assets by their subsidiary and other market operators.
From a mobile network operator’s point of view, financial services can be leveraged as a cost-saving platform to reduce churn, lock-in customers which in turn will reduce marketing costs and the cost of acquiring new subscribers which will lead to an overall reduction in operating cost. It can also be for income generation, in addition to existing primary products.
A very restrictive arm’s length policy will have a negative impact on service delivery and impair the ability of the licensees to leverage some assets, goodwill of either party to deliver financial services that meet the compelling needs of the underserved.