In line with the Central Bank of Nigeria’s (CBN’s) target of achieving 95 per cent financial inclusion rate by 2024, a Lagos-based financial services firm, Financial Derivatives Company Limited has disclosed that by securing Payment Service Bank (PSB) license from the CBN, MTN is targeting to bring into the financial system, between 40 million and 60 million people in the unbanked adult population in Nigeria.
In its monthly economic bulletin made available to the public, FDC noted that leveraging telecommunication companies (telcos) as PSBs will not only grant the unbanked public increased access to financial services, but will also ease their access to funds.
“MTN Nigeria has taken the lead to secure a PSB license from the CBN. As Nigeria’s leading telco, with over 58 million subscribers, MTN is targeting between 40 million and 60 million
People in the unbanked adult population,” it stated.
The PSB license is usually granted to mobile network operators (telcos), mobile money operators, supermarkets and the agents of traditional banks, but they are not allowed to provide credit facilities and participate in forex trading unlike the traditional banks.
Despite the introduction of several initiatives by the CBN, such as, microfinance banking, agent banking, know-your customer (KYC) requirements, and mobile money operators, the rate of financial inclusion remains low in Nigeria.
According to FDC, the most obvious lever telco PSBs have to decrease the unbanked population is their large customer base; the telcos could use their existing financial technology (finTech) capabilities to increase the number of adults that are granted access to simplified, quality and affordable financial services.
Making further case for telcos, the firm believes that paired with another goal of the CBN, which are increasing access points to financial services, telcos really shine.
PSBs are also likely to have lower charges compared to the deposit money banks, as they compete to gain increased market share. Findings from a KPMG-UBS study indicate that the cost of effecting a transaction on a mobile device is half the cost of internet banking, 13 times cheaper than Automated Teller Machine (ATM) banking and 43 times cheaper than branch banking, just as increasing competition for market share amongst the telcos would drive down service costs. This is similar to what Nigeria has experienced with the cost of mobile phone credit dropping as more players have joined the market.
FDC observed that a lack of infrastructure has constrained banks from setting up physical branches in rural areas. But with mobile devices as the primary access point for PSBs, telcos could ease access for depositors, improving the customer to access point ratio.
However, poor adaptability to modern technology by rural residents, who constitute the bulk of the unbanked public in Nigeria, could limit the success of PSBs, despite the increasing traction of the telcos it stated.
By implication, the services of these companies may not be recognized beyond rendering call services by a majority of the uneducated unbanked adult population.
It recalled that Kenya’s Safaricom invested in wide-ranging publicity and outreach to create awareness and educate people on the usefulness of the new service (M-Pesa) and how to carry out financial transactions using their mobile phones.
Therefore, financial inclusion does not only involve providing access to financial services but also ensuring the appropriate and regular usage of such products says FDC. There is therefore the need to educate and sensitise the general public on the benefits associated with banking services. This would go a long way in encouraging the unbanked public to try PSBs.
Nigeria according to FDC could draw useful lessons from the Kenyan experience, which has achieved a high rate of financial inclusion through the successful operations of its PSBs.
The emergence of Telco PSBs would support the commitment of the CBN towards achieving 95 per cent financial inclusion rate by 2024, the firm believes.