Financial Inclusion: PSB to the Rescue?

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Godwin Emefiele
CBN Governor, Mr. Godwin Emefiele

The Central Bank of Nigeria is getting more aggressive in executing its plan to get all Nigerians served by the nation’s financial sector. It has launched what it called Payment Service Banks (PSB), a banking model that will leverage technology to promote financial inclusion and enhance access to financial services to the rural poor, low-income earners and financially excluded of the society. Bamidele Famoofo writes

The ultimate goal of the Central Bank of Nigeria under the leadership of Mr. Godwin Emefiele, is to achieve a 20 per cent financial exclusion rate by 2020. As at October, 2019, the CBN said exclusion rate dropped to 36.8 percent from 46.3 percent as at when it started implementing its policy to enhance financial inclusion in Nigeria which was introduced in 2012.

The purpose of the National Financial Inclusion Strategy (NFIS), according to the CBN, was to provide Payment Service Banks across Nigeria with the aim of breaking the traditional barrier preventing financial inclusion and promoting low cost, secure and convenient financial services across the country.

The Bank in August officially launched the PSB service with licenses given to three operators to blaze the trail.

Director, Financial Policy and Regulation, CBN, Kevin Amugo, said PSBs are envisioned to facilitate high-volume low-value transactions in remittance services, micro savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion and help in attaining the policy objective of 20 per cent exclusion rate by 2020.

Mode of Operation

Payment service banks refer to a new category of the bank with smaller-scale operations and the absence of credit risk and foreign exchange operations. In addition to operating current and savings accounts they can also offer payments and remittance services, issue debit and prepaid cards, deploy ATMs and other technology-enabled banking services.

The PSBs are to facilitate high volume low-value transactions in remittance services, micro-savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion.

PSBs, according to a reviewed guideline issued by the CBN to regulate their operations, will be permitted to accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme; carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria; sale of foreign currencies realised from inbound cross-border personal remittances to authorised foreign exchange dealers; issue debit and pre-paid cards on its name; operate electronic wallet; render financial advisory services; invest in FGN and CBN securities; and carry out such other activities as may be prescribed by the CBN from time to time.

Meanwhile, PSBs are not allowed to accept foreign exchange deposits and to accept any closed scheme electronic value (airtime) as a form of deposit or payment. They are not also permitted to grant any form of loans, advances and guarantees to customers (directly or indirectly).

Eligible promoters

As specified by the rules guiding the new industry, banking agents; telecommunications companies (Telcos), through subsidiaries are allowed to take play. Others would be players include retail chains (supermarkets, downstream petroleum marketing companies); postal services providers and courier companies; Mobile Money Operators (MMOs that desire to convert to PSBs shall comply with the requirement of this Guideline); switching companies ; financial technology companies (Fintech); financial holding companies; and any other entity on the merit of its application subject to the approval of the CBN.

“Where the promoter of a PSB is a regulated entity, it shall be required to obtain approval or a ‘no objection letter’ from its primary regulator and submit same at the licensing application stage to the CBN,” the apex bank added.

Capital Requirements

The minimum capital requirement for any interested person(s) to operate a PSB is N5billion, according to a circular to all stakeholders on the guidelines for licensing and regulation of the PSBs issued by the CBN.

In addition, would-be operators will pay N500, 000 as a non-refundable application fee, N2 million non-refundable licensing fee, and N1 million change of name fee.

“Promoters should note that in compliance with Banks and Other Financial Institutions Act, the investment of the share capital deposit shall be subject to availability of investment instruments. Upon the grant of a licence or otherwise, the CBN shall refund the sum deposited to the applicant, together with the investment income, if any, after deducting administrative expenses and tax on the income.” The circular read.

Why PSBs?

According to the apex bank, the essence of the regulation is to leverage technology to promote financial inclusion an enhance access to financial services to the rural poor, low-income earners and financially excluded of the society.

“In view of the challenges to effective outreach to rural communities as well as the need to complement the services provided by other licensed entities, the apex bank issues this regulation to provide for the licensing and operations of Payment Service Banks in the country,” the CBN guideline disclosed in part.

“PSBs are expected to leverage on mobile and digital channels to enhance financial inclusion and stimulate economic activities at the grassroots through the provision of financial services.

Accordingly, PSBs are envisioned to facilitate high-volume low-value transactions in remittance services, micro-savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion and help in attaining the policy objective of 20 per cent exclusion rate by 2020,” Amugo also revealed.

The Blaze Trailers

The CBN said it gave a final approval to three PSBs to operate following their compliance with the licensing requirements it rolled out.

This was disclosed in a tweet by the Central Bank of Nigeria through their official Twitter handle on Friday, August 28, 2020.

The Payment Service Banks that were newly granted final approval by the CBN are Hope PSB, Moneymaster PSB and 9 PSB.

The final approval is coming after the CBN issued an updated and revised guideline for the licensing and regulation of Payment Service Banks in Nigeria on August 27, 2020. The first guideline for the PSBs was issued on October 26, 2018.

The tweet from the Central Bank of Nigeria reads, ‘’Three Payment Service Banks (PSB) have also been granted final approval to operate as PSBs following compliance with licensing requirements.”

The CBN, having disclosed that the licensing of the new PSBs will strengthen Nigeria’s financial inclusion drive leveraging mobile and digital channels, has expressed its commitment towards the implementation of policies that will engender a diverse financial system that meets the needs of all stakeholders.

The bank however said that it will continue to monitor developments in the sector and grant additional PSB licenses in due course.