Recently, the financial inclusion programme of the
It is worthy of note that the key objective of the regulation is to enhance financial inclusion by increasing access to deposit products and payment/remittance services to small businesses, low income households and other financially excluded entities through high volume low value transactions in a secured technology-driven environment. Previously, the CBN has sought to drive financial inclusion by the introduction of microfinance banking, agency banking and mobile money operators amongst others. However there is still much to be desired.
According to a 2018 report by the
The payments bank idea/model has been incorporated in various jurisdictions and climes, and is based primarily on the success of Mpesa in sub-Saharan Africa. A study by
As a result, Mpesa became the driving force in financial inclusion in
In contrast, more than 3 years after the
The CBN guidelines provide that Payment service banks 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 through technology, and help in attaining the policy objective of 20 per cent exclusion rate by 2020.
The structure provides that the PSBs are to operate mostly in the rural areas and operate through banking agents in line with the CBN's agent banking requirements, while they are also at liberty to roll out agent networks with the prior approval of the CBN. They shall conform to best practice on data storage security and integrity while ensuring that the word 'Payment Service Banks' will be part of their name, and the name must not include any word that links it to its parent company.
The guideline provides that the Payment service bank permissible activities include; to accept deposit, carry out payments and remittances, operate electronic wallet, invest in FGN and CBN securities, while the PSBs are expressly prohibited from granting any kind of loans, any foreign exchange dealings, accepting any form of electronic value (airtime), as a form of deposit or payment and establishing any subsidiary outside the CBN guidelines.
The guidelines further opened the gateway for the participation of more companies as promoters including banking agents, telcos, retail chains e.g supermarkets, and downstream petroleum marketing companies, mobile money operators, fintech companies and financial holding companies. Where the entity is regulated, the entity must get a letter of no objection from its primary regulator.
The Payment service bank shall submit in connection with other requirements, a non refundable application fee of N500,000 and evidence of name reservation at CAC, further to which it may be granted an Approval-in-Principle. In
The requirements for the final license include non refundable fee of N2,000,000, CTC of certificate of incorporation, amongst others. There will also be a pre-licensing inspection to check the physical structure of the office building and infrastructure provided for take-off of the Payment service bank; sight the original copies of the documents submitted in support of the application for license; meet with the Board and Management team whose resumes had earlier been submitted to the CBN; verify the capital contributions of the promoters; and verify the integration of its infrastructure with the National Payments System.
The Financial Requirements for the Payment Service Banks include a minimum capital requirement of ₦5,000,000,000.00. This is similar to the
The guidelines also state that the provisions of the CBN code of corporate governance of banks shall be applicable to the PSBs and the Revised Assessment Criteria for Approved Person's Regime for Financial Institutions shall be applicable to PSBs.
One of the challenges the payment service banks will face is in the area restrictions with fund deployment as their investment is in stipulated government securities. The guidelines states that PSBs shall maintain not less than 75% of their deposit liabilities in CBN securities, Treasury Bills (TBs) and other short-term federal government debt instruments, at any point in time.
The major opportunity for PSBs will be the sheer size of the market. To be successful, the Payment service bank system may require smart segmentation, both geographical and demographic, to offer tailor made products to bottom-of-pyramid (BOP), rural and unbanked Nigerians. Payment banks can also utilize the existing payments structure to move quickly, offer simplified payment solution and occupy a specific niche or segment.
The telcos should note that while they may want to participate in the round, because they have the advantage of a large customer base, the type of relationship they are trying to build with the customers this time is distinct, while for the new players, acquiring critical mass may be a tall order. It is apparent that banking as we know it is changing, and technology is poised to change banking paradigms. A payment service banking license gives the licensee a vantage position to view these changes much better and address them.
A major concern with the CBN guidelines is that the 'banks' are not allowed to lend and therefore the revenue stream may be limited, raising doubts over the model's viability. Another concern is the minimum capital requirement and the stipulation that they are allowed to invest only in government securities.
One thing is clear though, the success of Mpesa advises that regulations, particularly as it concerns technology, should allow for innovation, and be flexible enough to accommodate new changes. Conversely, tough regulations would not provide the necessary enabling environment, may stifle growth of the payment service industry and ultimately defeat the main objective of financial inclusion.
Originally published by Chestter Law,
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Chestter Law
Second Floor,
South West
Ikoyi
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