CBN may have realized it can’t rely on lenders alone to achieve its objective of extending services to the 50 million adults still without a bank account in the nation of about 200 million people.
Telecommunications firms, including South Africa’s MTN Group Ltd., are now interested in applying for licenses that will allow them, and even supermarket chains, to create units that can collect deposits and maintain savings accounts.
The regulator late last year released guidelines on how Payment Service Banks will operate to reverse a drop in access to affordable financial products. It had previously blocked network operators from getting licenses to move money for customers without using a bank. But, with 162 million active lines between the nation’s four wireless carriers, the regulator is opening up the field in a bid to more than double its financial inclusion rate to 80 percent by 2020.
“These guys are going to grab all the bottom-of-the-pyramid transactions,” said Bismarck Rewane, chief executive officer of Financial Derivatives Co., a risk advisory group based in Lagos. “This is a disruptor to the traditional way of doing things.”
Banks will still have some shelter from full-blown competition. The new policy won’t enable licensees to lend, pay interest or accept foreign-currency deposits, making those the preserve of financial institutions. It also requires that at least one quarter of access points be located in rural areas, which are currently under-served.
“I don’t think everyone will say, ‘this is the perfect document,”’ said Usoro Anthony Usoro, the general manager of mobile-financial services for MTN Nigeria, the market leader with 67 million mobile subscribers. “The important thing is that it’s a first step towards bringing all players in. We expect that the CBN will keep listening to customers, to potential participants in that space and will keep improving the policy.”
The Central Bank of Nigeria didn’t respond to requests for comment about the new policy or when the licenses will be granted.
Competition vs Collaboration
Banks aren’t standing still and are confident they can withstand the competition with their own digital offerings. FBN Holdings Plc’s First Bank of Nigeria is pushing ahead with its digital-banking roll-out, with more than 10,000 agents targeting the unbanked everywhere in the country, according to CEO Adesola Adeduntan
“As a bank, we can open accounts nationwide using digital financial services, invest the funds across a broad range of asset classes, and, most importantly, we can lend,” said Lagos-based Diamond Bank Plc’s head of corporate communications, Ezechinyere Anyanwu.
Without the ability to lend or pay interest on deposits, there might be little incentive for customers to keep their money outside the banking system, said Abayomi Odumosu, an independent mobile-money consultant based in Lagos.
“It pushes people to withdraw,” he said. “That increases the cost of handling cash and forces mobile operators to collaborate with banks.”
It will probably be a fine line between collaboration and competition between carriers and banks wanting to stand their ground with their own mobile offerings. Nigerian lenders are already facing uncertainties around what is shaping up to be a close presidential election in February, the risk of a currency devaluation, a surge in soured loans, and tepid economic growth.
Win-Win
The additional competition might stimulate innovation and interest in financial services, especially in far-flung areas shunned by banks, where people rely mainly on cash to transact. As these customers get used to transferring money using their phones, the payment service providers might act as recruitment agents for rural dwellers seeking broader banking services.
“It’s a win-win for everybody,” said Segun Ogunsanya, CEO of New Delhi-based Bharti Airtel Ltd.’s Nigerian unit. “It’s a win for the banks, a win for the licensees, a win for the central bank, a win for the government and a win for the areas where people have been excluded from the economic activities of this country.”
Airtel Nigeria may apply through an affiliated entity rather than applying for a license directly, he said. Nigeria’s two other main wireless operators, 9mobile and Globacom, with a combined 59 million subscribers as of November, didn’t respond to requests for comment about potential plans to apply for a license.
As the adoption of mobile money helped grow financial inclusion across sub-Saharan Africa more than 8 percentage points to an average of 43 percent between 2014 and 2017, Nigeria’s rate dropped nearly 4 percentage points to 39 percent over the same period, according to World Bank data.
The lenders will need to be on their toes. “Banks will be forced to develop innovative banking services,” said Oluwole Babatope, a senior research analyst at International Data Corp., or risk losing accounts to mobile-phone providers, hurting their revenue.