November 14, (THEWILL) – Massive disruptions are gaining a strong foothold in the financial service sector of Africa’s largest economy. The robust presence of Fintech channels, the active participation of Mobile Money operators, the rapid expansion of the Payment Service Banks (PSBs) and the recent launch of the Central Bank Digital Currency, eNaira, will significantly reconfigure the sector’s landscape. While this will create a positive impact on the financial inclusion project, the competition it poses for core players, mainly deposit money banks and the struggling ones among them, is a matter to consider seriously.
At present, Nigeria has 32 money deposit banks, six merchant banks, three non-interest banks and 875 microfinance banks. The deposit money banks are classified into Tier-1 and Tier-2, based on their financial health – capital adequacy, assets base, shareholders’ funds and reserves strength. There is also the unwritten Tier-3 or struggling banks operating with weak footholds and hoping for a change in their collective destiny. Such banks are known for their perpetual life support dependency on the Central Bank of Nigeria (CBN) borrowing window to remain in business.
But the wave of change sweeping across the sector through disruptions brought about by financial technology (Fintech) and ‘radical’ regulatory policies will alter the health status of many banks. For sure, the development would send some to the emergency wards from where they may not recover for a long time to come. It is all in the interest of the 40 million unbanked adult population, the economy and the nation at large. This is why industry watchers applaud the wake-up move by the CBN. The apex bank has taken radical steps that would help to drive its financial inclusion pace, which has run on the slow lane since the Financial Inclusion Strategy was launched in 2012 with the target of reaching 80 percent of Nigerians with formal financial services by 2020.
Financial inclusion means that people have access to basic financial services like a savings account, credit and insurance. The import of this centres on the fact that financial services have the capacity to empower people, create jobs and open up the remote areas for meaningful economic activities. The higher the inclusion, the better the quality of life of the people. A higher exclusion rate in Nigeria could lead to a poorer population, as lack of access to credit and insurance puts them at an economic disadvantage.
The CBN had in a circular issued in 2018 lamented that Nigeria was not meeting any of the agreed financial inclusion targets included in the 2012 Financial Inclusion Strategy. The Enhancing Financial Innovation and Access (EFInA) data showed that only 64.1 percent was financially included by the end of 2020.
This means that 36 percent of Nigerian adults or 38.1 million of the country’s 106 million adults of 18 years and above, remain completely financially excluded – a shortfall by 16 percent points from the desired target of a 20 percent exclusion rate. To underscore its importance, the CBN Governor, Godwin Emefiele, in his second term agenda in 2019, put financial inclusion at the forefront of his five-point agenda. He set a target of 2024 to achieve 95 percent financial inclusion. Unfortunately, COVID-19 pandemic altered the path of normal life across the globe and spread a wave of disastrous health and economic damage.
Recent developments suggest that the CBN has decided to fire from all cylinders unlike the seeming lacklustre or wait-and-see attitude it had adopted since 2018 when it rolled out the Guidelines (revised in 2020) for the Licensing and Regulation of Payment Service Banks (PSB). It embraced the PSB approach after several years of “pressure” from members of the public to tow the path of successful African countries like Kenya, Ghana and Ethiopia, which have become role models in the financial inclusion project.
A PSB is defined as a category of banks with small-scale operations and the absence of credit risk and foreign exchange operations. They are regarded as a hybrid of conventional banks and fintech companies. They provide banking solutions with the flexibility, accessibility and technology tools employed by fintech companies in driving the financial inclusion project. Their leverage on technology offers them the unique privilege and capability to provide services that would easily be accessed by the unbanked population and those in areas that are not easy to reach. The special factor that defines their operations is that they provide banking services through physical access points or internet-enabled platforms.
The Guidelines for PSB operations set out a number of permissible and non-permissible activities. Their permissible activities include accepting deposits from individuals and small businesses which shall be covered by the deposit insurance scheme. They are to carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria. They are also permitted to sell foreign currencies realised from inbound cross-border personal remittances to authorised foreign exchange dealers.
Additionally, they are permitted to issue debit or pre-paid cards on the operator’s name, operate electronic wallets, render financial advisory services, and invest in FGN and CBN securities.
On the other hand, they are prohibited from granting any form of loans, advances and guarantees (directly or indirectly), accept foreign currency deposits, deal in foreign exchange markets except as permitted, and establish any subsidiaries – among others.
On November 4, 2021, the CBN granted Approval in Principle (AIP) to two of the country’s largest mobile telecommunication service operators – MTN Nigeria and Airtel Africa. The AIP prepares ground for the final approval in six months’ time. This will enable them to operate grassroots financial services, especially the Mobile Money channel, which is expected to remove most of the barriers to obtaining bank accounts, such as the Bank Verification Number (BVN) and other KYC (Know-Your-Customer) requirements.
The CBN issued PSB licences to 9Mobile and Globacom in 2020. While 9Mobile has launched its 9PSB in 2020, Globacom licence is still cooling off on the shelf unutilised. Incidentally 9Mobile’s PSB project did not go far before it ran into murky waters for what experts described as lack of intensity. Aside from the announced partnership with Fluterwave in September 2020, the 9Mobile PSB project has remained in the silence mode.
With the licences given to MTN and Airtel, any Nigerian who does not have a bank account will most likely be able to ride on the infrastructure of any of the telecos or other service providers to transact through an e-wallet or mobile money account, thereby escaping the hurdles of account opening or maintenance process. This will also take care of the 40 million unbanked adult Nigerians that the eNaira App has excluded because they have no access to a bank account, which the App requires.
Analysts and industry experts agree that with an AIP granted to MTN and Airtel, the coast is now clear for rapid financial inclusion expansion and quick reduction in the population of the unbanked. The financial services landscape has entered a revolutionary train that is not only moving fast, but also expediently to the benefit of those in the rural areas and in the hard-to-reach environments.
“We expect a massive turnaround in the financial services sector and a robust penetration by the telecos which are already familiar with the terrain where they have operated for over two decades,” said Mike Akagha, a Mobile Money Operator.
MTN and Airtel have a combined 124.6 million voice subscribers and 96.1 million data subscribers. MTN Nigeria also has its agent network of 230,000 grown through its MoMo Super Agent platform across the country. Airtel has a legion of airtime resellers which it will plug into to expand its reach. The two network providers are expected to use their PSB operations to create 100,000 jobs for the Nigerian youth; it will also boost the nation’s and states’ revenue base
The rapid expansion of the financial service sector can be gleaned from the fact that the telecos have great potential to penetrate the rural areas and the communities that appear unreachable. While Nigeria’s commercial bank branches (per 100,000 adults) in the country was 4.30 as of 2018, mobile phone subscribers per 100 people stood at 99.07. The world average in 2020 based on 144 countries was 113.12 subscribers per 100 persons. Nigeria’s total active bank accounts were about 111.5 million as of September 2020. This is nowhere close to the 205 million active subscriber lines for network operators in the same period.
Nigeria’s largest bank by assets and customer base, Access Bank, has 42 million customers, according to information offered at its H1 ’21 presentation. But MTN Nigeria has nearly over 69 million subscribers in the same period. The MTN disclosed at its nine-month conference that it had increased its agent network by 234,000 agents to about 630,000 agents this year. First Bank’s agent network, the largest among the deposit money banks, was around 117,000 agents as of H1 ’21.
Mobile phone-led PSB operations have deepened the financial inclusion model in many countries that adopted it. Although Nigeria seems to be coming late to the arena, it will experience rapid expansion as the major telecos enter the ring. It will also bring a lot of competition among the deposit money banks as many of them do not have an effective presence in the remote areas. Even the bank branches in the semi-urban areas do not have effective ATM services while their banking hall activities are far from being fluid. The wind of change will make some banks strong, while others will be swept away because service consumers now have a suitable alternative.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
