CBN's draft framework on Payment Service Banks has nothing to do with fintech startups, here's what it is really all about
The Payment Service Banks will facilitate transactions in remittance services, micro-savings and withdrawal services in a technology-driven environment to further deepen financial inclusion in Nigeria.
This report is absolutely false as a Payment Service Bank (PSB) framework is totally different from a payment service provider as reported by a local newspaper report.
Just as the fintech companies acquire microfinance bank status in Nigeria such as Piggybank and the likes – which now operates as a microfinance entity, PSBs operate solely as agent bankers without a licence to perform some major banking activities such as lending of funds and playing in the forex market.
According to the CBN, the PSBs will corroborate several other initiatives including Introduction of Microfinance banking, Agent Banking, Tiered Know-Your-Customers Requirements and Mobile Money Operation (MMO) in order to increase the number of bankable adults in Nigeria.
When the CEO of Farmcrowdy, Onyeka Akumah, tweeted the report of $13 million (N5billion)for startup licence over the weekend, it generated controversy.
“Do we mean that a Fintech ‘Startup’ in Nigeria should first have $13m USD before they get their license? A startup???,” Akumah tweeted citing the newspaper's report.
“I just read this and I’m shocked! This will kill innovation and literally push out everyone that has one idea or the other to improve Fintech solutions. I’m hoping there is something I missed in this article.”
The tweet generated intense argument on social media. While some believed in it, many others said the CBN report has nothing to do with fintech as it was merely a draft framework for a payment service bank to be run by Telcos, Mobile money agent, Agent Banks etc.
“This policy document sets out requirements for operating a payment service bank. It says nothing about regulating Fintech start-ups. Kindly point me to the contentious section if it exists. Otherwise, your tweet comes across as targeted to deceive,” a Twitter user, @kezielive responded.
Subomi Plumptre, an executive at Alder Consulting, who stood in between said young players need to take the lead and make use of lobbying as a valid tool of business.“Remember what we discussed. If young players don't organise and take the lead, you will be regulated without your consent. Lobbying is a valid tool of business. Get a seat at the table,” responding to Akumah's tweet.
Business Insider SSA checked the CBN draft guidelines and regulation and it is clear that the guidelines have nothing to do with startup or fintech in Nigeria, the confusion originated from the newspaper report.
PSBs serve as a mobile payment platform for increasing financial inclusion so as bring the unbanked population into the banking sector through the service of an agent banker also known as Payment Service Banks.
What is CBN saying about Payment Service Banks?
In October, the Central Bank of Nigeria (CBN) released a proposed guideline for a new Bank to be called a “Payment Service Banks” (PSBs). Through its draft guidelines, CBN said it will grant an operating licence to Payment Service Banks(PSBs) to operate in rural areas and unbanked areas.CBN’s director, Financial Policy and Regulation Department, Kevin Amugo, in a letter to banks,telecommunications companies, mobile money operators, banking agents and the Nigerian Communication Commission (NCC) said the PSBs shall comply with KYC requirements and other extant laws and regulation of the apex bank to track illicit and laundering offences.
Why CBN is establishing Payment Service Banks?
According to a 2017 World Bank Global Findex Database report, more than 60 million Nigerians are without bank accounts.
Dipo Fatokun, Director, Banking & Payment Systems, CBN, in June 2018, stated that the apex bank is committed to reducing the population of unbanked Nigerians to at least 20% by 2020.
In view of this, the CBN issued draft guidelines for licencing and regulations of PSBs in Nigeria. The apex bank said it is part of the agreement to bring the figure of unbanked adults down to 20% by 2020 through its National Financial Inclusion Strategy.
What is a Payment Service Bank?
Payment Service Bank will have the ability to issue electronic wallets, debit and pre-funded cards, and electronically make payments/remit cash between banks for services rendered, as it will be connected or utilise a corresponding bank which is connected to Nigeria Inter-Bank Settlement System Plc (NIBBS).
According to the draft framework, the PSBs will facilitate transactions in remittance services, micro-savings and withdrawal services in a technology-driven environment to further deepen financial inclusion and onboard 80% of bankable adults by 2020.
PSBs will enhance financial inclusion in rural areas by increasing access to deposit products and payment as well as remittance services to small businesses, low-income households and other entities through high volume, low-value transactions in a secured technology-driven environment.
Capital requirement for setting up PSBs
The guidelines for licensing and regulation of Payment Service Banks (PSBs) have been placed on a minimum capital base of N5 billion and a N2 million licensing fee respectively.
Also, there is a proposed non- refundable application fee of N500,000
Structure of the Payment Service Banks
- Performs basic banking functions
- Establish ATMs in the areas they operate
- Operate a banking agent service
- Use of electronic channels to reach out to its customers
- Establish centres in clusters outlets
What PSBs cannot do:
- Grant of any form of loans, advances and guarantees
- Trade in the foreign exchange market
Who can operate a Payment Service Bank?
- Banking agents
- Telcos though subsidiaries
- Retail chains (Supermarkets)
- Mobile money operators (MMOs) with the plan to convert to PSBs
From the above details of PSBs framework, it is basically out of the fintech and/or startup space. Like Kenya and Ghana, Safaricom is operating M-Pesa just as MTN is making waves with its Mobile Money subsidiary in the Ghana
In Nigeria, MTN, Airtel and others are already making plans to apply for a payment service banking licence and enter the financial service sector with mobile money.
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