LICENSING OF TELCO OWNED PAYMENT SERVICE BANKS, SHOULD NIGERIAN BANKS BE CONCERNED?

On the 5th of November 2021, the Central Bank of Nigeria granted approval in principle to both MTN Nigeria and Airtel Networks, to run Payment Service banks in the country. The final approval will be granted upon fulfilment of certain laid down conditions. This brings the number of Payment Service Banks to a total of five with four of these being owned by Mobile Network Operators (MNOs) i.e. including; 9PSB (9 Mobile), Money Master (Globacom), and Hope PSBank.

This development has been greeted with mixed reactions within the financial services space, with a common view being that, not only will the PSBs promote financial inclusion but, will significantly gobble up the market share of Deposit Money Banks (DMBs). This view is held for the following reasons:?

1.??????????With a Teledensity of 100%, the Telecommunications industry as controlled by the MNOs have subscriber numbers that far exceed that of the Nigerian Banking community.

2.??????????The Geographic penetration of the MNOs in Nigeria; especially reaching the rural areas, appear to provide a sure bet for financial inclusion independent of the DMBs.

A combination of the above implies that upon deployment, the retail banking sector is likely to be overtaken by the MNOs with the largest operator having more subscribers than the total number of bank accounts in the country. It therefore appears that competition in the mass retail segment of the population may be unthinkable for the DMBs. So to answer the subject question I will attempt to present key considerations under four headings.

1.??????????DAVID AND GOLIATH (What Nigerians banks should know)

As at April 2021, there are 48 million registered BVNs (Source: NIBBS) which is less than the active subscriber numbers of any of the top 3 MNOs in the country .MTN has 73.6 million subscribers, Globacom; 50.6 million and Airtel having approximately 50 million subscribers each according to the NCC. For Nigerian banks to compete in the market going forward, it would be necessary to rethink financial services delivery as it relates to the mass market. Retail banking today can and should only be done via machines/devices. Thankfully, Technology has helped us to digitize financial services and access through Mobile applications/platforms provide a channel to expand reach and usage. In addition to digitization of services it would be expedient for banks to realize that products deployed would have to be simplified to its most basic form such that transactions can happen as quickly or almost as quickly as cash exchange.?Financial services offerings must become as simple as buying a bar of soap or a satchet of milk and marketed like Fast Moving Consumer Goods (FMCGs). So to answer the question on if banks should be concerned with the licensing of MNO owned PSBs; I am of the view that YES, there is cause for alarm and the DMBs (DAVID in this case) must find stones (products) and a catapult (channels) to compete.

2.??????????A TROJAN HORSE (What the MNOs should know)

The leading Mobile Network Operator in Kenya; Safaricom recorded huge success with MPESA: the digital financial service product through which it currently earns 30% of its revenue. It has been believed for a long time by many that the success of MPESA in Kenya can be surpassed in Nigeria if MNOs are allowed to drive financial services delivery though their distribution network and the recent approval in principle by the CBN will enable them actualize this. It must be noted, however, that no two markets are exactly the same and some of the factors that led to the success of M-pesa do not exist in Nigeria: for example all Kenyans speak a single local language i.e. Swahili. ?

I am of the view that the MNOs in Nigeria did not need to wait for the PSB license to achieve their objectives as collaboration with existing financial services operators would have done the trick. The MNOs however for reasons best known to them have been unwilling to collaborate with DMBs. MNOs need to embrace collaborations to compete effectively in financial services as at the core of financial services is exchange and a platform that can only transact within itself is useless. DMBs have realized this a long time ago and as a result they have built the banking industry on collaborations with switches, payment schemes, agents, security companies, and even technology companies. ?

The biggest advantages of MNOs are their extensive distribution network and their subscriber numbers. The delivery of financial services through these channels will also demand interoperability; meaning that telco customers will necessarily have to transact with existing bank customers and other account or wallet holders. This arrangement will provide an inroad for the existing financial services apparatus to access MNO subscribers and it is likely that banks may be better equipped to deliver relevant financial services products to erstwhile MNO subscribers. The AIP granted by the CBN may therefore work like a Trojan Horse that grants the DMBs access to MNO subscribers. As a result of this, the MNOs also need to be concerned about DMBs.

3.?????????? A FREE FOR ALL FIGHT (What everyone should know)?

The delay in collaborating with banks on the part of the MNOs and the strong desire by the CBN for financial inclusion gave rise to additional players in the form of Super Agents/Fintechs. As at today, companies in this category have over 300,000 agents/outlets and process over 4 million transactions daily with an estimated value of over N40 Billion. Transactions are aggressively being moved away from banking halls and ATMs. These transactions include micro-lending, micro-pension, savings e.t.c. whilst the transactions are done on behalf of existing bank customers, the DMB’s ownership of these customers is threatened as the super-agents (SA) are closer to the customers and can influence their subsequent transacting decisions.?With over 300,00 agents, the Super agents can confidently match the distribution network of the MNOs. So it would appear like the MNOs and the DMBs also need to be concerned about the super-agents/ in the quest for market dominance.

It can be inferred therefore that the digital financial services space is tending towards a perfect market with several sellers of homogeneous goods and leadership will be dependent on product differentiation and ease of transacting. ?

4.??????????BLURRED LINES (What nobody knows)

Having established that the market for digital financial services has been thrown open, the market leader will be the player that can design and deploy the winning product or product suite. It is pertinent to note here that the mass market will show loyalty to the first relevant product that gains market acceptance. This is why food seasoning is known as Maggi, Tea as Lipton, Cola as Coke, Detergent as OMO e.t.c. So the race is on for the first and the best product to be deployed.

Would it be an MNO, DMB or SA? I suspect that your eyes are weary from reading these abbreviations and this leads me to highlight that the lines of business definition are becoming blurred as companies embrace business models that seek to meet the multiple needs of their consumers. It will no longer matter soon what line of business the service provider started with hence the abbreviations become useless.

Finally, I have attempted to highlight the features that the winning product must have in the foregoing and conclude by saying that the first financial services provider to deploy a product that is digital, simple, inclusive (product of collaboration and interoperable) and accessible to all Nigerians will win. What do you think?