While telcos wait for PSB license, who will address payment infrastructure?

As the month of July raced to its finished line, Africa’s telecommunication giant, MTN was announcing the appointment of its first ever Group Chief Digital and Fintech Officer.

The telco is one of the players on the waiting list for a promised license from the Central Bank of Nigeria to enable it offer mobile money services to its more than 64 million subscribers in Nigeria.

2019 has less than five months to go and there is little sign the apex bank will fulfil its promise. But MTN and other interested parties believe delay is not denial. After all, with the guideline on Payment Service Bank (PSB) already released, the license is a matter of time.

But is it?

Experts say that issuing PSB licenses will only amount to a little impact on financial inclusion unless the infrastructure side of payment is urgently addressed.

Victor Asemota, a technology expert on his twitter handle in January explained it this way, “They have just created a no-win situation in the market or a win with serious consequences.”

A top executive in the banking sector told Businessday that behind closed doors, “bank CEOS are clicking glasses. They know the telcos will seriously struggle to break even. You are giving them license without providing infrastructure, where does it work?”

The PSB guideline which was released in October 2018, potentially allows new players like MTN, Airtel among others to established payment service banks. Prior to the

guideline, the CBN prohibited mobile network operators from providing mobile money service.

With the new guideline, MNOS, retailers, mobile money operators and banking agents with sufficient capital – about $14 million – may apply to become a payment PSB, which can provide payment services and collect deposits that can be invested in government securities or placed on deposit with a bank. They are however excluded from providing credit or insurance products.

To get a banking license requires rigorous process therefore takes a lot of time. However, depending on the jurisdiction, there are common requirements for obtaining a financial services license from any central bank in the world. These include a business plan, capitalisation, key individuals (including a board of directors and management team); IT systems (compliance, reporting, backend and frontend); correspondent and banking relations.

MTN, for instance, ticks all the boxes, still experts say the company which commands gigantic resources thanks to its recent listing on the Nigerian Stock Exchange (NSE), will struggle. A GSMA report makes the point that mobile money requires heavy investment in operational expenses for years before becoming profitable.

Even at the IT level, telcos are already battling for survival as inadequacy of the infrastructure take its toll. Recently, MTN had to restrict over 46.5 million subscribers from Globacom network from calling the former lines over an alleged N10 billion interconnect fees owed by the Nigerian telecom provider. Interestingly, Glo also wants to get a mobile money license.

Payment infrastructure includes hardware, software, secure telecommunications network, electricity and operating environments that used to manage and operate payment system.

At the basis, the telcos will need the epileptic power situation in the country to be fixed and the internet capacity to grow significantly and reach people in rural communities. The security problem in the country would also be a major challenge for the providers as agents would be reluctant to take up residents in communities where their lives are not guaranteed.

It should also be said that what works in one country may not work in another. In other words, that MTN and Airtel experienced successes in mobile money in other countries do not mean same will happen in Nigeria. For instance, countries like Kenya already have clearly defined legal framework for providers in the space, but the same is not the case in Nigeria. Here, the industry operates by guidelines issued intermittently by the CBN. Hence, there is an absence of a clear legal framework which breeds uncertainty thereby discouraging investors.

The major objectives of a good payment infrastructure are to improve speed, increase efficiency, and maintain the highest standards of security and resilience. While the involvement of MNOS will translate to significant growth in financial inclusion, a more sustainable long term approach will be to create provide infrastructure that also allows fintech startups and tech giants to be part of the space.