In­dia’s short­com­ings in PSB li­cenc­ing hold lessons for Nige­ria

Business Day (Nigeria) - - FIN TECH - FRANK ELEANYA

The era of the Pay­ment Ser­vice Banks (PSBS) is about to kick off in Nige­ria. Al­most ev­ery­one ex­pects it to fi­nally put to rest the chal­lenges with fi­nan­cial in­clu­sion and the new op­er­a­tors to pro­vide ac­cess to fi­nan­cial services to the over 60 mil­lion bank­able Nige­ri­ans who are un­baked.

But com­pa­nies vy­ing for the licenses would like to take a step back to con­sider the long term vi­a­bil­ity or risks re­peat­ing the mis­takes of some com­pa­nies in In­dia.

The re­lease by the Cen­tral Bank of Nige­ria (CBN) of the up­dated and re­viewed guide­lines for li­censees and the an­nounce­ment it has is­sued the li­cence to three in­sti­tu­tions last week set the wheel in mo­tion. Two of the com­pa­nies set to re­ceive the li­cence are led by tel­cos (Globa­com and 9Mo­bile) and one by a pay­ment firm (Uni­fied Pay­ments).

The fresh hurdles added in the re­vised guide­line could mean the at­trac­tive­ness of mo­bile money services would wane and may even raise ques­tions about the sur­vival of po­ten­tial li­cencees.

In­dia vs Nige­ria

The PSB model Nige­ria is rolling out was bor­rowed - well, most of it - from In­dia’s guide­lines is­sued in 2014.

A close study of the guide­lines from both coun­tries would eas­ily re­veal the sim­i­lar­i­ties. In some cases, the dif­fer­ence is in the word­ing of the pro­vi­sion or the re­arrange­ment of the words. The CBN has also in­tro­duced a few pro­vi­sions that are not in the In­dian doc­u­ment.

To start with, aside from shar­ing the same ob­jec­tive of im­prov­ing fi­nan­cial in­clu­sion, both guide­lines re­quire PSBS to in­vest 75 per­cent of cus­tomers’ de­posit bal­ances in el­i­gi­ble gov­ern­ment se­cu­ri­ties and trea­sury bills.

Also, the N5 bil­lion ($12.9 mil­lion) cap­i­tal re­quire­ment by the CBN is also sim­i­lar to In­dia’s INR 100 Cr ($ 14.04 mil­lion).

And just like Nige­ria, PBS or Pay­ment Banks as they called in In­dia are not per­mit­ted to give loans or is­sue credit cards.

How In­dia’s model has fared

Fol­low­ing its an­nounce­ment of the guide­lines in 2014, the Re­serve Bank of In­dia (RBI) said it re­ceived 41 ap­pli­ca­tions. Af­ter vet­ting the ap­pli­ca­tions 11 com­pa­nies were li­cenced.

Like many firms in Nige­ria are bound to do, the ap­pli­cants in In­dia looked at the in­no­va­tive model with op­ti­mism and tried to build a sus­tain­able PB busi­ness with a glass half full mind­set.

The PBS saw huge po­ten­tial to serve the 190 mil­lion un­banked adults, as en­vi­sioned by the RBI.

As of March, five of the ini­tial li­cencees are not op­er­a­tional for mul­ti­ple rea­sons. RBI’S re­cent report on trends and progress of Bank­ing 201819 in­di­cated that the op­er­a­tional pay­ments banks showed net losses of INR 626.8 Cr ($87.8 mil­lion) for FY19.

As Sak­shi Chadha, Reg­u­la­tory Man­ager, Asia for GSMA put it “ini­tial en­thu­si­asm soon gave way to in­ter­pre­ta­tion, im­ple­men­ta­tion and early com­pli­ance-re­lated chal­lenges.”

The sore foot

Top among the list of frus­tra­tion for In­dian PBS was the no-lend­ing pro­vi­sion. Since their fo­cus mar­ket is peo­ple liv­ing in ru­ral In­dia, many of whom lack ac­cess to credit, it meant that they could not ful­fill this de­mand de­spite de­vel­op­ing a healthy re­la­tion­ship with them.

Nige­rian PSBS are likely to face a sim­i­lar sit­u­a­tion. In­for­mal traders dom­i­nate the ru­ral ar­eas and they usu­ally need money to ei­ther buy new stock or ex­pand their busi­nesses.

How­ever, the Nige­rian bank­ing sys­tem pro­vides ac­cess to credit to only two per­cent of the pop­u­la­tion, ac­cord­ing to the CEO of Dun & Brad­street Credit Bureaus, based in the Do­mini­can Repub­lic, Miguel Lle­nas. He was speak­ing at a 2018 credit bureau con­fer­ence in La­gos, Nige­ria.

The CBN has had to force banks to ex­pand ac­cess with a 60 per­cent lend­ing to de­posit ra­tio tar­get. Not­with­stand­ing, not many banks have opened up their loan services to small busi­nesses. Dig­i­tal lend­ing firms say they have seen a de­mand surge but the high rates they of­fer is a big bar­rier.

“We be­lieve that the fac­tors cited above con­trib­uted to­wards cur­tail­ing PBS from re­al­is­ing their true po­ten­tial of cater­ing to the un­banked in In­dia,” said Chadha. “PBS seem to have been at the re­ceiv­ing end of a reg­u­la­tory ar­bi­trage where their of­fer­ing is no dif­fer­ent from a pay­ments ag­gre­ga­tor (or the fin­techs pro­vid­ing pay­ment so­lu­tions) but with com­par­a­tively strin­gent reg­u­la­tory and com­pli­ance re­quire­ments.”

For the mar­ket to be at­trac­tive, PSBS need the po­ten­tial to tap into the un­der­taker and un­banked credit mar­ket.

PSBS also need more than 25 per­cent of the cus­tomers de­posit to make their mo­bile money of­fer­ings at­trac­tive and still make their op­er­a­tions prof­itable. Hold­ing back as much as 75 per­cent of their cash in non-vi­able as­sets does not give them the room to be cre­ative in widen­ing the fi­nan­cial in­clu­sion net.

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