Commercial banks and PSBs clearly marked out by CBN regulations
By Jeph Ajobaju, Chief Copy Editor
Approval in Principle (AIP) has been given by the Central Bank of Nigeria (CBN) for MTN and Airtel to operate as Payment Service Banks (PSBs) in addition to their mobile telecom business of voice and data services.
Fintech stakeholders enthuse this will enlarge and strengthen financial inclusion as well as improve payment transfers across Nigeria.
But there is fear in some quarters that PSBs will compete with commercial banks (also called deposit money banks, DMBs) which rely on customer deposits to thrive.
Nairametrics argues that this is not really the case as banks and PSBs have very clear and distinct operational guidelines farmed out by the Central Bank of Nigeria (CBN).
CBN definitions
A PSB leverages technology and agency banking to mobilise deposits and facilitate transfers from unbanked customers in rural areas and any other location in Nigeria.
A commercial bank accepts customer deposits, grants loans and advances, invests in fixed income securities, and conducts other banking services prescribed by the CBN.
Purpose of PSBs
The CBN says the key objective of issuing PSB licences is
“To enhance financial inclusion in rural areas by increasing access to deposit products and payment/remittance services to small businesses, low-income households and other entities through high-volume low-value transactions in a secured technology-driven environment.”
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Operation of PSB
The CBN lists seven structures on which PSBs are to carry out their activities.
They are to operate mostly in rural centres and unbanked locations, with not less than 50 per cent physical access points in ‘rural areas’ defined by the CBN from time to time.
PSBs are to operate mainly in rural areas and locations where there are people without bank accounts. They are to have at least 50 per cent physical access points (which also means kiosk) in rural areas.
PSBs can have ATMs in some locations where they operate for customers to make cash withdrawals
What PSBs can do
By CBN guidelines, PSBs can
- Accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme.
- Carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria.
- Sell foreign currencies realised from inbound cross-border personal remittances to authorised foreign exchange dealers.
- Issue debit and pre-paid cards in their name.
- Operate electronic wallets.
- Render financial advisory services.
- Invest in FGN and CBN securities.
- Carry out other activities as may be prescribed by the CBN from time to time.
What PSBs cannot do
By CBN guidelines, PSBs cannot
- Grant any form of loans, advances, and guarantees (directly or indirectly).
- Accept foreign currency deposits.
- Trade in foreign exchange except for remittances.
- Underwrite insurance.
- Accept a closed scheme electronic value (e.g. airtime) as deposit or payment.
Paid-up capital
PSBs are to have a minimum share capital of N5 billion and to maintain a Statutory Reserve just like commercial banks.
The CBN can also require PSBs to maintain additional capital just as it does when it feels banks are at risk.
The CBN set a minimum capital adequacy ratio of 10 per cent for PSBs.
Dividend payment
PSBs can pay dividends provided they have
- Written off all expenses incurred before setting up the business (preliminary and pre-operational expenses).
- Met their minimum capital adequacy ratios.
- Met all matured obligations.
- Obtained CBN approval before making payments.
What PSBs can invest deposits in
Just like banks, PSBs can make use of customer deposits. Because customers may not always withdraw their money at all times, deposits can be invested in short term securities, giving PSBs an opportunity to make a quick profit.
However, the CBN stipulates that not less than 75 per cent of their customer deposits should be kept in treasury bills and other short term FG debt instruments at any time.
All funds in excess of a PSB’s operational float (the amount it needs daily to operate) should be deposited with commercial banks.
This means that PSBs actually complement banks since their deposits are placed with any bank of their choice.
In a nutshell
- A commercial bank can accept deposits from customers.
- A PSB can accept deposits from customers.
- A commercial bank can invest some of its deposits in short-term FGN or CBN instruments.
- A PSB can invest some of its deposits in short-term FGN or CBN instruments.
- A commercial bank can give out loans and advances.
- A PSB cannot give out loans and advances.
- A PSB should move excess funds to a commercial bank of its choice.