On 5th November 2021, MTN and Airtel confirmed, through their social media handles, the Approval-in-Principle (AIP) by the Central Bank of Nigeria (CBN) for Payment Service Bank (PSB) license. The approval is a step towards fulfilling their long-standing wish.
The telcos have never hidden their desire to get fully involved with financial services. The large population of their subscribers increased their interest to invest incorporate banking operations in the telecom industry. They plan to actualise this through MoMo Agent by MTN, and Smart Cash by Airtel.
At the 2021 Banking and Finance Conference, organised by the Chartered Institute of Bankers of Nigeria (CIBN), with the theme “Economic Recovery, Inclusion and Transformation: The Role of Banking and Finance”, Vice President Yemi Osinbajo said “More than 30 million Nigerians are excluded from enjoying financial services”.
This implies that much needs to be done. The AIP granted means telcos can bridge the gap in financial inclusion and deepen their hands in the banking sector. The telecom financial servicing process is simplified by making individual sim cards the prerequisite requirement for enjoying the service, since most people have access to mobile networks.
The move will pose a big challenge to banks whose basic requirements for normal financial transactions are described as costly, rigid, and somewhat unsatisfactory. Citizens have been enduring time-consuming process of creating accounts, queues at banks, service costs, service failures etc., because there are no options.
Telecom financial services will likely triumph more than conventional banks in that they may not require a bank account and physical presence of customers. Their services will be cost-effective, more reliable and will not discriminate beyond the requirements of owning a registered sim card. The major gains would be market efficiency, fiscal transparency and accountability.
Experts continue to emphasize the need to have a standard database of Nigerians. With this, the country will curtail the unregulated informal sector and tackle illicit activities. Despite Bank Verification Number (BVN) campaigns, many were not enrolled due to the lapses of conventional banking to reach a large percentage of people, especially those in rural areas.
Telecos will play a vital role in reducing the gap in financial inclusion and ensuring adequate policy implementation. For instance, the companies will provide a better database of users due to simplicity of enrollment, thereby widening the tax net and boosting revenue. It will also be easier to extend government incentives like loans and subsidies to the public.
Telecos and banks may decide to further partner to enjoy the benefits of market share. Telecos may move first due to a larger customer base, global reach and financial muscle. Banks and telecos will inevitably discover an avenue to cross-sell products to existing customers, through relationship-based product bundling and pricing that takes advantage of a reduced cost structure.
In the event such happens, banks that move first to collaborate with the telecoms will exploit their unique attributes to promote brands that evoke security and reliability, skills in credit management and distribution channels. They will also amortize their investments in online services since the new trend will be less costly and more efficient.
The digitization drive by telecos will help to reduce crime nationwide. Digital transfer means transactions can be traced and surveilled. This will tackle the transfer of monies used for criminal activities. The digital signature requirement will eliminate the menace of forgery, a factor that fuels corruption. Also, trading stolen commodities will be hard, since the payment will go through telcos.
Though capacity of telecos to break into the banking industry is doubtless, how they will cope with the challenges of the industry remains to be seen. It is very important to acknowledge that payment is only the beginning. The possibility of anything else happening depends on the telecos getting on their customers’ minds with safe and secure transactions.
If so, they will be better placed to go after credit management, deposits, and other banking products. They would be equipped to explore leases, insurance policies, and service contracts when they mature; making available event-linked product and service purchasing; arranging cash and savings reallocations and transactions, among others.
Should telecos gain the license to issue loans, how they will deal with irrecoverable loans and debts, and what the CBN expects of them in terms of reserve ratio will be intriguing. They must keep in mind that despite competitive edge, their products are vulnerable to hackers and scammers. In all, to attract millions of Nigerians, telcos must come up with easy-to-use but reliable banking services.
Lynda Nzenwa writes from the Center for Fiscal Transparency & Integrity Watch
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