Following the rejig of Nigeria’s Guidelines for the Licencing and Regulation of Payment Service Banks in Nigeria 2020 (the “Payment Service Bank Guidelines”), a vista of business opportunity opens to retail businesses in the payment service banking model.
Introduction
We examined the licencing regime of payment service banks in our previous licencing regime services here.
The scope of this commentary is limited to unveiling opportunities for a retailer such as supermarkets, and courier or logistics brands in Nigeria’s payment service banking.
Instructively, the retail business is not limited to products but explicitly includes all end-user services.
The Payment Service Bank Guidelines favours the end-user approach when it named retail chains such as supermarkets, downstream petroleum marketing companies, postal services providers and courier companies among its eligible stakeholders[1].
A payment service bank is permitted to carry on the business of:
- deposit-taking from individuals and small businesses
- payments and remittances including inbound cross-border personal remittances and sale of foreign currency realized from such transactions to authorized foreign exchange dealers
- issuance of EMV (Euromoney MasterCard and Visa) cards in its name
- Wallet accounts and financial advisory services, and
- to invest in FGN (federal government of Nigeria) and CBN (Central Bank of Nigeria) securities.[2]
All the same, the Payment Service Bank Guidelines did not define small businesses.
Uche Mekwunye[3] posits that CBN’s Monetary Policies Circular No. 22 of 1988 defined SMEs as enterprises with an annual turnover not exceeding five hundred thousand Naira.
The Vanguard reports that the small and medium Enterprises Agency of Nigeria (SMEDAN) defines small businesses as entities having employees between ten and forty-nine with an asset base (excluding land and building) of between five million and fifty million Naira.
As a matter of fact, CAMA (Companies and Allied Matters Act) 2020 describes small businesses:
- as a private company
- whose turnover is not more than one hundred and twenty million Naira or such amount as may be fixed by the Commission from time to time
- its net assets value is not more than sixty million Naira or such amount as may be fixed by the Commission from time to time
- none of its members is an alien, a government, government corporation or agency or its nominee; and
- if a company with a share capital, the directors between themselves hold at least fifty-one percent of its equity share capital.
The centrality of payment service bank lending to small businesses would become more evident as we progress. Lagos Business School’s Sustainable and Inclusive DFS asserts that Nigeria’s Payment Service Bank is modelled after payment service banking in India and lack of credit financing dwindles its profitability[4].
Combining customary banking services with the shopping experience should increase financial inclusion and productivity.
Supermarkets could adopt the agency banking model under payment service banking and provide their customers with more convenience and enhanced payment options.
Imagine Iya Abo banking while shopping at Market Square or Shoprite, leading retail brands in Nigeria. Or paying her wards’ school fees or personal income taxes on remita – a Nigeria government’s web-based payment portal – while buying groceries and beverages.
Payment service banks are modelled to operate in rural areas and serve unbanked locations targeting financially excluded persons, with at least twenty-five percent of financial service touch-points in rural areas.
Admittedly, twenty-five percent of financial service touch-points in rural areas are outside the supermarkets’ or courier companies’ customer segmentation.
An apparent constraint against the CBN’s intention and hope that payment service banking will assist it in achieving the desired financial inclusion threshold in 2030.
We strongly think Nigeria’s payment service banking should have been modelled after India and Kenya’s payment service providers.
Central Bank of Kenya awards payment service providers (PSP) licences on a business need basis and not on broad categorization.
In Kenya, Safaricom Plc and Finserve Africa Limited (Finserve) as a PSP are allowed to issue, process, store, send and facilitate mobile money payment.
KCB also allow Finserve to provide a platform that facilitates payment processing on behalf of merchants.
Another Kenyan PSP is Wakandi Kenya Limited which is allowed to provide a platform that facilitates the processing of payments on behalf of SACCOS and other Informal Financial Groups.
Some experts have argued that payment service banks in Nigeria being unable to give loans and other guarantee services may reduce their profitability.
This is arguable, yet market-creating innovations are critical to product and service development.
The CBN must innovate around the Indian payment service banking model instead. Social embeddedness is more influential than institutional authorities in Nigeria.
The CBN’s innovative approach to regulating technology must admit the ageless influence of social embeddedness and work to latch the influence of social embeddedness to the financial inclusion cart.
A courier company or supermarket may never have twenty-five percent of financial service touch-points in rural areas.
We submit that the CBN should permit a supermarket, courier or logistic brand to operate and be modelled closely to payment service providers in Kenya. Niche services only and not a broadened service framework.
Conclusion
Wakandi Kenya Limited, for example, is allowed to provide a platform that facilitates the processing of payments on behalf of SACCOS and other Informal Financial Groups. Wakandi Kenya does not perform any other permissible businesses of a Kenya PSP.
Payment service banking is critical to Nigeria’s revised 2030 financial inclusion agenda. We submitted that the CBN must unbundle payment service banking to make it attractive to Nigeria’s retail businesses.
Unbundling payment service banking would include licencing requirements, box-ticking supervisory regimes with no enhanced prudential relevance, compliance requirements and services.
It is needless to expect a GoKada, GiG Logistics, Market Square, Shoprite, or Prince Ebeano Supermarket, major retailers in a less regulated market, to operate in a strict regulatory environment as envisaged under the Payment Service Bank Guidelines.
[1] R. 5 (iii) and (iv), Guidelines for the Licencing and Regulation of Payment Service Banks in Nigeria 2020
[2] R. 4.1 (i) to (viii), Guidelines for the Licencing and Regulation of Payment Service Banks in Nigeria 2020
[3] https://www.mondaq.com/nigeria/directors-and-officers/757432/small-and-medium-scale-enterprises-in-nigeria–an-overview-of-initial-set-up#:~:text=In%20Nigeria%2C%20the%20Central%20Bank,Naira%20(N500%2C000) <Accessed on 09.01.2023
[4] https://sustainabledfs.medium.com/payment-banks-all-you-need-to-know-about-nigerias-newest-payment-service-category-575d43b01330 Accessed on 09.01.2023
