Banks & mobile money operators must collaborate to drive financial inclusion, says Airtel SmartCash

In depth
This article is part of the dossier: Digital Africa

By Temitayo Lawal
Posted on Thursday, 14 July 2022 16:58, updated on Monday, 12 September 2022 18:29

An employee prepares to attend to customers inside a mobile phone service centre operated by Airtel Kenya in downtown Nairobi, Kenya July 15, 2021. REUTERS/Thomas Mukoya
An employee prepares to attend to customers inside a mobile phone service centre operated by Airtel Kenya in downtown Nairobi, Kenya July 15, 2021. REUTERS/Thomas Mukoya

In April 2022, Airtel Africa was granted a licence to operate as a payment service bank (PSB) in Nigeria – nearly four years after initial guidelines around the establishment of PSBs were published by the Central Bank of Nigeria (CBN).

Airtel, with over 57.6 million subscribers recorded in May this year, is the second-largest telecom operator in Nigeria, according to data from the Nigerian Communications Commission (NCC).

However, significant delays in receiving the required licences may have prevented some of Nigeria’s unbanked population – around 36% of an adult population of approximately 106 million people – from accessing financial services, especially when financial inclusion targets are high on the government’s agenda.

Any regulatory hurdles, however, should be reframed as the CBN, “protecting the country and safeguarding its economy“, says Muyiwa Ebitanmi, CEO and MD of SmartCash Airtel Africa’s mobile money subsidiary, adding that the company works with all regulators in Nigeria to ensure that the business complies with all regulatory guidelines.

Although Ebitanmi paints a picture of collaboration and mutual respect between PSBs, traditional banks and the Central Bank of Nigeria, it hasn’t always been this way, however.

Even though some are fighting back, for now, most PSBs abide by traditional bank rules

So worried were traditional banks that mobile money and PSB providers would erode market share, it was widely believed that the Central Bank of Nigeria (CBN) delayed issuance of PSB licences to major telecoms companies because of lobbying from the banking sector.

Just last month, Momo Payment Service Bank Limited (Momo PSB), the mobile money subsidiary of MTN Nigeria sued 18 Nigerian banks for “erroneously” transferring a sum of N22.3bn ($53m), which it claimed it had in its settlement account, to 8,000 bank customers.

The PSB had to shut down its operations for a day to prevent further liability.  This happened just a month after Momo was officially launched in May this year.

Collaboration for financial inclusion

Even though some are fighting back, for now, most PSBs abide by traditional bank rules, as they piggyback off existing infrastructure in place to serve the incumbents. However, is it necessary – or even possible – for PSBs to create their own infrastructure that weans them off traditional banks’ dependence and disrupts the current order?

That’s not the aim, Ebitanmi says. “[We will continue to] collaborate with the banks to develop the financial services industry, help reduce the population of Nigerians that are financially excluded and to significantly develop the payment system.”

“We believe that we all complement each other and hence collaboration is what will empower the Nigerian populace and help to grow the economy,” he says.

PSB guidelines issued by the CBN in 2018 state mobile money operators are limited to providing savings accounts or e-wallets, accepting deposits from individuals and SMEs, and issuing debit and prepaid cards. They are unable to take part in core banking activities including loans, advances and guarantees, foreign currency deposits, foreign exchange dealings and insurance.

SmartCash PSB will be able to offer payment products, transacting products, remittance products and savings products, Ebitanmi says. This means that if PSBs work to bring in more unbanked people into the formal financial fold, banks can leverage this for loans and other services that PSBs do not offer and vice versa.

SmartCash has already developed a business case for these conditions

Another requirement of the PSB licence is that PSBs must cite 25% of their mobile money operations in the rural areas. This is largely because the apex bank believes that the telcos have the last mile infrastructure in these areas and are well positioned to help reduce financial exclusion.

Ebitanmi says the current target for SmartCash is to activate their service points at close proximity to the unbanked population in more rural areas, to help them familiarise themselves with their USSD code and app, and as a consequence, reduce financial exclusion.

“We will focus on financial literacy because we see that as an opportunity to get more people into the financial services space,” he says.

Business case

Nevertheless, 84.6% of Nigerians live below the $1.90 poverty line and live in rural areas according to the World Bank, so will they be able to afford PSB products in the first instance?

“SmartCash has already developed a business case for these conditions, and we believe that the rollout of this comprehensive plan will not only make the PSB viable but also stimulate a multiplier effect in the financial system and the economy,” Ebitanmi says.

He adds that the PSB’s strategic intent is to bridge the financial inclusion gap by creating simple-to-use products and services targeted at rural dwellers. They expect these products and services, which are available to anyone with a mobile phone, to influence lifestyle changes, such as the adoption of digital payment systems, reduction of the volume of physical cash transactions in the economy, and ultimately help grow mobile money transactions astronomically. This is meant to create a lot of opportunities for them.

“The distribution network that we have creates enough opportunity for us to be able to run a viable business either in the rural communities or the urban cities. The interplay between movement of money between these two different geographies in the country will create a sufficient business case that makes this [the PSB] very viable,” he says.

“We believe that when we can significantly reduce the percentage of Nigerian adults that are financially excluded, we will gradually begin to grow the economy and then reduce unemployment and poverty levels in the country,” he says.

Digital future

Last year, fintechs attracted over 60% of the nearly $5bn funding realised by tech start-ups across Africa, according to TechCrunch. However, despite their proliferation, many Africans still complain about unreliability and inability to crack financial exclusion or even sustainably compete with International Money Transfer Operators (IMTOs) that charge a lot for inbound foreign remittances.

Even so, Ebitanmi says they see a lot of opportunity to collaborate with existing fintechs and MTOs as well. “The market is big enough and presents the opportunity to digitalise payments, minimise cash transactions and reduce the cost of offering financial services.”

He adds that they will also need to collaborate to be able to crack “inbound remittances and other use cases that are being developed for customers in Nigeria, especially the ones who are financially excluded and in the rural areas.”

One of the successes of the Nigerian banking system is the Nigerian Interbank Settlement System (NIBSS), which is essentially responsible for the near-instant transfers of funds in Nigeria. A similar system – the Pan-African Payment and Settlement System (PAPSS) – was launched in Africa to enable fast and seamless payments across the continent.

We are actively involved with e-Naira and will continue to promote it to our customers

“PAPSS is critical to the evolution of the next level payments in Africa as it will help facilitate international remittance within the regional countries in Africa; make it easy for cross-border businesses to thrive faster; and create an opportunity for other businesses to come to and leverage PAPSS for transactions in Nigeria,” says Ebitanmi.

From electronic payments to digital cash, Ebitanmi says the strategic intent of the CBN for the e-Naira aligns with SmartCash’s mandate to reduce cash in circulation.

“We are actively involved with e-Naira and will continue to promote it to our customers, especially in the rural areas, to educate them on the need to create a wallet with their phones and keep their money in the digital form because it is safer, secure and easy to use,” he says.

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