Difference Between Payment Service Banks and Deposit Money Banks (Commercial Banks)


Alt: = "photo showing POS machine and bundles of Naira notes"

Definitions

Payment Service Bank (PSB) is a type of bank allowed to leverage on technology and agency banking to mobilize deposits and facilitate transfers from unbanked customers in rural areas and any location where they exist in an economy without credit risks and foreign exchange operations.

Deposit Money Bank otherwise known as commercial bank is a class of bank which deals in money and credit and which receives deposits from the public and from organizations, some of which are payable on demand.

Difference Between Payment Service Banks and Commercial Banks

Payment service banks are distinctively different from commercial banks by their functions, financial obligations and investments, although they do have some similarities. The following explain the differences between PSB and DMB

1. Loans: Payment service banks are not allowed to offer loans or credit facilities, guarantee to their customers — they can only receive deposits. While Deposit Money Banks mobilize credits by accepting deposits from the public and offer same to customers in form of loans for business project and charges interests on the credit facilities.

2. Capital base: PSB is expected to have a minimum share capital of N5 billion and to maintain Statutory Reserve like Deposit Money Bank. However, Deposit money bank is required to have minimum capital base of N25 billion.

3. Service distribution: According to the CBN guidelines, PSBs are licensed  “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.” Although, they are allowed to operate in the urban areas, they are expected to have 50% rural concentration of their operations. On the other hand DMBs are not regulated in this regard. 

4. Foreign exchange: PSBs are not allowed to trade in foreign exchanges except for remittances. While Commercial banks are allowed to trade in foreign exchange, facilitate international trades and remittances.

5. Insurance: Payments Service Banks are also not permitted to issue insurance products unlike Deposit Money Banks

6. Card issuance: PSBs can issue debit, prepaid cards only, while DMBs can issue credit, debit and prepaid cards

7. Infrastructure: Deposits Money Banks mostly leverage on technologies, agency banking and mobile money to deliver their services. Commercial banks combine the aforementioned with the traditional banking system.

8. Deposits Management: PSBs are permitted to invest customers deposits only on short term securities of which they are mandated to keep not less than 75% of the deposit they collect in treasury bills and other short term Federal Government debt instruments at any point in time. CBN also stipulates that all the funds in excess of a PSBs operational float (the amount it needs daily to operate) should be deposited with deposit money banks (commercial banks).

Read also: Functions of Payment Service Banks (PSBs)

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