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| Source: citypng.com |
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.
The Central Bank of Nigeria issued an approval in principle to two of the nation’s largest telecommunication firms, MTN Nigeria and Airtel Africa to operate as Payment Service Banks (PSB), Momo PSB and Smartcash PSB respectively. This is in addition to other PSBs already in operation in Nigeria. In August, 2020, Central of Nigeria issued final operational approval to three payment service banks, namely: 9 PSB, Mastermoney PSB and Hope PSB. See the list of CBN approved PSBs in Nigeria.
Needs for PSB in the Economy
According to the Apex Bank, the key objective of issuing PSB licenses is to boost financial inclusion especially in rural areas and facilitate transactions.
“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.”
How Payment Service Banks Operate
Payment Service Banks to some extent operate distinctively from how deposits money banks operate.
They are not in competition with deposit money banks (commercial banks).
According to the CBN, there are 7 detailed structures PSBs are expected to perform in carrying out their activities.
“Operate mostly in the rural centres and unbanked locations, with not less than 50% physical access points in ‘rural areas,’ as defined by the CBN from time to time."
This suggests PSBs are expected to operate in rural areas and locations where you have Nigerians without bank accounts. They are also expected to have at least 50% physical access points (which also means kiosk) in the rural areas.
PSBs can also have ATMs in some of the locations that it operates. This allows its customers to make cash withdrawals.
What PSBs can Do (Permissible)
PSBs can accept deposits and allow their customers to also operate savings accounts. Their customers include individuals and small businesses.
PSB can also facilitate cross border remittances using all the channels available within Nigeria.
They can also issue debit and prepaid cards and also operate digital wallets
They can also invest some of the deposits they collect in FBN and CBN Securities.
PSB Financial Obligations
Paid-up Capital: PSBs in Nigeria are expected to have minimum share capital of N5 billion and also maintain a Statutory Reserve like Deposit Money Banks. The CBN from time to time can also require that the PSBs maintain additional capital, a move usually taken by the Apex bank to prevent banks collapse. The CBN also set a minimum capital adequacy ratio of 10% for PSBs.
Dividend Payment: PSBs can also pay dividends to their shareholders, provided they have written off all the expenses incurred before setting up the business (preliminary and pre-operational expenses). They should have also met their minimum capital adequacy ratios and also met all matured obligations. Finally, they should also obtain CBN approvals before making payments.
Investments They can Make with the Deposits
Just like deposit money banks, PSBs also have opportunity to invest customers deposits in profit yielding investment, because customers may not always come to withdraw their money at all times. The deposits can be invested in short term securities giving the PSBs an opportunity to make a quick profit. PSBs are not allowed to give loans to individuals or businesses.
Read also: Advantages and Disadvantages of Commercial banks in Modern Economy
However, the CBN stipulates that not less than 75% of the deposit they collect must be kept in treasury bills and other short term Federal Government debt instruments at any point in time.
The 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).
This means, whilst many consider them a competition to banks, they actually are meant to complement the efforts of banks, since their deposits should also be placed with any bank of their choice.