Telecom operators (telcos) and financial technology companies (fintechs) are expected to reduce the customer base of money deposit banks in the retail space with the anticipated implementation of Payment Service Banking. 

Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN), had said during the presentation of his five-year plan that the apex lender would leverage more unstructured supplementary services database (USSD), as well as mobile and agency banking, to drive financial inclusion in the country.

Following the announcement of this intent, financial analysis firm Moodys, believes the entrance of new players— telecom operators and fintechs, will reduce efforts by commercial banks to expand their financial inclusion drive through their mobile banking platforms. 

Moodys notes that the CBN had in October 2018, issued guidelines on PSB licenses which enables non-banking institutions to operate accounts independently of established banks.

“PSBs will challenge incumbent banks because of their ability to develop their own digital platforms, hold deposits and make transfers without partnering with banks. These new entrants will compete with banks, especially on retail banking products, which will negatively pressure banks’ consumer business unit margins,” the Moodys analysis says. 

Once the initiative comes into force, subscribers to MTN, Globacom and 9mobile, will be able to deposit and transfer money using their network operators. 

Moodys notes that most of the banks in the country, will not be able to withstand this competition, with the exception of Access bank, United Bank for Africa (UBA), Guarantee Trust Bank (GTB), First Bank of Nigeria )FBN) and Zenith bank.

“Large telecom companies will be able to leverage their large customer bases, threatening banks' strategies to mobilise retail deposits via mobile-phone-based platforms, although banks will be able to keep deposits where wallets are held in their trust accounts. Fintechs may also create alternative distribution and payment channels that risk eroding banks’ payment services' fee income,” the analysis notes.

“We expect Nigeria's large banks – Access Bank Plc (B2 stable, b32), Zenith Bank Plc (B2 stable, b2), First Bank of Nigeria (B2 stable, b3), United Bank for Africa Plc (B2 stable, b2) and Guaranty Trust Bank Plc (B2 stable, b2) – to be better positioned to defend their market shares because they have larger customer bases and large technology budgets.” 

As for the capacity of the fintechs to take advantage of the opportunity, Moodys notes that these companies are much smaller than the banks and do not have a know-your-customer (KYC) database. 

They would, therefore, have to go into partnership with banks to enjoy the benefits of the increased market space. The firm also observes that certain commercial financial institutions have already positioned themselves for this competition by buying robotic and tech services from the fintechs.

Based on figures from the Nigerian Communications Commission (NCC), MTN had 43.89 million internet subscribers in December 2018; Airtel had 29.75 million, Globacom had 28.05 million; and 9mobile had 9.91 million. 

However, total subscribers for MTN in May was 54 million; Globacom had 43.3 million in November, 2018; and Airtel had 43.1 million.

It is those customers who do not use the Internet that the commercial banks, telcos and fintechs will be locked in a cut-throat competition for in the coming years.

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