CBN Approves Three Payment Service Banks: What It Means For SMEs

Three payment service banks were recently granted final approval by the Central Bank of Nigeria (CBN). The apex bank which made the announcement on Friday the 28th of August via twitter confirmed that Hope PSB, 9 PSB, and Money Master PSB have been granted approval after complying with licensing requirements.

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A Payment Service Bank (or Payment Bank), are like traditional deposit banks but with a limited functionality. It is a new category of bank that can carry out most banking operations except credit risk and foreign exchange operations. They can’t provide loans or issue credit cards. These banks operate mostly digitally (on mobile phones and other devices using internet) rather than through physical branches.

In addition to accounts (current and savings), PSBs can also offer payments and remittance services, issue debit and prepaid cards, deploy ATMs and other technology-enabled banking services.

You would recall that the Central Bank of Nigeria introduced the National Financial Inclusion Strategy (NFIS) in 2012, which seeks to ensure that over 80 per cent of the bankable adults in Nigeria have access to financial services by 2020. It is in line with that objective that the Central Bank of Nigeria (CBN) released a proposed guidelines for the licensing of Payment Service banks in October of 2018 and this subsequent approval for their operation.

The idea for a payment service bank was borrowed by CBN from India’s Reserve Bank which came about the idea in a bid to reduce the number of Indian citizens without bank accounts.

But what advantage does this new bank category hold for small and medium enterprises in Nigeria?

While it is unfortunate that PSBs are by default not allowed to offer loans and other credit facilities, there are a few advantages that makes them valuable to SMEs:

  1. Easier Payments for SMEs – Small business owners know the inconvenience of doing business with traders and farmers in the remote regions of the country; if these PSBs become successful it would make it easier to conduct financial transactions with partners in the rural areas.
  2. Reduced Banking Fees – Typically PSBs are expected to offer small business owners various financial products at little or no charge. This would make it cheaper to carry out banking transactions and would help reduce the cost of financial operations on SMEs.
  3. More Payment Options for SMEs in Rural Areas – Small and Micro business owners are currently at a disadvantage since they are mostly abandoned by traditional deposit banks. But with the rural focus of payment banks, it is expected that SMEs in the rural areas would begin to enjoy more stress-free and convenient payment alternatives to traditional banks.

So, what do you think? would you get a payment bank account for your small business?

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