Data & Financial Inclusion | |
Data & Financial Inclusion | |
3292 VIEWS | |
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Monday, July 29, 2019 / 11:33AM / By FDC
Research
Financial
inclusion implies that the general public has access to useful and affordable
financial products and services that fulfill their needs.6 Examples of such
products and services include: payments, savings, credit and insurance. The
Banking Association of South Africa defines financial inclusion as, “the access
and usage of affordable and quality financial products by the unbanked adult
population”.
Approximately
33% of adults (1.7 billion) are unbanked globally. Nigeria falls above this
trend with over 50% of the adult population remaining unbanked. The majority of
these affected individuals would attribute their financial exclusion to the low
availability of banks, high transaction costs and challenges associated with
accessing funds.
In October
2018, the Central Bank of Nigeria (CBN) introduced regulations and guidelines
for the licensing and operations of payment service banks (PSBs) in an effort
to leverage technology to promote financial inclusion. PSBs are banks whose
operations are limited to transactions involving deposits, withdrawals and
money transfers.
They are not
allowed to provide credit facilities and participate in forex trading unlike
the traditional banks. The PSB license is usually granted to mobile network
operators (telcos), mobile money operators, supermarkets and the agents of
traditional banks. Despite the introduction of several initiatives by the CBN,
such as, microfinance banking, agent banking, know-your customer (KYC)
requirements, and mobile money operators, the rate of financial inclusion
remains low in Nigeria. The telcos present an opportunity to buck this trend.
Leveraging the telcos as PSBs will not only grant the unbanked public increased
access to financial services, but will also ease their access to funds. MTN
Nigeria has taken the lead to secure a PSB license from the CBN.
As Nigeria’s
leading telco, with over 58 million subscribers, MTN is targeting between 40
million and 60 million people in the unbanked adult population.
Levers for
Successful Operation of Telco PSBs in Nigeria
Leveraging
existing capabilities and increasing in financial access points
The most
obvious lever telco PSBs have to decrease the unbanked population is their
large customer base, the telcos could use their existing finTech capabilities
to increase the number of adults that are granted access to simplified, quality
and affordable financial services. When paired with another goal of the CBN –
increasing access points to financial services – telcos really shine. A lack of
infrastructure has constrained banks from setting up physical branches in rural
areas. With mobile devices as the primary access point for PSBs, telcos could
ease access for depositors, improving the customer to access point ratio.
Low service
costs
PSBs are
also likely to have lower charges compared to the deposit money banks, as they
compete to gain increased market share. Findings from a KPMG-UBS study indicate
that the cost of effecting a transaction on a mobile device is half the cost of
internet banking, 13 times cheaper than ATM banking, and 43 times cheaper than
branch banking.10 Increasing competition for market share amongst the telcos
would drive down service costs. This is similar to what Nigeria has experienced
with the cost of mobile phone credit dropping as more players have joined the
market.
Narrow range
of services
The limited
services offered by PSBs would improve their operating efficiency. For
instance, the administrative bottlenecks associated with some services
including provision of credit facilities and forex trading would be absent. Meanwhile,
Telco PSBs could attract a number of account users as they currently loan
airtime to their subscribers. This would increase the proportion of unbanked
adult population absorbed into the financial system.
The Role
of Payment Service Banks in Kenya
In March
2007, Safaricom, Kenya’s leading mobile operator, launched M-Pesa. By 2009, 40%
of Kenya’s adult population used M-Pesa services.11 The platform has been able
to ensure easier remittance of funds, safe conduct of business transactions and
reduction of transaction costs in Kenya.12 Based on the 2016 FinAccess survey,
only 17% of Kenyan adults remain financially excluded.13 The M-Pesa started
operations with money transfers through SMS texts. It later advanced to
electronic money transfers (deposits and withdrawals). The platform also
involves agents who take delivery of funds. Today, the population of M-Pesa
agents is 40-fold the number of bank ATMs in Kenya. The key drivers of this
mobile payment system include the ease of opening an account, simplicity of
use, affordability, high literacy rate, and high penetration of mobile phones.
Challenges
Ahead for Nigeria
Quality
& Reliability of Service Delivery
The members
of the public would assess the quality and reliability of services provided by
Telcos (call services, most especially) before signing up for the new financial
services. This challenge was overcome in Kenya where Safaricom launched the
M-Pesa with less than 500 participants to serve as testing ground for the new
service before it could be made public. At first, there were logistic issues
which later subsided and the new service (M-Pesa) was met with wholesome
acceptance by the majority of the people. Safaricom benefitted greatly from
strong public confidence in the quality and reliability of its services
overtime.
High level
of illiteracy among target population
Poor
adaptability to modern technology by rural residents, who constitute the bulk
of the unbanked public, could limit the success of PSBs, despite the increasing
traction of the telcos. By implication, the services of these companies may not
be recognized beyond rendering call services by a majority of the uneducated
unbanked adult population. Kenya’s Safaricom invested in wide-ranging publicity
and outreach to create awareness and educate people on the usefulness of the
new service (M-Pesa) and how to carry out financial transactions using their
mobile phones.
Next steps
on Nigeria’s financial inclusion journey
Financial
inclusion does not only involve providing access to financial services but also
ensuring the appropriate and regular usage of such products. There is therefore
the need to educate and sensitize the general public on the benefits associated
with banking services. This would go a long way in encouraging the unbanked
public to try PSBs. Nigeria could draw useful lessons from the Kenyan
experience, which has achieved a high rate of financial inclusion through the
successful operations of its PSBs. The emergence of Telco PSBs would support
the commitment of the CBN towards achieving 95% financial inclusion rate by
2024.
Related News
1.
CBN Proposes N5bn Capital Requirement For Payment
Service Banks
2.
CBN Publishes Guidelines For Licensing and Regulation
of Payment Service Banks in Nigeria
3.
FSDH Holds Roundtable on “Women, Money and Building a
Financial Legacy” with Dolapo Osinbajo
4.
First Country Office of Western Africa (WBAF) opens
in Ghana
5.
EFInA Hosts Discourse on Increasing Opportunities for
Women in Agent Banking in Nigeria
6.
AfDB and Partners Launch New Fund To Boost Digital
Financial Inclusion
7.
Firstbank Demystifying Financial Inclusion with Xplorefirst
8.
Pre-University FREE Python and Introductory Machine
Learning Classes
9.
CBN Partners Women’s World Banking Group To Explore
Deepening Financial Inclusion For Nigerian Women
10. United Capital makes Giant Strides for Financial
Inclusion
11.
EFINA Committed to Nigeria’s Financial Inclusion by
2020
12. Investment One Launches *5678# USSD Code to Drive
Financial Inclusion in Nigeria
13. NIMC Extends Diaspora Enrolment to United Arab
Emirates and United Kingdom
14. Ecobank Drives Financial Inclusion; Launches
EcobankPay Zone At Mushin