Wednesday, November 10, 2021 / 09:46 AM / by United Capital Research / Header Image Credit: iStock

In continuing with our conversation on Payment Service Banks (PSBs),today's series looks to examine the impact of CBN's recentapproval-in-principle for major telecoms (MTNN and Airtel) to establish subsidiariesto conduct PSB operations on banks' profitability. Since the CBN grantedapprovals in principle to major telecoms, there have been murmurs regarding thepotential impact on the earnings of more traditional and orthodox banks. Thereappears to be a general perception that these new entrants could potentiallyshrink the pie and halt the growth in banks' non-interest digital/electronicfees.

Contrary to popular opinion, the rise of Payment Services Banks, digitalservices, and agency banking across the country, especially in less accessibleareas, will continue to support the non-interest income for banks in 2022 andbeyond. Going forward, we expect non-interest income will be supported byincreased partnerships between banks and other fintech and telecommunicationoperators, with banks benefiting from the increased reach of fintech and PSBsrelying on mobile operators. This is because the regulatory framework forproduct offerings for PSBS plays in the hands of banks, as the CBN limits thescale of activities in which PSBs can offer. This implies that banks shouldbenefit in the long run as these customers move up the financial ladder anddemand more sophisticated products. That said, while we expect currenttraditional bank customers to include use of PSB platforms into their financialtransactions, we expect the overall benefits to outweigh the costs fortraditional banks.

Furthermore, evidence gathered by a 2019 GSMA report seems to supportour stance, showing balanced flows between mobile money and banks in select SSAcountries. The value of bank account-to-mobile money transactions accounted for10.5% of outgoing transactions in 2019 due to increased interoperabilitybetween mobile money services and banks, from circa 5.0% in 2017. Thesefindings suggest that mobile money complements the formal banking sector whilealso meeting the needs of entirely new customer segments, includingtraditionally underserved and cash-reliant customers.

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