CBN Update: Payment Service Banks cannot accept FX deposits or airtime as deposits/payments

In a recently released set of guidelines, the Central Bank of Nigeria (CBN) has stated that Payment Service Banks (PSBs) cannot accept foreign currency deposits or accept any closed scheme electronic value (e.g. airtime) as a form of deposit or payment.

The aforementioned and other reviewed guidelines are contained in a document released by the apex bank on its website under the title: “Guidelines For Licensing And Regulation Of Payment Service Banks In Nigeria”

This supercedes the initial document released in October 2018 on the same subject matter.

The apex bank reiterated that the key objective of setting up PSBs was to enhance financial inclusion by increasing access to deposit products and payment/remittance services to small businesses, low-income households and other financially excluded entities through high volume low-value transactions in a secured technology-driven environment.

The CBN, in collaboration with stakeholders launched the National Financial Inclusion Strategy (NFIS) on 23rd October, 2012 with a view to reducing the exclusion rate to 20 per cent by 2020.

However despite several initiatives including the Introduction of Microfinance banking, Agent Banking, Tiered Know-Your-Customer Requirements and Mobile Money Operation (MMO) in pursuit of this objective, the inclusion rate remains below expectation.

PSBs are expected to leverage on mobile and digital channels to enhance financial inclusion and stimulate economic activities at the grassroots through the provision of financial services.

Accordingly, PSBs are envisioned to facilitate high-volume low-value transactions in remittance services, micro-savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion and help in attaining the policy objective of 20 per cent exclusion rate by 2020.

Structure of Payment Service Banks

Payment Service Banks shall:

1. Operate mostly in the rural areas and unbanked locations targeting financially excluded persons, with not less than 25% financial service touch points in such rural areas as defined by the CBN from time to time;
2. Enter into direct partnership with card scheme operators. Such cards shall not be eligible for foreign currency transactions;
3. Deploy ATMs in some of these areas;
4. Deploy Point of Sale devices;
5. Be at liberty to operate through banking agents (in line with the CBN’s Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria);
6. Roll out agent networks with the prior approval of the CBN; vii. Use other channels including electronic platforms to reach-out to its customers;
7. Establish coordinating centres in clusters of outlets to superintend and control the activities of the various financial service touch points and banking agents;
8. Be technology-driven and shall conform to best practices on data storage; security and integrity; and
9. Set up consumer help desks (physical and online) at its main office and coordinating centres.

The Payment Service Banks shall use the words “Payment Service Bank” in its name to differentiate it from other banks.

Furthermore, the name of a PSB shall not include any word that links it to its parent company.

Permissible Activities

Payment Service Banks shall carry out the following activities:

1. Accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme;
2. Carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria;
3. Sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers;
4. Issue debit and pre-paid cards on its name;
5. Operate electronic wallet;
6. Render financial advisory services;
7. Invest in FGN and CBN securities; and
8. Carry out such other activities as may be prescribed by the CBN from time to time.

Non-Permissible Activities

Payment Service Banks shall not carry out the following activities:

1. Grant any form of loans, advances and guarantees (directly or indirectly);
2. Accept foreign currency deposits;
3. Deal in the foreign exchange market except as prescribed in the list of permissible activities detailed in (1 & 2) above;
4. Insurance underwriting;
5. Undertake any other transaction which is not prescribed by this Guidelines;
6. Accept any closed scheme electronic value (e.g. airtime) as a form deposit or payment;
7. Establish any subsidiary except as prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters, No 3, 2010.

Eligible Promoters

1. Banking Agents;
2. Telecommunications companies (Telcos), through subsidiaries;
3. Retail chains (supermarkets, downstream petroleum marketing
   companies);
4. Postal services providers and courier companies;
5. Mobile Money Operators (MMOs that desire to convert to Payment
   Service Banks shall comply with the requirement of this Guideline);
   Switching Companies;
6. Financial technology companies (Fintech);
7. Financial Holding Companies; and
8. Any other entity on the merit of its application subject to the approval of
   the CBN.

As at the time of writing this article, only three companies have been granted approvals-in-principle (AIP) to operate as Payment Service Banks (PSBs) in the country. They are:

1. 9 PSB Ltd
2. Hope PSB Ltd
3. Moneymaster PSB Ltd

The approval was part of the processes the institutions had to fulfill in order to be granted a license to operate as fully-fledged Payment Service banks. Sequel to the issuance of the AIP to the three banks, they were expected to submit their respective applications for the grant of a final licence, not later than six months after the AIP.

The PSBs have done this but none of them has started operations.