Will banking licenses for MTN and Airtel disrupt retail banking?

Two weeks ago, the Central Bank of Nigeria (CBN) gave approval in principle (AIP) to two of Nigeria’s largest telecommunications companies, MTN and Airtel. With these AIPs, the subsidiaries of these operators, MoMo and Smartcash, have become Payment Service Banks (PSB).

What’s interesting is that PSBs are not new to Nigeria. At least three PSBs were operational until the first week of November 2021. Yet the last two CBN approvals have sparked some excitement – possibly terror and uncertainty – within some financial institutions.

Why?

Some takeaway
  • With MTN’s army of 630,000 bank agents and a new PSB license, retail banking is about to change for many Nigerians. For example, in Ghana, MTN offered up to a 7% interest rate on savings, above the 4% average offered by banks.

  • The Central Bank of Nigeria hopes the new PSB licenses will promote financial inclusion. It would do so, but only in terms of access to payment or savings. Insurance, pensions or credit could continue to lag, stifling the potential for economic growth.

  • PSBs have already existed in Nigeria. However, the former telecom operators who owned these PSBs might struggle with good network coverage and a weak network of agents that will facilitate transparent financial services transactions.

Let’s take a look at two reasons behind the excitement behind approvals. The first is that these new licenses are for subsidiaries of Nigeria’s largest and most efficient telecommunications operators, MTN.

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