Payment Service Banks: To Compete, Compliment or Collaborate?

By Oluwafemi Ayanfe-Oluye

PAYMENT SERVICE BANKS (PSBs) are a new category of banks licensed by the Central Bank of Nigeriato drive financial inclusion by focusing on banking the unbanked and underbanked. With almost 40 million Nigerians unbanked and another 65 million underbanked, there lies a big opportunity to be harnessed by the PSBs. These new players will pose a major challenge to the incumbent Commercial Banks.
The licensing of PSBs opens the door for telecommunication (telco) and financial technology (fintech) companies to enter the banking sector. With over 70 million Nigerians having mobile phones of which a greater percentage are mobile internet subscribers, digitalization of financial services through the mobile phones will be a major strategy for financial inclusion. This has strong implicationsas thePSBs are expected to offer services similar to that ofcommercial banks, with a few exceptions like the non-granting of loans.
On one hand, the huge customer base and competitive leverage of the telcosnaturally position them to attract and capture a big market share.On the other hand, the fintech companies can pose as game changers as they have highly scalable models and low overhead cost.
For telcos to succeed, they will need to leverage their competitive advantages to drive:
• Larger customer base – engage their existing subscriber base and incentivize account opening
• Deeper market penetration – take advantage of their wide network reach to onboard locals
• Stronger strategic focus – select demography, geography or sectors to dominate
• Increased flexibility – test the market and learn before committing too much resources.
However, commercial banksin a bid to maintain their market leadership would need a strategic plan that will take advantage of their:
• Deeper pockets– invest heavily and sustain continuous funding till profitable
• Stronger brands – leverage the trust and loyalty built over time to attract customers
• Bigger collaborative capacities – lead or provide support to other players in the industry.
Consequently, non-telcoswho wish to play must have a superior strategy to become profitable in this keenly competed and overly saturated space. At the core, they will need toidentify profitable niches, leverage their unique capabilities andfindopportunitiesto collaboratein order to build strong partnerships that can effectively compete with these established giants.
The banking system is definitely set for a disruption with PSBs potentially taking a chunk of the revenues from fees and commissions while the commercial banks’ ratio of interest and trading income may increase relative to their fee income.
Will this be another ‘Battle of Winterfell’ or will we see a balance between old legacies and new ideologies? The financial inclusion battle is something to watch over the next few years as the major umpire is determined to achieve a newly set target of ninety-five percent inclusion rate by the year 2024.

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This piece for Analyst Nuggets was contributed

by Oluwafemi Ayanfe-Oluye, a subject knowledge analyst at Nextzon

oluwafemi.ayanfe-oluye@nextzon.com