Advancing financial inclusion through win-win partnerships with Payment Service Banks in Nigeria

On Wednesday, 18 May the GSMA Central Insights Unit jointly hosted a country-level dialogue with FCDO-Nigeria and Lagos Business School on the role of Payment Service Banks (PSBs) in driving financial inclusion to the last mile. Stakeholders from across the country, including the Central Bank of Nigeria (CBN) and licensed PSBs, joined the event and discussed the findings from our latest report on the opportunities and challenges of PSBs in Nigeria. This blog presents some key take-aways from the event.

Payment Service Banks (PSBs) were introduced by the Central Bank of Nigeria (CBN) to expand financial inclusion in the country, which lags behind many other LMICs – just over half of Nigerians were using formal financial services as of 2020. Among the financially excluded many use mobile phones, opening up significant opportunities to leverage digital channels to improve access to financial services. PSBs aim to leverage a combination of physical and digital channels to onboard them and advance financial inclusion. In his opening remarks, Mr. Llewellyn-Jones, the British Deputy High Commissioner in Lagos, highlighted how the introduction of the new PSB licenses by the CBN can be a decisive step in driving financial inclusion. Still, the regulatory framework limits the range of financial products that PSBs can offer (e.g. they cannot offer any form of credit), therefore they need to expand their offering and find innovative ways to build commercial sustainability.

PSBs must form strategic partnerships across multiple industries to enhance their value proposition

One way to build commercial sustainability while also demonstrating the benefits of financial inclusion to unbanked and underbanked groups is to partner with organisations providing products of value to them.

Ernest Akinlola, the Managing Director of Bboxx Nigeria, highlighted the opportunities for partnerships between pay-as-you-go (PAYG) solar companies and PSBs. Nigeria is home to the largest off-grid and under-electrified population in Africa. According to the World Bank, only a quarter of the rural population has access to electricity. Bboxx provides stand-alone units and appliances that can be installed into homes in rural and peri-urban areas and offers affordable payment terms to get electricity. But for Solar Home Systems (SHS) providers like Bboxx, getting paid remains a complex issue. Through PSBs, they can access large distribution networks and leverage standardised payment channels to collect cash effectively. PSBs on the other hand, have the opportunity to tap into the customer base of SHS providers and to raise awareness on their products and services.

Agriculture is another sector that offers strong potential for partnerships. Michael Ogundare, the CEO of Crop2Cash, an agritech enabling farmers to access credit, noted that the new PSB framework is the most significant step to address the financial needs of the unbanked. A vast majority of those living in rural areas are involved in subsistence agriculture. PSBs have the potential to make it easier for them to receive and make payments across in agricultural value chains. But to convince potential customers of their value proposition, PSBs need to offer more than just payment solutions and demonstrate that their products can improve livelihoods. Making sure that smallholder farmers can access credit to purchase agricultural inputs and increase their productivity and income is particularly important. Through partnerships with PSBs Crop2Cash has an opportunity to scale up its activities more rapidly and  reach more farmers with a variety of agri-specific digital solutions such as agricultural digital financial services (Agri DFS).

Nick Imudia, the CEO of Konga, an e-commerce group in Nigeria, commented on the potential role of PSBs to address the challenges of a digital market economy. Over the years, Konga has successfully expanded the range of products on its platform and built a wide logistics network to reach customers, including in remote areas. But Nick pointed out that the whole distribution process is financed by Konga, as cultural norms means that Nigerians are unwilling to pay for goods upfront. Partnering with licensed PSBs has the potential to reduce trust issues and therefore allow Konga to develop its operations in a cost-effective manner. For PSBs, access to Konga’s platform means access to millions of customers and unprecedented opportunities for financial inclusion.

Achieving financial inclusion with the PSB model will require local knowledge and buy-in from rural and remote communities

Building trust at the local level will be key to ensure that PSBs and their partners can thrive. The discussion highlighted the importance of understanding the context-specificities of the communities targeted to address social and cultural norms and tailor solutions to their needs and priorities.

Gerald Ilukwe, the Chief Information Officer of Kaduna State Government, highlighted the importance of an enabling environment for financial inclusion in remote and rural areas, where PSBs are expected to play a key role in driving financial inclusion. In Kaduna state, there has been a strong focus on understanding the cultural gender norms of different local communities to bring down existing barriers to financial inclusion. Several initiatives have been taken to establish the building blocks of financial inclusion across sectors and demographics, including a partnership with Airtel to increase data connectivity access and a project with UNECA to improve digital identity.

Rural and low-income groups have developed ways to survive and thrive that PSBs need to consider. In the agricultural sector, for instance, wealth is stored as harvest or livestock, and it can be difficult to quantify the value of these assets. In remote areas where people are less likely to own a smartphone, digital transformation must rely on low-tech solutions. In Nigeria, technologies like USSD are very relevant and will continue to be so for some time among rural communities because they are user-friendly and easily accessible by people with basic feature phones.

Going forward

The potential to leverage MNOs’ established distribution channels and international expertise to drive financial inclusion are some of the strengthens of the PSB model, according to Mr Jimoh, the Director of Payment System Management Department of the CBN. Mr Jimoh also highlighted, from a Central Bank perspective, the importance for new private sector entrants such as the PSBs to always maintain strict data privacy and customer consent as they onboard new customers.

Reflecting on how to foster collaboration between PSBs and various industries, Professor Olayinka David-West from Lagos Business School reminded the audience of the importance of maintaining a start-up mindset. While PSBs rely to an extent on available assets by established organisations (e.g. sales and distribution channels of MNOs), they will need to go beyond business-as-usual and drive innovative solutions by being agile, fast and nimble. Ultimately, PSBs need to adapt their value proposition to the evolving needs of unbanked Nigerians to become sustainable businesses and make progress in closing the nation’s financial inclusion gap.

The Central Insight Unit research work is funded by the UK Foreign, Commonwealth & Development Office (FCDO), and supported by the GSMA and its members.h

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