Editorial: Payment Service Banks And Matters Arising

Nigerians generally hailed last week’s breakthrough by MTN and Airtel in receiving CBN approvals for Payment Service Bank (PSB) licences.

The two giants, with over 65% of Nigeria’s telecom market share, have thus been empowered in principle and subject to future agreements to operate financial services much like commercial banks.

Such services include acceptance of deposits, payment and remittance services within Nigeria, issuance of debit and prepaid cards, use of electronic purses, and similar services as may be prescribed by the CBN.

The telecom giants also join three other operators (Hope PSB, a subsidiary of Unified Payment; Moneymaster PSB, a subsidiary of Globalcom, a telco; and 9 PSB, a subsidiary of 9mobile, a telco) who have had the licence since August 28, 2020.

The gleeful approach to the licences is based on the successes recorded in African countries like Ghana, which has experimented with the PSB system since 2009. Nigeria’s myriad unbanked citizens, mostly in the rural areas, are already looking forward to inclusion in the country’s financial system.

Another basis for optimism is the competition the PSBs would introduce, which may drive down bank charges as well as reduce the time spent transacting in physical money banks.

With over 190 million telecom lines in Nigeria, it seems too that the GSM operators are more suited than commercial banks to reach unbanked Nigerians.

There are only about 50 million bank account owners (and about 160 million accounts due to multiple account ownership) in Nigeria going by the number of Bank Verification Numbers (BVN) in Nigeria as of October 3, 2021. Considering that the World Population Review puts the number of Nigerians over the age of 18 at 105,841,979, some estimates put the number of unbanked adult Nigerians at about 55 million.

The Central Bank has also said the PSB would be run in a secured technology-driven environment, thereby addressing the fears of those showing giddy optimism. Yet, the fears expressed by many a Nigerian cannot be wished away too soon.

Though the security of existing payment systems such as the USSD and bank applications are seemingly secure for many Nigerians, fraudsters have broken through on occasion. The near invincibility of successful fraud cases continues to call for concern. According to a 2020 report by the Nigeria Inter-Bank Settlement System (NIBSS), fraudsters attempted attacks 46,126 times, and they were successful on 41,979 occasions (91% success).

As a result, Nigerian financial services companies lost ₦5.2 billion to fraud between January and September 2020. This represents a 510% increase from the ₦550 million lost to fraudsters in the same period in 2019. Mobile channel-related fraud attempts increased by 330%, while web and POS fraud increased by 173% and 215% respectively.

Consider also that the PSB system will target the low-income segment, often uneducated people in the rural areas. In fact, Nigeria has proven to be a bad story in ATM, Point-of-Sale (POS) and banking agent frauds, which are the major avenues to be used by the PSB system. In 2020, the number of banks in Nigeria reduced to 5,158 from 5,392 in 2019. This followed a report by the International Monetary Fund that 234 bank branches and 649 ATMs were shut down in 2020 alone due to security concerns. While this may seem a reason to use the PSB option, there is still widespread concern about the spate of online bank frauds.

The NIBSS report shows that the elderly (above 40s) were the most defrauded, and this is likely to be the age range of most unbanked rural dwellers. The most frauds happened through revealing secret bank information and others such as PIN compromise, internal collusion, card/phone theft and fake assistance.

We advise the telecom companies to strengthen the enlightenment campaigns being done by the banks since the human link will continue to be the weakest in the security chain.

We suggest that the technologies of PSB must empower users to use other online avenues to authenticate or to reverse a transaction through the use of codes.

That is, at any opportunity within a stipulated time after payment, a user can reverse a transaction, with heavy fines to be paid in the case of a fraudulent reversal.

There must also be a unified system of identifying and tracking account users. This is a point where the linkage of National Identification Numbers (NIN) and phone numbers will definitely play a major security role. The security system must include easiness of tracking suspected fraudsters and holding up suspected fraudulent fund transfers.

There must be clear value for customers added through the system so that others would be encouraged to sign up. Access to loans, educational support and savings schemes are ways to encourage use of the system, and these would leverage majorly on a secure PBS system.

It is a matter of security to institute service options that will encourage, and thereby ensure constant use of accounts opened by potential customers.

Prime Business Africa Editorial

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