EFInA completed a study in January 2020 to analyse the readiness of the Nigerian financial ecosystem for the implementation of Payment Service Banks (PSBs) in comparison to India’s experience and to draw insights on the circumstances that may impact the implementation of PSBs. Furthermore, the study defines the key criteria that a hypothetical PSB would need to meet to be successful within the Nigeria financial services sector. The major findings from the research are:

• PSBs hold great potential to advance financial inclusion, especially if able to demonstrate essential inherent strengths: large amounts of capital, strong brand presence, technological advancement, market presence, effective marketing and communication strategies, and ability to scale, among others
• The success of PSBs is hinged on the identification of a viable business case for all stakeholders in the ecosystem. However, all stakeholders must exhibit full commitment towards the creation of an enabling environment, not just for PSBs but also for other traditional financial players. Collaborations and partnerships among stakeholders are essential to drive PSB sustainability
• Key determinants for the successful implementation of PSBs in Nigeria include presence of physical and reliable ICT infrastructure; development of appropriate and cheap products; harmonisation of similar regulations & proactive approach to formulating regulations; attractive agent and Customer value proposition & management; integration of various ID databases and a  balanced collaborative environment
• Lessons learned from the Indian experience revealed that issues such as high capital requirements; restricted regulatory support; low business acceptability by the target market; lack of well-trained and effectively monitored agent network; weak customer value proposition and inability to identify and recruit experienced skill sets that drive the business operations affects the profitability and sustainability of the PSBs. Hence, the reason only one PSB (out of five) has been able to report profit since launch in 2017
• Every PSB will need to incur high initial fixed investments costs to set up its operational infrastructure. However, for success, the PSB should be able to utilise its existing business assets to manage most of the fixed costs

EFInA Payment Service Banks-Key lessons learnt report

Key Considerations for Optimal Payment Service Banks (PSBs) in Nigeria