Banks, fintechs tap cashless policy for growth


Banks and financial technology (fintech) firms with strong e-payment services are leveraging the renewed push by the Central Bank of Nigeria (CBN) for a cashless economy to achieve further growth.

The CBN introduced stringent measures for withdrawal of large sums of physical cash in banks to ensure its cashless policy objectives are achieved.

The apex bank had in early December slashed the limits on cash withdrawals over the counter and via Automated Teller Machines (ATMs), Point of Sale terminals and cheques. It set N100,000 and N500,000 as the maximum limits for withdrawal over the counter by individuals and corporates respectively, among others.

The CBN, however, revised the cash withdrawal limits on December 21, 2022, in response to mounting pressure from the public. It increased the weekly limits for cash withdrawals across all channels by individuals to N500,000 from N100,000 and corporate organisations to N5 million from N500,000, effective Jan. 9.

“The CBN cashless policy, though not without hiccups, helps to complement the increasing investments in digital payment infrastructures,” Abiola Rasaq, former economist and head of investor relations at United Bank for Africa Plc, said.

According to him, Nigerians are increasingly embracing digital payments, partly due to the experience of the pandemic, increasing confidence in new technologies and security concerns.

He said: “It is a positive cultural shift for Nigerian consumers and this positivity brews great opportunities for companies that have invested in deepening payment services.

“It is a new growth area for banks, fintechs and other financial services companies seeking to key into the new lifestyle of Nigerians, including the growth of e-commerce and broader interest in transactional efficiency.”

Rasaq said as a signal of the realisation of the prospect for payment services, a number of banks are spinning off their payment services division as standalone businesses to enhance the efficacy of their operations and drive growth.

The CBN, in October last year, decided to redesign higher-value naira notes to tackle significant hoarding of the local currency, worsening shortage of clean banknotes, and the increasing ease and risk of counterfeiting.

“Data from the apex bank shows that currency held by the public (currency in circulation less currency outside the banks) has increased from 78 percent in 2015 to 88 percent in 2022 despite numerous policies aimed at driving a cashless economy,” said Vetiva analysts in their recent outlook.

Damilare Ojo-led team of investment research analysts at Lagos-based Meristem said recent policy decisions, such as the cap placed on cash withdrawals by the CBN should help foster payment service bank (PSB) activities, as the PSBs in turn support the central bank’s financial inclusion drive.

Meristem analysts project an increase in the gross earnings of their coverage banks in 2023, linking their projection to, among other factors, their expectation that the recent CBN’s naira redesign policy should lead to increased digital transaction volumes.

Early last year, MTN Nigeria Communications Plc and Airtel Africa Plc launched their PSBs. “Upon commencement of more commercial activities in 2023, we expect improved earnings from the fintech segment for both companies and also an improvement in the contribution of the fintech segment to overall revenue,” the analysts said.

Globacom launched its PSB, called MoneyMaster PSB, in October. This is in addition to the four already established PSBs operating in Nigeria, namely Hope PSB, 9PSB, MTN’s Momo PSB and Airtel’s SmartCash PSB.

A PSB is a type of bank that operates on a smaller scale by harnessing technology services via mobile and agency banking to mobilise deposits and facilitate transfers from unbanked customers in rural areas and any location where they exist in Nigeria. PSB operations are meant to help drive Nigeria’s financial inclusion.

Major fintech companies in Nigeria helping to boost access to financial services include Flutterwave, Piggyvest, Paystack, Bankly, Remita/SystemSpecs, TeamApt, Lidya, Carbon, Kuda Bank, Risevest, Trove App, Bamboo, Interswitch, Opay, Chippercash, Paga, eTranzact, Credpal, V bank by VFD, Eyowo, Fint, Fairmoney, Wallet Africa, Cellulant and NowNow.

Meristem analysts said the Nigerian banking space in 2022 witnessed significant corporate actions, most of which revolved around establishing and/or acquiring non-banking subsidiaries. “Notably, the revival of the universal banking licence paved the way for some banks to grow organically and inorganically across non-banking financial services.”

Read also: African fintechs’ revenues to reach $30bn by 2025 – McKinsey

They said that the banks primarily benefitted from the consecutive Monetary Policy Rate (MPR) hikes.

“Particularly, the higher MPR encouraged the banks to reprice their loans, as indicated by the higher average prime and maximum lending rates (which rose by 149bps and 49bps to 13.17percent and 28.14percent), respectively,” the analysts said.

The CBN raised the MPR, also known as the benchmark interest rate, four times last year to 16.5 percent from 11.5 percent.

“Also, the 500bps increase in MPR pushed yields on investment securities upwards. Cumulatively, these factors drove the banks’ interest income upward,” the Meristem analysts said.

“In addition, Nigerian lenders broadly recorded growth in non-interest income, mainly driven by higher trading income, more digital transaction volume and fees, the consolidation of non-banking subsidiaries, and increased foreign exchange revaluation gains,” they added.




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