Arm’s length policy of Payment Service Banks in Nigeria: The need for clarity

Opinion: Emmanuel Okoegwale

In furtherance to enhance access to basic financial services for underserved  and unbanked segments of the society, the Central Bank of Nigeria created a new license category, called the Payment services Bank(PSB).  The key objective of setting up the PSB category, is to enhance financial inclusion by increasing access to deposit products, payment and remittance services to small businesses, low-income households and other financially excluded entities.

To achieve the purpose, PSBs are expected to leverage  mobile and digital channels of mobile network operators which will be provided on commercial market rates, to licensed providers irrespective of relationship as a subsidiary, partner or competitor. Diverse promoters are eligible to promote a PSB such as mobile network operators through their subsidiary, Banking agents, Retail chains, mobile money operators and many other entities that the regulator may deemed meritous of the license.

Relationship between the Mobile network operators, subsidiary and market operators

In order not to give extra advantage, appropriate risk  and prevent commingling, where the PSB is affiliated to a mobile network operator, they are not permitted to include any word that links it, to its parent company.

A parent company or any other related entity of a PSB, which renders services to its PSB shall extend similar services to other entities that so desire on the same terms and conditions therefore on arm’s length basis without preferential treatment to its subsidiary, not offering lower quality of service to subsidiary’s competitors or offering differential pricing  etc.

Scope of the Arm’s length

The  framework is upfront with access channels and infrastructure’s use and pricing but vague in other areas such as agent and distribution networks which is a compelling component for the design and delivery of basic financial services products.  To avoid the pitfall of current mobile money sector where interoperability is mandated by regulation but market operators shy away from its implementation therefore denying the entire ecosystem, a key driver for growth since wallet holders of diverse mobilemoney operators cant transact with agents outside their network, seamlessly in some cases.

The uncertainty

Without a clear definition, market operators can make poor judgement where they are unsure of what they can access or not access such as subscribers database, CRM, Agency and distribution network etc of the mobile network operators.

To improve operational effectiveness and  resource allotment, organizations need to create certainty and appropriate risk but where arm’s length is not properly defined, market operators  thread with extreme caution to avoid regulatory landmines which can stifle innovation, increase cost, delay product developments  which ultimately  impacts negatively on the market robustness to meet the compelling needs of the underserved population and the nation, missing the financial inclusion targets.

There is need for clarity at inception, what services are classified under the arm’s length for the benefit of potential entrants that might be constrained  by such policies while planning to apply for license or business implementation, post licensing.


A PSB is a combination of a  Bank, mobilemoney, remittance and payment provider  without the ability to give credit which is  a major revenue driver, in low value and high volume business financial segment.

With such restriction which reduces the  scope for sufficient earning already hence the need to reduce cost by leveraging as much resources from the mobile network operator’s assets by their subsidiary and other market operators.   

From a mobile network operator’s point of view, financial services can be  leveraged as a cost saving platform to reduce churn, lock-in customers which in turn will reduce marketing cost and cost of acquiring new subscribers which will lead to overall  reduction in operating cost. It can also be for income generation, in addition to  existing primary products.

A very restrictive  arm’s length policy will have negative impact on service delivery and impair the ability of the licensees to leverage some assets, goodwill of either party to deliver financial services that meets the compelling needs of the underserved.