The Rise of Telco Payment Service Banks (PSB) in Nigeria and the Opportunities for Banks

June 6, 2022

In light of the 38 million Nigerian adults (36% of the population) who remain completely financially excluded, the Central Bank of Nigeria (CBN) set a target of achieving 95% financial inclusion by 2024, to boost financial inclusion, especially in rural areas and facilitate transactions. To this end, Payment Service Banks (PSB) licenses have recently been awarded to Telecommunications companies – MTN (Momo PSB) and Airtel (SmartCash PSB). This increases the number of Telcos operating PSBs to 4, with Moneymaster PSB, a subsidiary of Globacom and 9PSB, a subsidiary of 9mobile, already in existence.

The implication of this new development for traditional banks and other financial institutions is increased competition to win the largest share of the 38million financially excluded Nigerians. On the flip side, it reiterates the opportunity for banks and other financial institutions to drive growth through financial inclusion, especially as a total of N26.17 trillion in transactions happened outside of traditional banking systems in 2021, according to Dataphyte, a media and research data analytics organization. The ability of these banks to identify the opportunity here, will differentiate leaders from laggards.

Opportunities for Banks

The reality today is that, with the rise of PSBs, customers have more options to traditional banking services. Banks must therefore go the extra mile to retain existing customers as it costs five times as much to attract a new customer then to keep an existing one.

Banks typically collect a lot of first-party data but overtime first-party data has proven to be insufficient to provide adequate real-time information about customers, it doesn’t tell the complete story of the customers activities outside of the Bank’s environment. This is where “Data Enrichment” comes in. Data enrichment (with geographic, demographic and behavioral data sets), is what gives marketers and Businesses better insights on customers which they otherwise have limited access to; it presents more ammunition to improve customer engagement with relevant product recommendation and insights to make informed business decisions  For instance, a regular customer who through data enrichment is identified as a business owner can then be offered a business loan, insurance policies, direct payment tools to suppliers and other relevant products. This way the Bank is able to retain this customer, increase lifetime value and make their switching cost high.

Data enrichment can also help Banks with reactivating dormant accounts, which according to data from the Nigeria Inter-bank Settlement System (NIBSS), reports that the number of bank accounts as at December 2021 stood at 133.5 million, out of which  no fewer than 69 million individual accounts are dormant. Some of these customers are probably transacting elsewhere. With the enrichment of customer first party data, Banks can reactivate them through accurate product recommendations, proximity marketing, right-channel messaging, etc. For instance, a customer opens an account as a corp member or a student and at the time, maintains a low account balance which led the bank to continuously recommend small student loans to the customer. However, 4 years later, the customer has grown in their financial capacity but still receives messages to take up student loans because the bank does not have updated information about him.

There is also a huge opportunity for banks to directly acquire new customers from the 38million unbanked Nigerians. One of the reasons for the high number of unbanked population despite the rise in digital banking, is inaccessibility to the internet. According to a 2022 report from DataReportal, 49% of Nigeria’s mobile subscribers do not have access to the internet. In addition, 21% of Nigeria’s mobile phone users use feature phones. Despite the growing rate of internet penetration in Nigeria, chances are that majority of the 38million unbanked Nigerians do not have access to the internet, and also use feature phones. The best way to target this segment is through offline marketing – targeted SMS, and platforms such as Terragon Enterprise CDP and TerragonPrime marketing SaaS platforms are primed to deliver on this.

What makes this a great opportunity is that most forward-thinking Banks already have digital channels which do not depend on internet availability such as Agency POS banking, SMS and USSD banking; and Terragon’s data-driven MarTech platforms are able to target unbanked consumers, based on their device type, location, interest, spend power, etc. and intelligently engage with them through SMS to recommend mobile banking channels, closest ATMs or Bank agents, and relevant products. This ensures that Businesses reach the right types of customers and make the most of their marketing spend. Today, customers do not have to physically go to a bank to open a bank account as Banks have USSD options which specifically cater to the offline customers. However, in most cases, this is ironically communicated through online channels, rather than offline.

Mobile marketing via SMS when executed with the right strategy, gives businesses a higher chance of getting more conversions than other online channels, as SMS can have open rates as high as 98%. In Nigeria where nearly 50% of the mobile connections are offline, mobile marketing via SMS is essential. “Targeted offline engagements via SMS provides a huge opportunity for banks to drive financial inclusion, and with “intelligence” from marketing platforms such as Terragon’s Marketing platforms, Banks and other financial institutions can leverage data and insights to run targeted SMS campaigns to reach and acquire new customers. With Terragon’s platform which gives businesses access to intelligently reach over 105 million Nigerian profiles, banks can target unbanked consumers, based on their device type, location, spend power, etc. and intelligently engage with them through SMS. They can recommend offline banking channels, closest ATMs or Bank agents, and relevant products.