Banks and fintech companies with strong electronic payment services are taking advantage of the Central Bank of Nigeria’s (CBN) renewed push for a cashless economy to achieve further growth.
The CBN introduced strict measures for the withdrawal of large sums of physical cash from banks to ensure that its cashless policy objectives are achieved.
The main bank had cut limits on cash withdrawals at the teller window and through ATMs, point-of-sale terminals and checks in early December. Established N100,000 and N500,000 as the maximum limits for over-the-counter withdrawals by individuals and legal entities, respectively, among others.
However, the CBN revised the cash withdrawal limits on December 21, 2022, in response to increasing pressure from the public. Increased weekly limits for cash withdrawals across all channels by individuals to N500,000 from N100,000 and corporate organizations to N5 million from N500,000, effective January 9.
“CBN’s cashless policy, while not without its hiccups, helps complement growing investments in digital payment infrastructures,” said Abiola Rasaq, a former economist and director of investor relations at United Bank for Africa Plc.
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 creates great opportunities for companies that have invested in deepening payment services.
“It is a new area of growth for banks, fintechs and other financial services companies looking to integrate into the new lifestyle of Nigerians, including the growth of e-commerce and a broader interest in transactional efficiency.”
Rasaq said that as a sign of the realization of the payment services outlook, several banks are spinning off their payment services division as separate businesses to improve the efficiency of their operations and boost growth.
The CBN, in October last year, decided to redesign the higher value naira notes to address the significant hoarding of the local currency, the worsening shortage of clean notes, and the increasing ease and risk of counterfeiting.
“Major bank data shows that currency held by the public (currency in circulation minus currency outside of banks) has increased from 78% in 2015 to 88% in 2022 despite numerous policies aimed at boosting a cashless economy” Vetiva analysts said in their recent outlook.
The investment research analyst team led by Damilare Ojo at Lagos-based Meristem said recent policy decisions, such as the limit imposed on cash withdrawals by the CBN, should help encourage the banks’ activities. of payment services (PSBs), since the PSBs in turn support the central bank. promotion of financial inclusion.
Meristem analysts project an increase in gross profits for its hedge banks in 2023, tying their projection to, among other factors, their expectation that CBN’s recent naira redesign policy should lead to higher digital transaction volumes.
Early last year, MTN Nigeria Communications Plc and Airtel Africa Plc launched their PSBs. “As more business begins in 2023, we expect better fintech segment earnings for both companies and also an improvement in fintech segment contribution 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 leveraging technology services through mobile and agency banking to mobilize deposits and facilitate transfers for unbanked customers in rural areas and wherever they exist in Nigeria. PSB’s operations are intended to help drive financial inclusion in Nigeria.
Leading fintech companies in Nigeria helping drive 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 Nigeria’s banking space in 2022 witnessed significant corporate actions, most of which revolved around the establishment and/or acquisition of non-bank subsidiaries. “In particular, the revival of the universal banking license paved the way for some banks to grow organically and inorganically in non-bank financial services.”
Also Read: African Fintech Revenue To Hit $30 Billion By 2025 – McKinsey
They said that the banks mainly benefited from the consecutive increases of the Monetary Policy Rate (MPR).
“In particular, the higher TPM encouraged banks to revalue their loans, as indicated by the higher average and maximum lending rates (which increased 149 bp and 49 bp to 13.17 percent and 28.14 percent), respectively,” the analysts said. .
The CBN raised the TPM, also known as the benchmark interest rate, four times last year to 16.5 percent from 11.5 percent.
“In addition, the 500bps increase in the TPM pushed up the yields of investment securities. Cumulatively, these factors pushed banks’ interest income higher,” the Meristem analysts said.
“In addition, Nigerian lenders posted across-the-board growth in non-interest income, driven primarily by higher business revenue, higher digital transaction volume and fees, consolidation of non-bank subsidiaries, and higher currency revaluation gains,” they added.