Many Nigerian fintech companies are operating with either Payment Service Bank (PSB) License or Mobile Money Operator (MMO) License. These two Licenses may seem similar but have their own different unique functions.
For instance, regular users that don't know the core functionality of banking system will find it difficult to identify the differences between MTN's MoMo PSB and OPAY? I'm not talking about their popularity or their customer base. I mean, how they're different in what they're offering to customers.
Both companies allow users to send and receive money locally, recharge and top-up their mobile network, offers personal wallet using user's phone number, and business accounts (merchant) accounts to cater for underserved areas.
So, what's the real differences between them? Well, I know you maybe thinking about offering of loans and savings features. No, that's not the point; neither the PSB nor the MMO licenses allow banks to offer loans in Nigeria.
Don't stress yourself too hard about this. We've bring to you the real differences between a Payment Service Bank License and a Mobile Money Operator License, and fintech companies that operate under these banking licenses.
Payment Service Banks (PSBs) License in Nigeria
See Payment Service Bank (PSB) License as a small scale permit that allows companies that are not fully into banking services to operate a limited banking services.
If you've seen MTN MoMo app or Airtel's Smartcash app, you would have noticed that they're always having PSB at the back of their names.
Well, that's not the case. It's just solidifies that PSB Licenses are issued to entities, such as subsidiaries of telecommunications companies, mobile money operators, retail chains, and banking agents, to provide limited banking services to their underserved customers.
The License framework is targeted towards high-volume customers that have low-value transactions in a technology-driven environment.
For instance, telecom companies often have high numbers of customers in which many of them are average citizens with low-value transactions.
Since these companies are not interested to dive fully into banking operations; they just want to provide easy-to-access financial services to their customers, the Central Bank of Nigeria (CBN) introduced the PSB framework in 2020 to target this type of high-volume, and low-value transactions users in a technology-driven environment.
How PSB License Works
I believe the concept has been simplified? Now, you know what banks, companies or fintech organizations Payment Service Bank licenses are meant for. You've also understood that company operating under a PSB License has limited financial services to offers.
Hence, what are the DOS and DON'T of an institutions operating under PSBs Licenses in Nigeria? A PSB License allows banks to:
- Serve as a Deposits Money Bank (DMB) to their customers and unbanked low-income populations. This simply means fintech or banks operating under PSB License will be able to accept deposits from individuals and small businesses. The deposit are insured by the deposit insurance scheme under the regulatory oversight of the Nigerian Deposit Insurance Corporation (NDIC).
- Facilitate payments and remittances, including inbound cross-border personal remittances, through various channels within Nigeria. This means PSBs can act as local intermediaries to process transactions between customers and merchants.
- Sell foreign currencies from inbound remittances to authorized foreign exchange dealers. This means PSBs are permitted to take the foreign currency received from money sent into the country diasporans and sell it to directly to registered financial institutions such as bureau de change . This process allows PSBs to convert these inbound remittances—in currencies like USD, EUR or GBP—into Nigerian Naira.
- Issue debit and prepaid cards and operate electronic wallets.
- Invest in Federal Government of Nigeria (FGN) and CBN securities.
- Provide financial advisory services and deploy ATMs and Point of Sale (POS) devices in rural and unbanked areas.
I know that you may be wondering that MTN, operating MoMo PSB cannot be used to receive money from abroad.
That perspective shows that you're following up. However, based on the latest regulations from the CBN, PSBs are not inherently prohibited from receiving inbound cross-border personal remittances.
Let me explain it better. The recent developments by the Nigerian Apex Bank with companies operating under PSB Licenses indicate that these companies can partner with another companies or financial institutions like MFS Africa and Saana Capital LLC to facilitate inbound remittances from various countries.
This will allow their customers to receive money directly into their MoMo wallets. Meanwhile, money received from abroad will be converted by the PSBs before it's credited to their customers wallets.
While PSBs can actually receive and convert foreign currency for their customers, this capability is limited to partnerships with their International Money Transfers Operators (IMTOs) and does not extend to all forms of international transactions.
Mobile Money Operators (MMOs) License in Nigeria
A Mobile Money Operator (MMO) License allows Nigerian non-commercial bank like fintech companies such as OPAY, Palmpay, Paga, to provide mobile money services.
With MMOs license, they can issue and manage electronic wallets, facilitate person-to-person (P2P), person-to-business (P2B), and business-to-person (B2P) transactions.
The MMOs License also allows them to offer bill payments and airtime top-ups, and conduct agent banking for cash-in and cash-out services.
However, it's important to note that MMOs must partner with licensed financial institutions such as deposit money banks (DMBs) to hold customer funds in trust or pool accounts, as they cannot hold deposits directly.
In addition to that, MMOs cannot grant loans, accept deposits as banks do, engage in foreign exchange transactions, or offer cross-border money transfer services.
The primary function of a MMOs are to offers electronic transfers and bill payment services through their electronics wallets managed through mobile application.
Difference between MMOs and PSBs
Now you see that it's confusing right? You cannot explicitly differentiate between the two banking licenses. Well, we've made it simple with table that highlights their differences:
| Aspect | Mobile Money Operator (MMO) | Payment Service Bank (PSB) |
|---|---|---|
| Definition | Non-bank entities licensed to provide mobile money services via technology. | Limited-purpose banks licensed to enhance financial inclusion with basic banking services. |
| Deposit-Taking | Cannot accept deposits; must partner with banks for fund custody. | Can accept deposits from individuals and small businesses, insured by NDIC. |
| Key Activities | Issue and manage e-wallets, facilitate P2P/P2B/B2P transactions, bill payments, airtime top-ups, agent banking. | Accept deposits, facilitate payments/remittances, issue debit/prepaid cards, operate e-wallets/ATMs/POS, sell foreign currency from remittances, invest in FGN/CBN securities, provide financial advisory. |
| Fund Custody | Funds held in trust/pool accounts with partner financial institutions. | Holds deposits directly as a deposit-taking institution. |
| Loan Provision | Prohibited from granting loans, advances, or guarantees. | Prohibited from granting loans, advances, or guarantees. |
| Foreign Exchange | Cannot engage in foreign exchange transactions. | Can sell foreign currencies from inbound remittances to authorized dealers; no broader trading. |
| Cross-Border Services | Cannot offer cross-border money transfer services. | Can facilitate inbound cross-border personal remittances within Nigeria through partnership. |
| Additional Services | Limited to mobile transaction facilitation. | Includes ATMs, POS devices, and investment in government securities. |
| Insurance | No direct NDIC insurance; relies on partner bank arrangements. | Deposits insured by NDIC. |
| Ownership | Typically fintech-driven entities (e.g., OPay, PalmPay). | Often operated by telecoms or large corporations (e.g., MTN MoMo, Airtel SmartCash). |
| Regulatory Focus | Focus on mobile money ecosystems for unbanked/semi-banked. | Broader banking services targeting unbanked/rural populations. |
Similarities between MMOs and PSBs
Here are the similarities that make it so confusing to differentiate between the two CBN's Licenses:
- Both Licences are issued by the Central Bank of Nigeria (CBN).
- Both Licences offer limited banking services but PSBs target specific users.
- Both Licences allows banks to offers electronic wallets, electronic transfers, and bill payments.
- Both Licences do not give banks permission to offer loans services or any credit facilities to their customers.
- Both Licences allow banks' deposits to be insured under the Nigerian Deposit Insurance Corporation (NDIC).
- Although, one of the Licences (MMO) don't allow banks to offer ATM, savings and investment features, but didn't restrict it from partnering with other financial institutions to offer the service as seen in OPAY and BlueRidge MFB.
- Both Licences allows banks to operate agent networks that widespread financial inclusion all over Nigeria. I'm sure you'll heard of OPay Agent and MoMo Agents.
- Both Licences incur for obtaining feet from the CBN. The licensing fees are estimated to 5 billion naira ($12 million) for PSBs and 2 billion naira ($5 million) for MMOs.
Conclusion
The PSB license introduces a transformative approach to banking in Nigeria; it gives telcos and other players a chance to reach their unbanked customers with easy, and tech-savvy services that stand apart from what traditional banks offer.
Big players like MTN and Airtel, with their massive subscriber bases of 74 million and 52 million users, are using the PSB license to bring more people into banking.
On the other hand, the MMO license let fintechs like OPay, Palmpay, and Paga focus on mobile transactions and e-wallets.
Together, these licenses are paving the way for a more inclusive financial landscape. But you must know that operating either PSB or MMO in Nigeria requires meeting the CBN 5 billion naira capital requirement and strict oversights.
