Difference between Payment Service Banks (PSB) and Depository Banks (DMB)


The Central Bank of Nigeria has granted approval in principle to two of the country’s largest telecommunications companies, MTN Nigeria and Airtel Africa, to operate as payment services banks (PSBs).

The news has been positively accepted by stakeholders in the FinTech space who believe it will deepen financial inclusion in the country and improve payment transfers. Some also believe that this could be a source of competition for commercial banks that depend on customer deposits to conduct their business.

However, this is not really the case. Banks and PSBs have very clear distinctions on how they should operate. We will explain to you in this article.


For starters, a PSB is a company licensed to leverage technology and branch banking services to mobilize deposits and facilitate transfers from unbanked clients in rural areas and wherever they exist in Nigeria.

A DMB, on the other hand, is a commercial bank or any bank authorized to also accept deposits from customers from any part of the country and also make loans and advances, invest in fixed income securities and provide other banking services as prescribed. by the CBN.

Why does the CBN issue a PSB

According to Apex Bank, the main goal of PSB licensing is to boost financial inclusion, especially in rural areas, and facilitate transactions.

“Improve financial inclusion in rural areas by increasing access to deposit products and payment / remittance services to small businesses, low income households and other entities through low value transactions and high volume in a secure, technology-driven environment. “

How PSBs Work

According to the CBN, there are 7 detailed structures that PSBs are expected to implement in carrying out their activities.

“Operate primarily in rural centers and unbanked locations, with no less than 50% physical access points in ‘rural areas’ as defined by the CBN from time to time.

This suggests that PSBs should operate in rural areas and places where you have Nigerians without a bank account. They are also expected to have at least 50% physical access points (which also means kiosk) in rural areas.

PSBs may also have ATMs in some of the locations they operate. This allows its customers to make cash withdrawals

What they can do (Allowed)

  • PSOs can take deposits and allow their clients to operate savings accounts as well. Their clients are individuals and small businesses.
  • They can also facilitate cross-border remittances using all channels available in Nigeria.
  • They can also issue debit cards and prepaid cards and also operate electronic wallets.
  • They can also invest a portion of the deposits they collect in FBN and CBN Securities.

What they can’t do (Unauthorized)

  • They should not issue loans, advances and guarantees.
  • They are also not allowed to trade in foreign currencies except for remittances.
  • They are also not allowed to issue insurance products.

Financial considerations

Captain releasedl – The minimum share capital of a PSB in Nigeria is 5 billion naira and they are also required to maintain a legal reserve just like deposit banks. The CBN may also require PSBs to maintain additional capital as they do when they believe banks are in danger.

The CBN has also set a minimum capital ratio of 10% for PSOs.

Payment dividend – PSOs are also authorized to pay dividends provided that they have amortized all expenses incurred before the creation of the company (preliminary and pre-operational expenses).

  • They should also have complied with their minimum capital adequacy ratios and all matured obligations.
  • Finally, they should also get CBN approvals before making any payments.

What can they invest their deposits in?

Just like banks, PSBs also have the option of using customer deposits. Since clients do not always come to withdraw their money at all times, deposits can be invested in short-term securities, allowing PSBs to make a quick profit.

  • However, the CBN stipulates that at least 75% of the deposits they collect must be kept in federal government treasury bills and other short-term debt instruments at all times.
  • The CBN also stipulates that all funds in excess of a PSB’s operational float (the amount it needs daily to operate) must be deposited with deposit banks (commercial banks).
  • This means that although many see them as competition with banks, they are actually meant to complement the efforts of banks, as their deposits must also be placed with any bank of their choice.

Difference between PSB and DMB

As detailed above, the main similarity between a regular commercial bank and a PSB is that they are both allowed to accept deposits from clients and allowed to invest a portion of the deposits in short-term CBN or FG instruments.

The main difference, however, is that while deposit banks (eg commercial banks) are allowed to provide loans and advances, PSOs are not. In addition, PSOs can also transfer part of their excess funds to any depository bank of their choice.

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