Nigeria Creates Licensing Regime To Regulate Fintechs

Much of Africa is underbanked and Nigeria is determined to do something about it.

Lagos, Nigeria

Nigeria’s financial regulators took a bold step recently to enforce control of the fledgling fintech industry with the release of guidelines on the operations of payment service banks(PSBs).

The functions of PSBs according to the Central Bank of Nigeria (CBN) include accepting deposits from individuals and small businesses, offering payments and remittance services through various channels within the country, issuing debit and pre-paid cards on their names.

The central bank explained that they should operate mostly in the rural areas and unbanked locations targeting financially excluded persons. These PSBs are also expected to have at least 25% financial service touch points (defined as locations where a customer can access basic financial service including cash-in, cash-out and transfers/remittances) in such rural areas as periodically defined by the CBN.

They could also enter into direct partnership with card operators, provided that such cards are not eligible for foreign currency transactions, deploy ATMs in some of these areas, as well as deploy point of sale devices.

Organisations that qualify to operate PSBs include banking agents, telcos, retail chains such as supermarkets, postal services providers, fintech companies, financial holding companies, according to the guidelines.

The central bank said the PSBs would be classified into three categories and would have minimum shareholder funds accordingly: five billion naira ($13.9 million) for a Super License; $8.3million for a Standard License, while those under a Basic License will have either $139,000or $128,000, depending on the services they offer. The licensing fees for the three categories are $5,600, $2,800, and $278, respectively. The licences are renewable every three years at one-half of the licensing fee, according the guidelines. There is also an application fee that is not refundable.

The main objectives of settingup the PSBs, the central bank said, is to enhance financial inclusion byincreasing access to deposit products and payment/remittance services to small businesses, low-income households and other financially excluded entities through high-volume, low-value transactions in a secured technology-driven environment.

Nigeria has a target of achieving a 80% financial inclusion rate by 2020, a massive jumpfrom the47% rate in 2008.

Ecobank, the African regional lender, said in a November 27 note that while the planned licensing fees are comparatively light (compared with other licensing authorities), ‘‘the minimum shareholder capital requirements are high for Fintech start-ups, which typically have low capital and shoe-string budgets.’’ Ecobank argued that enforcingthe requirements could raise the barrier for entry, thereby inhibiting fintechs’ ability to scale and stifling innovation.

Ecobank added that Nigeria—along with Kenya and South Africa—is one of sub-Saharan Africa’s leading innovation centers, with over 65 hubs in the country, and that many of which have start-ups that are developing new digital financial services. It said that the planned new regulations will impact the flow of inward investment into Nigeria’s fintech sector as well as the kinds of companies that emerge to serve Nigeria and West African markets.