Recently, the Central Bank of Nigeria (CBN) rolled out a new payment licence for Nigerian fintech companies. Sometimes in 2018, the regulator released an exposure draft containing a new licence framework for payment companies. The main aim of the framework is to reorganize licences for payment companies, including fintech companies.
But since then, there have been myriads of licences part of which includes the new Payment Terminal Service Providers (PTSPs), Mobile Money Operators (MMOs), Payment Solutions Service Provider (PSSP), switches, super agents and a few others.
The proposed framework will categorise all these under the name: Payments Services Providers (PSP) licence. It will also re-organise all previous licences under three categories: PSP Super License, PSP Standard License and PSP Basic License.
Nevertheless, the draft proposal is yet to become active after a year of its release. But according to Mr. Bukola Akinwunmi, the PSP proposal could become active “soon”, although he didn’t give a timeline – hence, “soon” could either mean tomorrow or next year.
Mr. Bukola Akinwunmi is the Assistant Director at the Payments System Management Department of the CBN. He made the disclosure on the sidelines of a recent fintech roundtable organised by Banwo and Ighodalo, a law firm representing a number of fintechs in Nigeria.
PSP licence is no digital banking licence for Nigerian fintech companies
The primary objective of the PSP framework is to ensure an effective licencing regime for fintechs in Nigeria. Nevertheless, it’s quite different from what many fintech startups would prefer.
In contrast, the capital requirement for the licences imposes a funding constraint for startups. While the licence fees cost between ₦50,000 and ₦2 million, two licences have capital requirements of ₦3 billion ($8.207 million) and ₦5 billion ($13.679 million).
On the other hand, the PSP framework only addresses concerns of payments companies. Some startups would prefer to have dedicated licences that support digital banks. ONLY as opposed to having their licences tied to the new PSP framework.
In countries like Singapore, Hong Kong and Taiwan, the banking regulators have developed digital banking licences that are accelerating financial innovations in these locations.
Nigeria has a different reality! This is why many fintech companies raised eyebrows to the PSP framework. We can conclude that most Nigerian fintech companies would prefer a different licencing option.
The CBN has no plans to roll out any new digital banking licence anytime soon for Nigerian fintech companies, a source at the regulator told TechCabal (Leading Africa’s Tech Conversation Blog). He mentioned the focus, for now, is on payments.
“After the Payments System Vision was released in 2007, payments became the thing,” Akinwunmi explained to members at the roundtable. “Add the Cashless Policy of 2012 to it, it boomed,” he added.
“Whatever we are doing now, payment remains at its core. So if there is that need to ensure this core is well protected to serve us, I think it is just the right thing to do. Because if it fails at that point, for any financial system, if that infrastructure goes down, nobody has trust in the system again.”
To support this focus on payments, the CBN created the Payments System Management Department in 2018 (PSP).
While payment is at the core of fintech service, many Nigerian fintech companies would like to do more. To pursue this aspiration, a number of startups now have toed the line of acquiring microfinance banking (MFB) licences even though it carries some constraints.
Unlike the regular commercial bank licence, the MFB licences are a low-cost, quick fix for startups. It allows them to accept deposits and provide lending services; the most basic banking services.
Nevertheless, microfinance banking licenses come with many shortcomings. For example, it doesn’t allow holders to carry out international payment services.
Also, in keeping to philosophy as a financial inclusion mechanism, the MFB licence is divided into three delimited by capital requirements and scope. One licence allows startups to operate banking services nationally (the national licence) but it comes with a capital requirement of ₦2 billion. The other two are restricted to a single state (state licence) or a single office (unit licence) but come with capital requirements of ₦100 million and ₦20 million respectively.
Although fintechs are snapping up the state and unit licences and exploiting the location limitations thanks to their branchless nature and distribution over the internet. The unit licence is obvisouly affordable and flexible.
This is a sort of grey area and explains why there are not a lot of fintechs offering “digital banking services” even though the National MFB licence is up for grabs… there are still concerns/constraints that requires urgent intervention by CBN.
Meanwhile, regular payments startups without an MFB licence have another trick up their sleeves.
Digital wallets vs regular bank accounts… let’s compare!
With the Nigerian fintech, Wallets.ng, users can send money locally and internationally using their phone number. It is working with Providus Bank. Wallets are a gamechanger for fintechs. It allows their users to receive and send funds, sometimes to even regular bank accounts.
But digital wallets are nowhere near bank accounts. Wallets can hold funds, but unlike regular bank accounts, these funds are not insured by the Nigeria Deposit Insurance Corporation (NDIC).
Startups also can’t use funds in wallets for other activities like lending or pay interests on funds users domicile. For the latter, they typically offer an alternative service that allows this. This is why OPay offers OWealth and Carbon offers PayVest, both of which are wealth management features that require users to signup voluntarily.
“While it is improbable for e-wallets to completely replace bank accounts anytime soon, its growing popularity should not be overlooked as it could gradually make deposits more expensive and erode a portion of the bank’s payment-related earnings/business,” GTB wrote in the report.
Nevertheless, the regulatory framework to support fintechs is lacking. Startups are taking different actions and measures to innovate within the current regulatory environment. It doesn’t look like things may change positively any time soon. We can advise that startup should use flexible and affordable available options.
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