By Israel Olawunmi
Technology is ubiquitous in nature and fast becoming an infrastructure of our daily activities and interactions. Technology has pervaded all areas of our lives and it is constantly developing. Fintech is an offshoot of technology. The term ‘fintech’ has become a widely bandied lingo in our world today. It suggests the synergy between finance and technology. Fintech is simply an acronym for ‘Financial Technology’ and generally refers to the use of technology to solve problems, improve and automate delivery for the use of financial services. Fintech aims to provide swift solutions and ensure ease of access and processes in the financial sector by taking advantage of technological advancement. The information and communication technology sector in Nigeria is fast emerging and developing. The industry contributed about 17.92 to the GDP of the country in 2021.It is believed that Nigerian FinTech revenues will reach $543million by 2022, driven by increasing smartphone penetration and the unbanked population. Given the incremental growth and relevance of the FinTech sector in Nigeria, this work seeks to examine the regulatory bodies and licensing regime in the Nigerian FinTech space and other incidental matters.
- Regulatory Bodies in the Fintech Sector in Nigeria
The following bodies perform regulatory functions with regards to the fintech space in the country:
- Central Bank of Nigeria
- Nigeria Deposit Insurance Company
- Corporate Affairs Commission
- Securities and Exchange Commission
- Federal Competition and Consumer Protection Commission
- National Information Technology Development Agency
- Nigerian Communication Commission
- National Insurance Commission
2.1 Central Bank of Nigeria (CBN)
The Bank and other Financial Institutions Act (BOFIA), 2020 empowers the CBN as the primary regulator of financial institutions in the country and as such, the CBNhas provided certain guidelines for fintech operators in the country.Also, the Central Bank of Nigeria is also tasked with issuing licenses to fintech operators in the country. The following are guidelines issued by the CBN with a view to providing a regulatory framework for fintech in Nigeria:
- CBN Revised Guidelines for Finance Companies in Nigeria, 2014;
- CBN Guidelines on International Money Transfers, 2014;
- CBN Regulatory Framework for Licensing Super-Agents, 2015;
- CBN Guidelines on Mobile Money Services in Nigeria;2015;
- CBN Guidelines on International Mobile Money Remittance in Nigeria; 2015
- CBN Guidelines on Operations of Electronic Payment Channels in Nigeria, 2016;
- CBN Guidelines on Transaction Switching in Nigeria, 2016;
- CBN Circular on the Implementation of Interchange Fee dated November 1, 2016;
- CBN Regulation for Bill Payments in Nigeria, 2018;
- CBN Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria, 2018;
- CBN Regulatory Framework for the use of Unstructured Supplementary Service Data (USSD) Financial Services in Nigeria, 2018;
- CBN Risk-Based Cyber Security Framework and Guidelines for Deposit Money Banks and Payment Service Providers, 2019;
- CBN Regulation for Direct Debit Scheme in Nigeria, 2018;
- CBN Regulation on Electric Payments and Collections for Public and Private Sectors in Nigeria, 2019;
- CBN Regulatory Framework for Sandbox Operation, 2021; and
- CBN Framework for Quick Response (QR) Code Payments in Nigeria, 2021
2.2 Nigeria Deposit Insurance Company (NDIC)
The NDIC is saddled with the obligation of insuring the deposit liabilities of financial institutions. Therefore, if a fintech company is in the business of receiving deposit from consumers e.g., Payment Services Banks and Mobile Money Operators all such money would be insured by the NDIC.
2.3 Corporate Affairs Commission (CAC)
The Companies and Allied Matters Act (CAMA) 2020 empowers the CAC to register and regulate the activities of all companies in the Federation. Fintech companies must be registered as body corporates in the country and as a result, they come under the purview of the CAC.
2.4 Securities and Exchange Commission (SEC)
SEC is the apex regulatory body for the Nigerian capital market pursuant to the Investment and Securities Act(ISA). Fintech companies desirous of raising capital through the capital market must register their securities with SEC. In 2021, SEC issued crowdfunding rules to regulate how fintech companies raise funds via this means.
2.5 Federal Competition and Consumer Protection Commission (FCCPC)
The FCCPC is the government agency tasked with ensuring the prohibition of anti-competitive practices among companies in the country. The FCCPC has an oversight function over all companies to ensure healthy competition in the fintech market space.
2.5 National Information Technology Development Agency (NITDA)
NITDA is empowered to ensure strict compliance to data protection regulations. The Nigeria Data Protection Regulations NDPR) was passed in 2019 to ensure the data privacy rights of citizens and to safeguard against unauthorized access and transfer of personal data.
2.7 Nigerian Communication Commission (NCC)
The NCC regulates the telecommunication industry. If a fintech company performs any form of telecommunication service e.g., mobile payment, bank alert and electronic statements, the company would fall under the regulatory purview of the NCC and as such must get the necessary licenses.
2.8 National Insurance Commission (NAICOM)
The National Insurance Commission is tasked with the responsibility of control, management and administration of insurance companies in the country. If a fintech company performs insurance functions, the company would be mandated to get the necessary license from NAICOM.
There are various licenses needed by fintech companies to operate in the country. The particular license required is dependent on the particular function and services to be provided by the fintech company. The license categories as stipulated by Central Bank of Nigeria by virtue of Circular No PSM/CIR/GEN/CIR/01/22 dated December 9, 2020include the following:
a. Switching and Processing
b. Mobile Money Operations
c. Payment Solution Services
d. Regulatory Sandbox
3.1 Switching and Processing
A Switching and Processing Company routes transaction data to financial institutions or hosts and merchants for processing and approving electronic transactions upon receiving transaction requests from more than one interface like the ATM, POS, payment gateway. In 2016, the CBN introduced the ‘Guidelines on Transactions Switching in Nigeria’. The guideline described four major parties to a Transaction and Switching Agreement, the parties including the following:
i. Nigeria Central Switch
ii. Switching Companies
iii. Card Issuers
iv. Merchant Acquirers
The Guideline stipulates the different rights, duties and responsibilities for each of the above stated Switching and Processing companies. Nigerian Central Switch ensures the interconnectivity of all players in the financial sector. The Nigerian Interbank Settlement System (NIBSS) is the system that presently operates the Nigerian Central Switch. It connects all the players in the financial sector by operating a central system to send, receive and process funds in the country. The NIBSS is the platform that enables inter platform payment and settlement It is mandatory that all Switching Companies are required to connect to the NCS.
A Switching Company facilitates the exchange of value between financial service providers, merchants, end users and other stakeholders in the financial sector. Examples of Switching Companies in Nigeria include InterSwitch, PayStack, Tranzact, and Flutterwave.
Card Issuers issue credit and debit cards to the end users. They include Master Card, Verve Card and Visa Card. Switching Companies are not allowed to also double as Card Issuers.
Merchant Acquirers are brick and mortar banks that operate online bank accounts and accept deposit from customers.
The Switching and Processing Category deals with licensees that are licensed to operate in the category of card switching, card processing, transaction clearing and settlement, agent services and other non-banking acquiring services, etc. The minimum authorized capital for any Switching and Processing company is N2,000,000,000 (wo billion Naira).
3.2 Mobile Money Operations
Mobile Money is an electronic service that enables the operator to receive, store and spend money by operating a mobile device. The MMOs are able to deploy the use of financial services through telephone network services. Examples include Opay, Paga, Konga Pay amongst others.
This license enables the operator to issue e-money; create and manage wallet, as well as manage pool accounts. It should be noted that they are the only fintech companies authorized to hold customer funds. A company can only perform MMO and Switching functions if the Switching functions are performed by a separate holding company. The authorized capital for any Mobile Money Operations company is N2,000,000,000.00 (two billion Naira). The MMO license also enables this particular licensee to carry out the operations carried out by Super Agents.
3.3 Payment Solution Services
Payment Solution Services companies are allowed to hold any one or a combination of all the PSS licensees. The combination of all these licenses enables the owner of the license to perform the composite functions of super agents, PTSPs and PSSPs. This all-purpose license called the Payment Solution Services License would enable the fintech company in question to perform all Payment Solution Service. The minimum capital to be maintained as required by all such PSSs isN250,000,000 (two hundred and fifty million Naira).
3.3.1 Super-Agent License
This license enables a Fintech company to recruit, manage and ensure compliance to regulations by agents. The minimum capital to be maintained as required by all such super agents is N50,000,000(fifty million Naira).
3.3.2 Payment Terminal Service Providers License (PTSP)
The PTSP license allows the licensee to perform Point of Sale(POS) and Payment Terminal Application Developer (PTAD) to train and support merchants and agents. The minimum capital to be maintained by all such PTSP Licensees is N 1,000,000 (one hundred Million Naira).
3.3.3 Payment Solutions Service Providers License (PSSP)
This license enables the holder to offer portals for processing payments, offer general payment solutions or develop payment applications software; or offer merchant services, aggregation or collection of payments services. The minimum capital to be maintained by all such PSSP Licensees is N 1,000,000 (one hundred Million Naira).
3.4 Regulatory Sandbox
A regulatory sandbox simply refers to a testing environment that allows companies test their goods and services under the supervision of regulatory bodies in a bid to enhance innovation. The CBN issued the Framework for Regulatory Sandbox Operations on 12th January, 2021. The Framework defines the establishment , rules and operations of a regulatory sandbox for the Nigerian payments system to promote effective competition, embrace new technology, encourage financial inclusion and improve customer experience with a view of engendering public confidence in the financial system. Persons eligible to participate in the sandbox include existing CBN licensees , including FinTech companies and new entrants in the FinTech and telecommunication sectors who intend to test an innovative payment product or service acceptable by CBN. Also, persons proposing non-regulated financial products and services using emerging technologies can apply to participate in the sandbox. A participant in the sandbox can opt to exit the sandbox by applying to the CBN in writing to discontinue its operations in the sandbox.
3.5 Value Added Service License
Fintech companies that provide and operate mobile payment platforms must in addition also obtain Value-Added Service (VAS) License as issued by the NCC. This license is mandatory for organizations that provide value-added mobile/fixed services.
The Fintech sector in the country is fast evolving and as a result, CBN and other regulatory bodies have taken steps to ensure compliance and healthy competition within the sector. The CBN recently issued a new directive stating the licensing categories within the sector with a view to ensuring uniformity of licensing. There is no singular code that addresses this sector and a bulk of the rules within the sector are derived from Regulations and circulars issued from time to time by the CBN. There is no direct regulation on fintech operations in Nigeria. Steps should be taken to ensure a proper framework to specifically govern this sector. There should be a collaboration among the different regulators to create a uniform regulatory regime. And to further bolster the growth and development of this sector, government should introduce incentives for startups. Furthermore, regulatory bodies are entreated to eschew policies or regulations that can likely stifle innovation or growth in any way.
Israel Olawunmi writes from Lagos. He can be reached at firstname.lastname@example.org
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Adeyemi Adepetun, ‘Nigeria Pushes Fintech Revolution in Africa, Revenues to Hit $543m by 2022’, (The Guardian, 2021) https://guardian.ng/technology/nigeria-pushes-fintech-revolution-in-africa-revenues-to-hit-543m-by-2022/ accessed 28 November, 2021
Sections 1 and 57(2)(i) BOFIA 2020; see also; section 2 CBN Act
 Section 15 NDIC Act
Section 8 CAMA 2020
Section 13 ISA 2007
Nairametrics, ‘SEC Publishes New Crowdfunding Regulations Limiting Investment to 10% of Income’ (Nairametrics.com, 2021) https://nairametrics.com/2021/01/26/sec-publishes-new-crowd-funding-regulations-limiting-investment-to-10-of-income/ accessed 28 November, 2021
https://www.cbn.gov.ng/out/2021/ccd/framework%20for%20regulatory%20sandbox%20operations.pdf accessed 28 November, 2021