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NIBSS directs banks to disconnect unlicensed deposit-taking FinTechs over regulatory infractions

Some FinTech Companies in Nigeria

*The Nigeria Inter-Bank Settlement System warns the Financial Technology (FinTech) companies holding switching, payments processing, and superagent licences are non-deposit-taking institutions, and should not be listed as beneficiary institutions when consumers attempt to make bank transfers in the country’s digital financial ecosystem 

Isola Moses| ConsumerConnect

Sequel to recent concerns about regulatory infractions and the need to protect consumers of financial products and services in the digital ecosystem, the Nigeria Inter-Bank Settlement System (NIBSS) has cautioned unlicensed financial services companies posing as deposit-taking institutions.

ConsumerConnect learnt the industry developments could be an obvious sign that the regulators need to intensify enforcement, following outcry over frauds and lapses in customer verification processes by payment providers in the country’s financial ecosystem.

NIBSS, which operates Nigeria’s ubiquitous instant payments system used by all financial services providers, has ordered commercial banks, mobile money operators and microfinance institutions to disable outward fund transfers into wallets operated by such firms.

The agency, in a memo dated and issued December 5, 2023, which was addressed to banks, FinTechs, and other payment providers, the Nigeria Inter-Bank Settlement System warned that companies holding switching, payments processing, and superagent licences are non-deposit-taking institutions.

Licence categories and obligations

The regulatory agency emphasised that they “should not be listed as beneficiary institutions when customers attempt to make bank transfers.”

It stated the superagents, Payments Solution Service Providers (PSSPs) and switches are three crucial players providing payment infrastructure and offline distribution that have accelerated financial inclusion over the last decade.

According to the regulator,   the PSSP licence category authorises companies, such as Paystack, Flutterwave and eTranzact, to operate digital gateways for card payments and money transfers by everyday consumers and enterprise customers.

Ngover Ihyembe-Nwankwo, Executive Director of Business Development at NIBSS, noted: “Listing (these) institutions… as beneficiary institutions on your NIP funds transfer channels contravenes the CBN Guidelines on Electronic Payments.”

It said that a switching licence allows FinTechs, such as Remita, HabariPay, Moniepoin and Interswitch, to quickly settle transactions without relying on the real-time infrastructure provided by NIBSS.

And the superagent licence, used by Y Combinator-backed Nomba and Interswitch Financial Inclusion Services Limited (also called Quickteller Paypoint), has been a pivotal category driving financial inclusion, authorising companies to build a network of retail agents equipped with a point-of-sales device to provide payments services across the country.

However, some companies holding any of the three licences might also hold other banking licenses, allowing them to hold deposits.

Companies like Moniepoint simultaneously hold a microfinance bank licence, which ensures deposits are insured by the Nigeria Deposit Insurance Corporation (NDIC). Telecoms companies, such as MTN Nigeria and Airtel Networks also hold a superagent licence and a payments service bank licence, allowing them to operate a wide range of services.

The regulator noted that superagent companies rely on banks to secure POS devices and digital wallets for consumers. According to the Central Bank of Nigeria (CBN), there are nearly 50 superagent companies in Nigeria, at least 75 PSSP licence holders and a little over a dozen switching companies.

What’s CBN policy on FinTechs?

ConsumerConnect reports that any FinTech companies offering financial services to Nigerian consumers must obtain the appropriate licences and comply with CBN’s applicable guidelines.

Similarly, the NDIC is responsible for insuring all deposit liabilities of licensed banks and other deposit-receiving financial institutions in Nigeria.

Recent regulatory infractions by certain FinTechs

It is, however, observed that over the last few years, as FinTechs have expanded, and several of these companies now offer deposit-taking services.

Excluding Deposit Money Banks (DMBs) or commercial banks, payments service banks and microfinance institutions, there are less than two dozen financial institutions, namely Mobile Money Operators, licensed to accept and hold consumer deposits directly, according to the CBN regulation.

Nonetheless, it is noted that on consumer payments apps, including bank apps, the list is much larger, and includes dozens of unlicensed deposit-taking companies, such as superagents and switches, said the regulator.

The NIBSS stated in the circular: “Switches, PSSPs and (superagents) may process outward transfers (from wallets) as inflows to banks, but are not to receive inflows as their licenses do not permit them to hold customers’ funds.”

The NIBSS latest order could purge several FinTechs away from consumer payments apps, as banks and FinTechs tighten scrutiny over illicit fund transfers and concerns over weak verification processes by other companies in the ecosystem.

It was learnt the financial services companies are also proposing other initiatives to strengthen security and anti-fraud measures in the industry.

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