CBN’s new payments licence regime may roll out soon
The Central Bank of Nigeria (CBN) is planning to roll out a new payment licence for fintech companies.
In late 2018, the regulator released an exposure draft detailing a new licence framework for payment companies.
The framework would reorganise payment licences for payment companies.
Currently there are alphabet soups of licences including Payment Terminal Service Providers (PTSPs), Mobile Money Operators (MMOs), Payment Solutions Service Provider (PSSP), switches, super agents and a few others.
The proposed framework would categories all these under the Payments Services Providers (PSP). It would reorganise all previous licences under three categories: PSP Super License, PSP Standard License and PSP Basic License.
However more than one year after releasing the PSP draft the proposal is yet to become active.
But according to Mr Bukola Akinwunmi, the PSP proposal could become active “soon”, although he gave no timeline.
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
The PSP framework is one major attempt by the CBN to streamline the licencing regime for fintechs in Nigeria. However, it is a bit different from what many startups would prefer.
On the one hand, the capital requirements 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, startups would prefer to dedicated licences that supports digital banks.
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.
The CBN has no plans to roll out a digital banking licence anytime soon, a source at the regulator told TechCabal. The focus for now is on payments.
“After the Payments System Vision was released in 2007, payments became the payment 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.
While payment is at the core of fintech service, many startups would like to do more. To offset this, a number of startups have acquired microfinance banking (MFB) licence for this purpose.
Unlike the regular commercial bank licence, the MFB licence is a low-cost quick fix for startups. It allows them to accept deposits and provide lending services; the most basic banking services.
But it does carry some constraints. For example, they can’t offer international payment services.
Also, in keeping to philosophy as a financial inclusion mechanism, the MFB licence is divided into three. One licence allows startups to operate banking services nationally, while the other two are restricted by location. Fintechs are exploiting this location limitation thanks to their branchless nature and distribution over the internet.
This is a 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.
Meanwhile, regular payments startups without an MFB licence have another trick up their sleeves.
Digital wallets vs regular bank accounts
Startups like OPay and Carbon offer a number of payments and lending services. While they don’t offer actual bank accounts, these startups have “digital wallets.”
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 be used as deposits, but unlike regular bank accounts, they are not insured. Startups also can’t touch funds in wallets or pay interests on funds users domicile.
Regardless of these restrictions, wallets pose a threat to banks according to a report [PDF] by Guarantee Trust Bank (GTB).
“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.
The post Nigerian fintech startups may need to brace up for a change in licence regime appeared first on TechCabal.
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I am the CEO of 9JAGISTLAND.My name is Adedeji Timothy and my co-owner is Oyekola Damilare.This blog is born out of our passion to educating to people in all aspect of internet life.We are enthusiastic about writing posts and articles online.
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