The Nigerian Government, through the Central Bank of Nigeria (CBN), is making a new attempt to regulate FinTech companies. Vanguard News reports reveal that the CBN is presently drafting new measures to supervise and regulate what Nigerian FinTech companies do. This came to light at the Annual General Meeting (AGM) of Nigeria electronic Fraud Forum (NeFF) on Thursday, 28 June 2018.
However, the CBN has made it clear the new regulations are not negative to the industry. It is not aimed at slowing down innovation in the conservative finance industry.
Our favourite Nigerian FinTech companies:
– @PiggyBankNG automate your savings
– @alat_ng a Digital Bank
– @YOCHAAapp info about the Nigerian stock exchange
– @mypaga for mobile payments
– @bitkoinafrica for buying Cryptocurrency
– @cowrywise for automated investing
— Enlite Global Services (@EnliteGlobal) June 14, 2018
According to Mr. Dipo Fatokun, Director at CBN’s Banking and Payments System Department, “Because of the importance of these FinTechs, CBN is drafting guidelines that would enable their regulation and supervision to be put in place.”
Fintechs are Not Threats to Traditional Banks
There have been a lot of concerns about the role of FinTechs in the Nigerian finance industry. A major concern has been that FinTechs could displace traditional finance industries. This worry is not exactly unfounded, however.
Fintech companies, as typical of startups, are very innovative companies specializing in financial services. These companies are lean and usually focus on a particular area of the finance industry. For instance, companies like Flutterwave and PayStack focus on payments processing; while companies like PiggyBank and Paylater.ng focus on saving and loans.
Yet, none of these companies has made the leap to develop into a full-scale bank. And thanks to their limited nature, these companies have limited regulatory limitations, thus, allowing them more room to disrupt the finance industry.
I see FinTechs proclaiming the death of Nigerian banks.
Guys, how now?
— Ighodaro Alonge (@Ighodaro1) June 27, 2018
Now, this has been a major worry for traditional companies. With heavy regulations on them, traditional finance companies such as banks and insurance companies innovate slowly. For instance, while FinTechs have developed interoperability with banks, some banks still struggle to develop stable apps for their customers.
Flowing from these concerns, some believe that to protect traditional finance companies, regulatations for the FinTech industry are long overdue .
Some Activities will be Ceded to Fintech Companies
Meanwhile, the CBN has come out to dispel that notion. “There is this fear, probably in some quarters that FinTechs will take over the role of banks but we believe that will not happen,” said Mr. Dipo.
However, “some activities will have to be ceded to these FinTechs”, he added.
This Note of warning to all Nigerian Fintech companies .
Without the regulators protecting you, whatsapp payment will uproot you and you will go home .
Stop taking pictures with VP yemi osinbajo without demanding for this protection.
Don't be ashamed to ask.
Neo-colonization ! pic.twitter.com/ggj3e4AD7m— Olayinka Oluwakuse (@NaijaAristocrat) June 28, 2018
Mr. Dipo shared that the new regulations would tighten the engagement of all stakeholders to increase knowledge and information sharing. It also aims to deepen the payment system capacity against electronic fraud.
“The issue of stability, trust in the payment system is very close to the heart of the management of CBN, so each time the governors come together they discuss it and issue guidelines and that is a continuous process,” he stated.
Talks of Regulation Not New
This is not the first time the CBN has talked about regulating the FinTech industry. In March 2018, the CBN released a regulatory sandbox for FinTechs.
At the time, the sandbox was intended to facilitate digital innovation by financial technology companies.
However, a sandbox approach doesn’t seem like a workable model to support fintech innovation. Also, the CBN clearly misunderstood the definition of startups.
For instance, it defined startups as “small companies” owned by “young Nigerians that have great ideas, but lack the financial wherewithal to bring out their products or even integrate with the banks.”
Since the financial crisis, more than 3,300 new fintechs have launched, 40% of which are focused on banking & capital markets. Fintech VC has increased 13-fold since 2010. One huge win is that MPL now makes up 24%, or $18 billion, of all personal loans.
— Michael B. Gilroy (@MBGilroy) June 28, 2018
Meanwhile, startups are not necessarily small companies neither do they “lack” the finance. Startups are designed to offer limited services and to scale quickly.
Admittedly, any new regulatory measure must take recognition of this fact.
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