There’s no doubt that Nigeria’s FinTech industry has been growing rapidly over the past decade, reducing the stress on how people transact, save, and invest.
With over 200 FinTech startups eyeing the top position for dominance, it would seem like Nigeria’s finance industry has improved significantly.
However, behind the scenes of this thriving industry lies a hidden vulnerability nearly all FinTechs rely on a single entity, the Nigeria Inter-Bank Settlement System (NIBSS), to process transactions.
This dependence on a centralized payment infrastructure raises serious doubts about the reliability, competition, and long-term sustainability of digital payments in Nigeria.
NIBSS, a private company owned by the Central Bank of Nigeria (CBN) and all licensed commercial banks, serves as the backbone of the country’s financial transactions. Its main service, particularly the NIBSS Instant Payment (NIP) platform, is to enable transfers between different banks and bulk payments, making it important to both banks and FinTech companies.
As of today, over 90% of all digital transactions in Nigeria pass through its network. The total volume of transactions processed by NIBSS increased by 47.99% to 5.14 billion in 2022, compared to 3.47 billion in 2021. For FinTechs like Paystack, Flutterwave, Moniepoint, OPay, Paga, Interswitch and Kuda, integrating with NIBSS is not just a choice, it is a necessity. Without access to its platform, these companies would struggle to offer hassle-free financial services.
Although NIBSS has been very reliable lately, its dominance poses a huge risk. If this system fails, it could trigger disruptions and transmit shocks to financial markets, the domestic economy as well as at cross-border levels. Similar situations in the past have resulted in transaction backlogs, leaving many unable to access their funds for hours or days.
Now, if a cyberattack or a major technical failure were to cripple NIBSS, the entire digital payment system could halt, which will expose the dangers of relying on a single point of failure. In an economy where cash usage is declining fast and digital payments are becoming the norm, this level of dependency is alarming.
In February 2022, the Nigeria Inter-Bank Settlement System (NIBSS) experienced significant downtime, leading to widespread transaction failures and delays across the country.
This disruption affected numerous businesses and consumers, highlighting the risks associated with the centralized nature of Nigeria’s payment infrastructure.
For instance, many bank customers reported being unable to complete interbank transfers, causing inconvenience and financial strain.
Such incidents underscore the urgent need for Nigeria to diversify its payment systems and reduce over-reliance on a single entity like NIBSS to ensure a more resilient and efficient financial ecosystem
Beyond the operational risks, the FinTech industry’s reliance on NIBSS hinders innovation. Even though startups compete on user experience and additional features, they remain focused on a payment platform controlled by a single entity. This limits their ability to develop proprietary transaction-processing solutions.
In countries like Kenya and India, alternative payment networks like M-Pesa and the Unified Payments Interface (UPI) have allowed FinTechs to create independent, creative payment models.
In Nigeria, however, any disruption to NIBSS leaves FinTech with no viable alternative, bringing back the need for a more decentralized system.
Regulatory uncertainty further increases the risks. Because NIBSS operates under CBN’s regulatory framework, its policies directly impact FinTech.
The regulatory system is unpredictable, and if the CBN were to introduce stricter control over NIBSS operations, FinTech companies could find themselves constrained in ways they never anticipated.
To reduce over-reliance on NIBSS, Nigeria must embrace a decentralized approach to digital payments by working on alternative payment networks.
Private-sector-led initiatives, such as Verve by Interswitch, could be expanded to provide more transaction-processing options.
Open Banking platforms should also be leveraged to allow the process of direct bank-to-bank transfers without routing everything through NIBSS.
With the rise of Open Banking, FinTechs should be able to process direct payments between bank accounts without relying solely on NIBSS. Countries like the UK (via Open Banking) and Brazil (via Pix) have successfully launched such models.
While NIBSS is an important player in the Nigerian financial industry, Nigeria’s FinTechs must not place all its eggs in one basket. Over-reliance on a single entity is risky, which may expose the industry to risks of disruption, regulatory shocks, and limited innovation.
If Nigeria is to achieve a truly welcoming and creative financial platform, it must prioritize the development of alternative payment solutions that can function independently of NIBSS.
The progress of FinTech in Nigeria depends not just on big names but on creating a payment infrastructure that is decentralized, secure, and adaptable to change.
*Morgan Nwaiku is a digital technology professional. His career spans collaborations with Nigeria’s FinTech unicorns and hubs.
