The Federal Competition and Consumer Protection Commission (FCCPC’s) recent directive to all operating payment systems (in Nigeria) including Flutterwave, Opay, Paystack, and Monify to stop rendering payment services to loan Apps, has attracted the attention of the Fintech Association of Nigeria (FintechNGR).
FintechNGR which fosters an ecosystem that supports all stakeholders to achieve a thriving and growing Nigerian FinTech industry has offered to mediate between the Commission and the digital lenders.
The intervention is coming at the time industry watchers suggest that ‘shock regulation’ will be counter-productive and cause cold-feet among investors in the sector.
Records show that Fintechs were responsible for 28% of FDIs to Nigeria in 2021. They accounted for $1.3b out of $4.8b FDIs recorded during the year and have capacity to do $10b annually.
Also, there has been a rapid uptake of mobile technologies in the region with strong economic growth in the past 2 decades. According to statistics by GSMA, 4G, mobile broadband technology, adoption will overtake 2G in 2023 and the total of unique subscribers in Sub Saharan Africa will reach 600 million by 2025, representing half the region’s population.
Therefore, advances in ICT present unique opportunities to bridge gaps in the financial sector in Africa as almost 70% of Africa’s population does not have a bank account.
The issues:
FCCPC has recently opened an investigation into the activities of some digital lenders. The Commission said its investigations revealed that the listed Apps – Maxi Credit, Here4U, ChaCha, and SoftPay, were all under investigation for unethical practices and breach of consumer privacy.
Specifically, it mentioned Soko Loan as the company behind several other Apps being used to circumvent the efforts of the Commission in ensuring privacy.
Babatunde Irukera, the Executive Vice Chairman of the FCCPC, said: “The information available to the Commission demonstrates that Soko Lending appears to be the most consequential digital money lender with multiple apps and brand names covering a significant share of the digital/online lending market, and one of the most prolific actors in violating consumer privacy, fair lending terms, and the ethical loan repayment and recovery practices.”
“The commission has ordered all operating payment systems including Flutterwave, Opay, Paystack, and Monify to immediately cease and desist providing payment or transaction services to lenders under investigation or not otherwise operating with applicable regulatory approvals.
Last year, FCCPC had rallied sister agencies like the Nigerian Police and the National Information Technology Development Agency (NITDA) to clamp down on some digital lenders over the allegations of malpractices and actions inimical to the privacy of their customers.
The Commission on August 26, 2022, released further orders and an Interim Regulatory/ Registration Framework and Guideline for Digital Lending, 2022 as the first and interim step to establishing a clear regulatory framework. Digital lending platforms are to comply immediately with the guidelines.
Chinonye Nnaji, a legal practitioner with banking and finance law expert, in an article titled ‘Consumer Protection Policy for Customers of Digital Lending Platforms in Nigeria; Battle of Regulations’, observed that there has been massive development of online lending platforms in Nigeria, which has increased access and ease to finance.
She acknowledged that requirements to obtain loans from these online platforms are less daunting than from traditional institutions, nonetheless, this influx has brought with it sharp practices that violate consumer protection policies that have become more pronounced in recent years, such as data protection and privacy as well as fair lending and recovery practices.
Nnaji, however, referred to Association of Nigerian Fintech Lawyers’ letter to the Commission which specifically noted that FCCPC ‘is acting beyond its regulatory powers and has requested that stake-holder engagement be conducted as a matter of urgency’.
“A major topic for discussion is that the Commission’s actions amount to regulating money lenders who are providers of financial services.
“The FCCPC also issued an order to payment processors like Flutterwave and Paystack, who are also providers of financial services and have mandated them to stop processing for listed lenders.
“The contention is that the Central Bank of Nigeria is the agency with the power to regulate payment processors and not the Commission”, she re-echoed.
Why FintechNGR’s wants to intervene
Dr. Babatunde Oghenobruche Obrimah, the Chief Operating Officer, FintechNGR, said the Association acknowledges FCCPC’s concerns that business model of some digital lenders must be revisited to reflect modest approach that protects consumer’s privacy and in tandem with existing laws/regulations.
He however, told TechEconomy that FCCPC and other regulatory institutions should not throw away the baby with the bathwater.
Dr. Obrimah argued that with whooping $4.65bn in disclosed funding received by African startups, as shown from available statistics, with over 1.37bn of that amount coming to Nigeria and fintechs in the country taking up a huge 73%, indeed players in the sector deserve government support.
He said that dialogue must not be ruled out to ensure many opportunities to leverage to achieve unparalleled transformation in the fintech landscape are not neglected.
In his words: “FintechNGR as part of its advocacy objectives has offered to mediate a meeting between FCCPC and digital lenders and is only waiting for the regulator to agree on a date.
“FintechNGR believes that engagement is better for the ecosystem and gives investors more confidence as against shocks by regulators especially in a situation like this where the action of FCCPC raises legal issues of jurisdiction”.
Industry players are also expecting the Central Bank of Nigeria (CBN) to give its position to help in clarifying the situation involving FCCPC and some digital lenders.
