In response to a recent mandate by the Nigeria Interbank Settlement System Plc (NIBSS), Nigerian banks are required to disengage non-deposit-taking financial entities, such as Switching Companies (Switches), Payment Solution Service Providers (PSSPs), and Super Agents (SAs), from their Nigerian Interbank Payment (NIP) outward fund transfer channels.
These entities play a vital role in the country’s digital financial ecosystem, facilitating transactions across various platforms, including USSD, mobile banking apps, POS systems, ATMs, and online banking services.
The directive, which aligns with CBN guidelines from February 2014, prohibits these entities from being listed as beneficiary institutions on NIP funds transfer channels.
The circular from NIBSS clarifies that while switches, PSSPs, and SAs may process outward transfers as inflows to banks, they are not authorized to receive inflows as their licenses do not permit them to hold customers’ funds.
This regulatory move highlights the framework within which Nigerian fintechs operate and the expected compliance regarding their licensed financial activities. Consequently, affected fintech platforms without banking licenses will be removed from the fund transfer channels of banks, impacting small business owners who frequently use these platforms for financial transactions.
To navigate these changes, fintech companies are anticipated to expedite actions to obtain banking licenses, ensure legal management of customer funds, and sustain their operations.
The Burden of Approval Fees on Fintech Startups
In the dynamic landscape of Nigerian fintech, the journey from ideation to implementation is often marked by a significant hurdle: approval fees. Fintech startups seeking to operate in Nigeria must navigate a complex web of regulatory requirements, and this journey is not without its costs.
Approval fees for licenses have become a substantial financial burden on these innovative ventures. From securing licenses to operating as payment service providers, mobile money operators, or digital banks, the spectrum of regulatory approvals comes at a price.
Fintech startups are required to allocate substantial resources to cover these fees, ranging from application charges to annual renewal costs. The financial commitment at this stage presents a considerable challenge for many startups, particularly those in their early stages.
Ever wondered what it takes to dive into the fintech world in Nigeria? Brace yourself for a read-worthy ride through the licensing processes.
The Big Shorts (Switching and Processing and Mobile Money Operators)
First off, you need to register your company with the Corporate Affairs Commission—no biggie, right? But wait, the minimum share capital is a whopping ₦2 billion! It’s like trying to find spare change in the sofa cushions.
Now, onto the application to the Central Bank of Nigeria (CBN). Just toss in ₦100,000 as the application fee, because, you know, licensing your fintech empire should come with a touch of financial humor. And guess what? The licensing fee is a cool ₦1 million; it’s almost like they’re saying, “Welcome to the exclusive club of fintech extraordinaires; here’s your bill!”
Let’s switch gears to mobile money operators. Want to join the fun? Register with the Corporate Affairs Commission and prepare to cough up ₦2 billion as your minimum share capital.
Application to the CBN? Just another comedic act. Toss in ₦100,000 as the application fee, because why not add a sprinkle of hilarity to your fintech journey? Oh, and the licensing fee? A hilarious ₦1 million.
The Small Shorts [Payment Terminal Services Providers (PTSPs), Payment Solution Service Providers (PSSP), and Super Agents]
Now, enter the realm of PTSPs—fintech wizards of POS terminal deployment. To play in this peculiar field, you’ll need to register your company and embrace a minimum share capital of ₦100 million.
Applying to the CBN? Just another whimsical escapade. Slap ₦100,000 on the table as your application fee. And the licensing fee? A quirky ₦1 million—because getting in on fintech is all about the unexpected punchlines.
Ready for a web of financial comedy? PSSPs, the fund collectors on the web, are the headliners. Register your company, flash a ₦100 million minimum share capital, and send in your application to the CBN. There is also an application fee of ₦100,000 and a licensing fee of ₦1 million.
Last but not least, super agents – the recruiters and supervisors of financially excluded agents. Register your company, showcase a ₦50 million minimum share capital, and hit up the CBN with your application. There is also an application fee of ₦100,000 and a licensing fee of ₦1 million.
If you’re diving into the world of financial technology, you must ensure you do it with a smile!
Ripple Effects on the Fintech Ecosystem in Nigeria
The repercussions of high approval fees resonate throughout the fintech sector, influencing both overall growth and the behavior of founders.
First off, only a handful of fintech startups will be able to complete the clearance procedure due to the barrier to entry created by these payments. This could potentially stifle creativity because of the possibility that financially strapped ideas would never be realized.
Furthermore, founders’ financial strain frequently compels them to look for outside capital, which affects their strategic choices and can potentially lessen their influence over the firm.
In addition, the cost of approval fees makes Nigerian fintech founders more circumspect. When faced with the significant financial outlay necessary for licenses, founders could choose safer, tried-and-true models in an attempt to get a faster return on investment. This conservative approach may unintentionally inhibit inventiveness and decelerate the rate of industry transformation.
In essence, the high approval fees create a delicate balance between regulatory compliance and fostering a vibrant and innovative fintech ecosystem in Nigeria. As stakeholders evaluate the regulatory landscape, finding a sustainable balance becomes paramount for the continued growth and dynamism of the fintech sector in the country.
