CBN’s Draft Policy For FinTechs: False Step or Spot On?

Nigeria’s apex bank, the Central Bank of Nigeria has recently published its draft policy governing and regulating the activity of technology-based finance Startups or financial technology companies, also known as Fintechs.

The document, which was made public on the 15th of November 2018, stipulated a number of new minimum regulatory requirements for operators in the Fintech space, some of which industry players and watchers have questioned their rationale.

Being a regulatory body for financial and monetary policy in the country, the CBN has oversight on financial industry players, which include the operations of these technology companies, (Fintechs), who have disrupted the space with solutions that often do not require massive capital entry requirements, unlike conventional banks.

Implications of the CBN’s New Fintech Policy|

Could it be that the CBN, by way of this policy, is pushing to have the highly capitalized incumbents – the banks – swallow up, by way of acquisitions, these Fintech companies, most of whom may not meet the minimum regulatory financial requirements?

The new policy draft requires Fintech players at different tiers, to be capitalized with funds from between N50 million to N5 billion. The cap benchmark, of which, many of the current players may struggle to meet without significant challenge.

In the last few years, the Fintech space, saw the emergence of digital banks like Alat.ng, payment processors like Paystack, Flutterwave and Remita, online savings and lending platforms like CowryWise, Paylater.ng, Piggybank.ng, all of which have processed billions of transactions since inception and made financial services simpler for users.

Fintechs And Fraud: Necessitating Greater Risk Management

According to the Nigerian Electronic Fraud Forum’s report for 2017 published by the CBN, the Nigerian payments ecosystem, saw an 85% rise in reported fraud cases, versus the previous year, as well as a loss of N2.1billion in actual value, due to online fraud.

There has also been the demise of some Fintech players and platforms, notably payment platform like SimplePay, one-time fastest growing mobile payment Startup in Nigeria, Zoto, as well as a number of failed peer-to-peer funding platforms, with not too pleasant tales left in their wake.

Perhaps, the new CBN policy is a precautionary step to avert financial losses and reduce end-user risk of these technology-based financial service providers.

The Apex bank’s capitalization requirements, however, for the Fintechs, most of whom have a capital base of less than 10% of the required N5billion, appears ill-advised and arbitrary.

Based on the information made available by the apex bank in the policy draft, there seems to be no clear metric, delineating how exactly it arrived at the figures for the different tiers of licenses, for the Fintech players.
As much as there is a need for regulation and oversight in the Fintech space, there is also the need for closer stakeholder consultation and more importantly, enabling, realistic policy frameworks that will grow the fledgling sector, rather than stifle it.