BusinessDay
NigeriaDecides2023

How regulator, fintech alliance can boost Nigeria’s economy

The lack of understanding between operators and regulators in Nigeria’s fintech space continues to threaten the growth of the emerging industry and its potential to contribute to the economy.

This was according to experts at the Future of PayTech Conference organised by BusinessDay, Tuesday in Lagos.

Nigerian fintech or paytech companies have led the about $2 billion investment that has come to tech startups in Africa and contributed to two of the unicorns the continent has so far.

The adoption of fintech services is on the rise with companies like OPay, Paga and TeamApt, among others, competing.

At the Future of PayTech conference, Mastercard notes that contactless payments adoption grew by 50 percent in 2020 and 2021. It also exceeded 1 billion additional transactions through contactless payment, indicating that consumer adoption is significantly growing.

Apart from courting the attention of investors, there is a growing attraction from criminals. The Nigerian Financial Intelligence Unit (NFIU) said in the past five years it had received 1,700 intelligence reports on fraud and related crimes from financial services providers. With a growing number of cyber criminals lurking in the shadows for unsuspecting consumers to steal passwords, plant malware, or launch a phishing attack, Nigeria’s march towards a digital economy faces some uphill tasks.

But regulators are starting to respond, although slowly. For example, the National Identification Number (NIN) mandated by the Nigerian government has become compulsory that individuals and enterprises provide to access certain services. This is also becoming a staple with people doing business outside the country.

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“If you are importing something on Amazon, they are going to ask for your NIN,” Esigie Aguele, co-founder/CEO, VerifyMe Nigeria, said at the conference on Tuesday.

Aguele explained that the requirement was because of the importance of identity in regulators’ fight against fraud and all forms of criminality. The poor attention the country paid to identification in the past has often put financial services operators at the receiving end of attacks, especially now that they are migrating to mobile banking. Web and mobile contributed to 81.2 percent of total fraud experienced by financial institutions in 2020, according to Eunice King, head of technology, Nigeria Inter-Bank Settlement System plc (NIBSS).

Part of the challenge with keeping consumers safe online is low understanding on the part of regulators of how the fintech industry works. This is partly behind some of the policies released in recent times by the Central Bank of Nigeria (CBN).

The cryptocurrency market in Nigeria, which leads the African continent in terms of peer-to-peer transactions, was nearly brought to a standstill over a restriction by the CBN on banks from providing financial services to businesses in the market.

According to Ray Youseff, co-founder/CEO of Paxful, restrictions are not new and exclusive to Nigeria, nonetheless, response of the consumers has been remarkable in terms of not letting the regulator stop them from being a part of global payment technology.

“We saw more transaction growth after the CBN restriction,” he said.

The regulator’s understanding can be enhanced by constant engagement with the market. Unfortunately, most of the decisions to place restrictions on the fintech industry have been handled without talking to the players in the market.

For example, the cryptocurrency market has for a long time implemented strict Know Your Customer (KYC) measures, hence exchange operators like Hanu Agbodje, CEO and founder of Patricia Technologies, said the CBN restriction on the market was not for lack of KYC because operators already do that.

“We need to start having conversations with the regulators,” Agboje said.

Some experts are hoping that the introduction of the regulatory sandbox and Open Banking would build the bridge between the regulator and the new players in financial services. Usually, banks, which are the largest custodians of consumer data, are not receptive to the idea of sharing data with fintech companies, and only a few allow access to their Application Programming Interface (API) – a software intermediary that allows two applications to talk to each other.

Open banking, also known as ‘open bank data,’ is a banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of API.

On February 17, the CBN issued the Regulatory Framework for Open Banking in Nigeria. The purpose of the Framework is to enhance financial inclusion, foster the sharing and leveraging of data with third-party financial services firms to build solutions and services that provide efficiency, greater financial transparency, synchronisation, and options for account holders across Nigeria to interoperate within the financial system in Nigeria.

Ezinne Obikile, executive director, Payment Gateway and Infrastructure, SystemSpecs, said while the issue of the framework was commendable, “it is enforcement and compliance that is the biggest challenge.”

The country’s financial system has certainly benefited from an early investment in banking infrastructure, which has given Nigerian banks the upper hand in many areas to launch digital banking services.

However, Jay Alabraba, co-founder and director of Business Development Paga, said those efforts were not translating to growth in financial inclusion because policy enforcement was relatively low. “Regulators can do better with enforcement,” he said.

Poor enforcement means that other players in the market are suffering from the lack of confidence consumers have in fintech services. For example, companies that are operating without licence endanger other players who have gone through the process, noted Matthew Ani, chief information security officer, Global Accelerex Limited.

“There is a need to increase registration and licencing of all operators in the market. The framework we have is sufficient to address some of the risks that we see,” Ani said.