...as battle for digital banking market rages
By AYOOLA OLAOLUWA
Nigeria’s booming digital and agency banking sector is heading for a major shake-up with the introduction of tougher regulations aimed at preventing excessive market concentration among leading operators by the Central Bank of Nigeria (CBN).
The move by the apex bank signals a new phase in the battle for control of a market that has witnessed explosive growth over the past decade.
For years, financial technology companies have led the digital banking revolution, building extensive agent networks that process billions of naira in daily transactions.
Their rapid growth has helped deepen financial inclusion. It has also raised concerns among regulators about systemic risks, consumer protection and the dangers of market dominance, which has left the Money Deposit Banks, MDBs scrambling to catch up..
The CBN, in a major move aimed at curbing market concentration in the country’s payments ecosystem, last week announced new regulations, including limits on the market share operators can hold across card issuing and merchant acquiring services,
While card issuing refers to the provision of payment cards to customers, merchant acquiring involves processing card payments on behalf of businesses.
According to a circular signed by the apex bank’s Director of the Payments System Supervision Department, Rakiya Yusuf, obtained by our correspondent, the measures are aimed at addressing concerns over market concentration, operational dependence, systemic importance and the localization of payment transaction data.
Risk Concerns
The CBN disclosed that rapid growth in electronic payments and digital financial services has increased the market presence of some operators, raising concerns about competition and resilience in the sector.
“Accordingly, the CBN hereby issues this Circular to improve transparency through beneficial ownership disclosure, address concentration risk, promote a fair, competitive, and resilient payments ecosystem.
“The Circular further aims to safeguard the integrity of the Nigerian payments system and ensure the localisation of payments transaction data within Nigeria”, the regulator
The regulator specifically stated that any financial institution controlling more than 25 percent of the card issuing market would be restricted in its participation in merchant acquiring services
“Any licensed financial institution engaged in card issuing activities, whether individually or part of a group of related entities, that holds more than twenty-five percent (25%) market share in card issuing within any rolling twelve-month period shall not hold more than fifteen percent (15%) market share in merchant acquiring activities during the same period.
“Any licensed Financial Institution engaged in merchant acquiring activities, whether individually or as part of group of related entities, that holds more than twenty-five percent (25%) market share in merchants acquiring activities within any rolling twelve-month period shall not hold more than fifteen percent (15%) market share in card issuing activities during the same period”, the CBN added.
While the new regulations are designed to ensure no single operator gains overwhelming control of the ecosystem, it places dominant players such as OPay, Moniepoint and PalmPay under increased regulatory scrutiny and restrictions due to their popularity at a time when digital payments are expanding rapidly across the country.
According to industry players, who spoke to our correspondent on the matter, the new measures will largely alter the competitive landscape of the digital banking market, where fintechs have emerged as key providers of financial services to millions of Nigerians, particularly in underserved and rural communities.
Implications for Fintechs
BH findings revealed that if the new CBN requirements are followed up to the letter, leading digital banking operators like Moniepoint, Opay and Palmpay are going to be heavily impacted as they currently control a large chunk of the nation’s digital banking market acting as card issuers and merchant acquirers.
According to available data, over 42% of unbanked or underbanked Nigerian adults operated a cash based economy outside the formal system as at December 2020.
However, fintechs like Opay, Palmpay, Moniepoint, Paga and others have been able to close the gap through agency banking, especially during the Covid19 lockdown periods of 2020 and CBN’s currency redesign exercise in 2022 that created naira scarcity.
Millions of Nigerians who were locked out of opportunities to grow their businesses or access cash to improve their livelihoods were provided lifelines by the fintechs.
Rather than investing billions of naira in new branches that take time to build and maintained, the fintechs leveraged on existing micro-entrepreneurs, including local kiosks, neighborhood grocers and market men and women, who became financial service providers (agents) overnight.
Equipped with POS devices, mobile phones and other digital platforms, these agents were able to handle deposits, withdrawals, bill payments, transfers, as well as opening new accounts for customers.
“They (fintechs) have been able to provide financial access tp many customers within walking distance from their homes and businesses using people they already know and trust.
“As a results, fintechs that invested heavily in digital have been able to rapidly extend into areas that were previously unreachable at a fraction of the cost spent by conventional banks.
“Through branchless banking, they (agents) now perform financial transactions at minimal cost, which ordinarily are performed within physical branches by bank personnel.
“”In practical terms, these agents are human ATMs or mini-branches in their communities. With POS terminals, mobile apps, and dedicated platforms, they help customers deposit money, withdraw cash, pay bills, transfer funds and easily open new accounts that are rigorous and take ages to accomplish in banks”, said Dr. Peju Beckley, a financial expert based in Lagos.
Double Advantage
BH checks revealed that Opay, Palmpay and Moniepoint, as merchant acquirers, currently provide businesses the window to accept card payments from customers by setting up merchant account and providing POS terminals and payment gateway services for in-store and eCommerce merchants.
According to available data, the trio combined, apart from controlling over 75 percent of POS terminals in the country, are licenced by the major card firms, Mastercard, Verve and Visa to accept credit or debit card payments for merchants.
Likewise, fintech companies also function as card issuing houses. What this means is that they directly issue payment cards to customers.
Checks revealed that the processes of issuing payment cards by fintechs are effortless. In most cases, issued cards are either collected directly from kiosks where they are applied for in minutes with the provision of just the BVN and NIN, or mailed to customers homes, shops and offices.
Owing to the ease of banking with them, fintechs have become the first choice of many Nigerians, especially lower and middle level customers.
Available data and states wide survey conducted by BH indicated that the three leading fintechs, Opay, Moniepoint and PalmPay, control over 65% of the nation’s rural and urban banking population amongst themselves.
A trader at the popular Agege Market in Lagos, Lateef Oladapo, told our correspondent that he prefers using fintechs services because of their advantages, such as transaction speed and lower charges, and less default.
“Fintechs are the favourites of most Nigerians now. Even, most people in the cities have one or two fintech accounts despite banking with conventional banks. They are attracted to fintechs firms because of their high speed and low or zero transaction charges, compared to banks high charges.
“I make sales of N650,000 to N1 million on a daily basis, which go into my Opay and Palmpay accounts.
“While transfers are free, you are awarded cash bonuses on every transaction made, whether transfers, bill payments, and airtime and data purchases.
Financial Incentives
“The icing on the cake is the daily interest I get on the balance in my account. Depending on my account balance, I get daily interests of between N950 to N1,700 which I don’t normally get from my banks that always bill me for everything, even for unsolicited seasonal greetings they often send to me”, Oladapo noted.
However, with the new CBN guidelines which put a cap of 25% and 15% market share (whichever comes first) on merchant acquiring activities and card issuing activities, the three leading fintechs with the biggest market share, Opay, Moniepoint and PalmPay, may likely experience slower customer growth.
The development has continued to raise dust in the industry. While supporters of the CBN move view the measures as necessary to prevent monopolistic tendencies, critics argue that excessive regulation could stifle innovation and weaken the momentum that has made Nigeria Africa’s leading fintech hub.
According to Tope Ilebaye, a financial analysts, the new measures will likely increase compliance costs and slow the aggressive expansion plans of major operators.
“While the CBN’s intervention could promote healthier competition and strengthen the sector’s long-term stability, the result will be a fierce new battle for market share as fintechs adapt to a stricter regulatory regime.
“I see the tougher regulatory framework slowing the pace of expansion for some operators, increase operating costs and trigger a fresh wave of consolidation within the sector”, Ilebaye cautioned.