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Fintechs move to take over credit market

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…banks’ dominance threatened
By AYOOLA OLAOLUWA
Some licensed financial technology (Fintech) firms operating in the country have started a move to break SystemSpecs Limited’s monopoly in the management of the Federal Government Treasury Single Account (TSA).
According to Business Hallmark findings, though the fintechs started their move against SystemSpecs over two years ago, the bad blood worsened in November 2018, when the company announced that individuals and companies using Remita to make payments into the TSA account of the Federal Government would have to bear the costs associated with using the platform.
This followed the Federal Government’s directive on immediate implementation of the global e-payment pricing system whereby the people making payments bear the costs for the service rendered. Unable to bear the new demands, the angry fintechs decided to launch a campaign to break the monopoly enjoyed by SystemSpecs.
Findings revealed that the firms, apart from employing the support of relevant government’s agencies towards ending SystemSpecs monopoly, which they described as unhealthy for competition, are also offering mouth watering commissions to the government in order to get a cut of the cake.
SystemSpecs was founded in 1991 by John Obaro. Then, it was more of business to business company selling software to organisations.
Subsequently, one of its products, Remita, was adopted by all 22 commercial banks and over 400 micro finance banks operating in the country.
It later became the flagship creation of the company after its adoption by the Central Bank of Nigeria for payment and collections of funds on behalf of the Federal Government for the TSA in 2015.
The Accountant General of the Federation (AGF), Ahmed Idris, while speaking on July 11, 2019, had said that the e-payments and e-collections platform had collected over N10 trillion from the implementation of the Treasury Single Account (TSA) from 1,674 MDAs.
He said under TSA, government was able to save over N45 billion monthly in interest on ways and means that it used to pay before the full implementation of the TSA. Ahmed further disclosed that N50 billion had so far been mopped up from commercial banks as a result of TSA implementation.
“Other achievements recorded since TSA became fully operational include the elimination of cash handling costs and ability to determine consolidated federal government cash position.
“There has also been significant improvement on Federal Government liquidity position, improved revenue collection mechanism through e-collection and better cash management capabilities,” the AGF had said.
BH findings show that while SystemSpecs charge one per cent transaction fee on all inflows and outflows through the TSA, the money is shared among the payment electronic platforms, namely banks, CBN and SystemSpecs. The one percent transaction fee charged for TSA transaction was based on agreement between the CBN, payment platforms and the Federal Government.
This is reflected in a CBN circular to all banks dated December 17th, 2013, which stated, “A fee of 1% of funds collected is payable. This includes solution provider and participating bank fees”. Further investigations also reveal that the fee sharing arrangement under the TSA states, “For E-payment: A tariff of N100 per million naira transaction, with 40 percent to CBN, and 60 percent to SystemSpecs.
“For Collections: A tariff of 1% of funds collected shall be charged for the government revenue collections, to be shared as follows: Platform Owner/SystemSpecs-50 percent; Collecting Agents/ Participating banks-40 percent; CBN-10 percent.
Also, when compared with the pre-TSA regime where government was earning 0% interest on its funds outside the CBN and paying about 15% on government borrowings in terms of bonds, the 1% TSA fee is a better bargain for the Federal Government.
Also, the 1% charge on collections is in huge contrast to what obtained before TSA where various MDAs independently entered into different collection contracts with different providers of collection services with charges in some instances being over six to ten per cent in some cases. This was in addition to holding of government funds outside of government control in some instances for as long as 90 days.
Going by the AGF’s declaration in July that the TSA has generated over N10trn, participating firms would have earned at least N100bn. With the sharing formula of Platform Owner/SystemSpecs-50 percent; Collecting Agents/Participating banks-40 percent; CBN-10 percent, SystemSpecs would have pocketed N50bn, making its owners instant billionaires, banks, N40bn and the CBN, N10bn.
However, while SystemsSpecs has received kudos for making available the Remita platform to drive the Treasury Single Account (TSA), its competitors are crying wolf, insisting the platform enjoys a monopoly that creates an unhealthy environment for competition among FinTech companies.
The firms jostling for a share of the TSA account include Electronic Settlement Limited (ESL), eTranzact, Interswitch, Chams Mobile Ltd, VTNetwork, etranzact, among many others. In their quest to have their own cut of the lucrative contract, the fintech firms wrote several petitions against SystemSpecs to the National Assembly, alleging safety and security implications of having only one firm managing the income portal of the Federal Government.
BH reliably gathered that the fintechs began their onslaught against SystemSpecs in the 8th National Assembly but got no headway until the assembly winded up in June 2019. Undaunted however, they resumed their plot after the 9th assembly was inaugurated in June and have succeeded in getting the attention of the nation’s lawmakers.
The Senate Committee on Banking, Insurance, and other Financial Institutions had last week invited the management of SystemSpecs, to appear before it on Tuesday, December 3, 2019. The letter of invitation, dated 18 November 2019, enumerated six dangerous risks the nation could be exposed to, if the monopoly of SystemSpecs over the TSA was not immediately checked.
Signed by Chairman of the panel, Uba Sani, the panel advised the team to among other things appear with relevant documents, especially its audited accounts.
According to the committee, the invitation was necessitated by series of high profile petitions against the technology firms. The petitioners raised six major points against the continued monopoly enjoyed by SystemSpecs.
BH gathered that the six threats to the TSA, as currently structured, include single operator risk, political risk, economic risk, market risk, service risk and operational/technical risk.
The Senate letter made it clear that “The Remita platform enjoys a monopoly that creates an unhealthy environment for competition with other licensed FinTech companies.
“The current monopoly erodes the guarantee, trust and confidence local and international agencies that partner the government have in the transparency and accounting reporting structure of government earnings and spending.
“This holds especially as Remita is privately owned and there is a need for a level playing field and accountability. It is established that SystemSpecs has a robust management team with well-structured ownership.
“However, there is always the felt need to constantly unveil this structure to ascertain and demean any risks that are usually associated with private firms. This committee is concerned with continuity.
“To accurately have a superior understanding on SystemSpecs’ position in a potential N20tn economy, kindly provide the following: audited accounts from 2015 with detailed collection and remittance reports for all MDAs for the past four years; any other relevant reports to support the renewal of your contract.
“We have been challenged with numerous petitions from different parties concerned about the imminent risks and possible perils that could bedevil and devastate the revenue collection systems of the government and cause irreparable damage.
“This committee has therefore carried out a review of these distress signals and we are largely alarmed at the gravity of these dangers. The dependency on Remita has flared up critical coercions that are of great concern to this administration,” the committee stated in the letter of invitation.
In its reply to the senate committee, SystemSpecs Managing Director/Chief Executive Officer, John Tata, allayed the fears of the upper chamber over all the six risks, saying there is nothing to show fears of breaches or risks.
In the 11-page letter also obtained by our correspondent, the company said its sole management of the nation’s TSA did not pose any threat or risk whatsoever to the Nigerian economy.
Apart from trying to secure the help of several government agencies, particularly the Senate, to help them in the quest to break SystemSpecs monopoly, many of the fintechs have also proposed mouth-watering commissions to help them in their bid.
BH gathered that while many of them had offered the Federal Government ridiculous commissions of between 0.7% and 0.5% for the use of the platforms, it was gathered that a firm offered to charge as low as 0.1% as commission.
Efforts to get the reaction of SystemSpecs to the plot by its competitors to break it monopoly over the TSA account failed as calls to the mobile phone of its Group Head, Corporate Services, Mr. Paul Ibidun, were not answered. A text message also sent to the line has not been replied.
The operation of the TSA, it would be recalled, has not been without controversies. On November 10, 2015, Senator Dino Melaye had raised a motion that the operation of the treasury single account be investigated for possible corruption.
He claimed that the appointment of REMITA, an e-collection agent, is a gross violation of section 162 (1) of the Nigerian Constitution and the banks and other Financial Institutions Act. He claimed that the constitution only recognised a banking institution to be the collector of government funds, that Remita was not a bank.
According to Melaye, the total inflow of 1% commission charged and received by SystemSpecs for all revenue collected on behalf of the government from the various ministries, departments and agencies to be N25 billion as of November, 2015 was fraud and must be returned to the account of the Central Bank of Nigeria. The Senate consequently ordered its committee on finance and public accounts to commence an investigation into the use of Remita.
Former Ekiti State Governor, Ayo Fayose, also introduced a political angle to the controversy when he alleged that the funds collected through the TSA were used to finance governorship elections in Bayelsa and Kogi States by the All Progressives Congress (APC), apart from enriching a single company in one month.
At the height of the controversy, the CBN instructed SystemSpecs to return all the revenues made so far on the contract, a directive, which SystemSpecs obeyed without delay.
In a letter reportedly written to President Muhammadu Buhari by John Obaro, founder and chairman of SystemSpecs, developers of the Remita application, he refuted the allegation that SystemSpecs pocketed N25 billion, explaining that the one per cent commission was negotiated prior to the signing of the contract; and the one per cent commission was shared by SystemSpecs, participating commercial banks and the CBN in the ratio of 50:40:10 respectively.
The Senate later absolved SystemSpecs of any wrongdoing as it could not ascertain the deduction/collection of twenty-five billion naira by the firm as 1% fee charged for the use of its Remita platform within the period under investigation.