Mobile money regulation: Fintechs seek escape route

BY EMEKA EJERE

Operators in the Nigerian financial technology (Fintech) space have observed that there is need for clarity of regulations from the regulators to the players to create harmonious relationships in the sector.

Clarity of regulations in the space, according to them, will not only ensure stabilityand bridge knowledge gaps, but will also help avoid unnecessary frictions among stakeholders.

The experts, who spoke to journalists in Lagos on Thursday, ahead of their planned efforts to bring financial regulators closer to operators in the Fintech space also highlighted the importance of regulatory stability among financial regulators, Fintech developers and grassroots beneficiaries to achieve seamless operations that would further deepen financial inclusion in the country.

Fintech is the innovative use of technology in the design and delivery of financial services. It often results in new business models, applications, processes, or products with an accompanying effect on financial markets and institutions. It promises faster, cheaper, more transparent and more user-friendly financial services for millions around the world.

In Nigeria, the financial industry is semi-developed and has low levels of customer satisfaction. According to the Bank Verification Number (BVN) statistics, less than 50 million of Nigeria’s 200mn+ population has active bank accounts. As a result, entrepreneurs and millennials are turning to Fintech to develop financial innovations and disrupt traditional financial services.

It is expected that with Fintech gaining traction, there will be an increase in the financial inclusion level as more unbanked customers will have access to financial services. Also, customers with bank accounts would achieve higher levels of customer satisfaction.

Fintech revenues are forecast to reach an estimated US$543m by 2022, driven by increasing smartphone penetration and its unbanked population.This was contained in the executive summary of State of Play: Fintech in Nigeria, an Economist Intelligence Unit report, sponsored by Mastercard and MTN Group.

However, the decision of the Central Bank of Nigeria (CBN) to regulate Mobile Money Operators (MMOs) operating in the country has unsettled the mobile money sector, with payments experts predicting that strict implementation of the new regulations will disrupt MMOs’ businesses and hit their revenues.

In a bid to create an enabling environment for orderly introduction and management of the services, the CBN had on July 9 2021, released Regulatory Guidelines and Framework for mobilemoney services in the country.

According to the new guidelines, mobilemoney operators shall not grant any form of loans, advances and guarantees (directly or indirectly), accept foreign currency deposits; deal in the foreign exchange market except as prescribed in Section 4.1(ii&iii) of the extant Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria; insurance underwriting, as well as accepting any closed scheme electronic value (e.g. airtime)as a form of deposit or payment.
Other businesses the MMOs were banned from providing is the establishment of subsidiaries; undertaking any other transaction which is not prescribed by the guidelines and any other activities that may be prohibited by the CBN.

Specifically, the CBN instructed MMOs that fees and charges for the management of the investment shall not be more than 10 percent of interest income on savings wallet funds investment.

‘‘Where an MMO operates a savings wallet, i.e., a wallet earning interest, it shall expressly inform subscribers of the following:

“The minimum balance on the savings wallet that qualify to earn interest; The allowable number of withdrawals to been titled to earn interest; The minimum savings period to earn interest; The applicable balance that would earn interest; The procedure for determining interest amount distributable to subscribers which should stipulate the minimum percentage of interest income to be distributed to subscribers and the proportion to be retained by the MMO, if applicable; The applications of section 10.1.3(b) (i) to (v) in distributing interest shall be automated.”

The CBN also barred MMOs from charging fees on account holders ‘savings accounts. “On no account whatsoever, shall a MobileMoney savings wallet accountholder suffer diminution in the principal sum on his/her wallet as a result of fees or charges; Deposit Money Banks serving as settlement banks are prohibited from off-setting any other transactions of the MMO, including the transaction wallet pool accounts, against the savings wallet principal pool accounts and savings wallets interest pool account; and MMOs shall comply with the minimum disclosure requirements on the financial statements as stipulated by the Bank.”

Expectedly, the move by the CBN to further regulate the MMOs is causing ripples in the industry, with most operators insisting that it would impact negatively on their businesses.

According to some representatives of the MMOs who spoke with Business Hallmark on the condition of anonymity, Nigeria should be the leading country in Africa in the spread and penetration of mobile banking, but due to political and selfish considerations, the country is behind countries like Kenya, Uganda and Rwanda, despite the fact that it accounts for over 40percent of phone lines in West Africa.
Reliable sources say mobile money business is plagued by intense lobbying from lenders (banks) seeking to protect their turf in the wake of intense competition from telecomunication firms and Fintechs.
Bridging the gap
Representatives of United State of America-based EMTECH, which is partnering with Global InfoSwift Consulting (GIC) to bring financial regulators closer to operators in the Fintech ecosystem of Nigeria, among other things stressed the need for more collaborations.

The founder and CEO, EMTECH, Carmelle Cadet, who admitted that each space has its own specific challenges, but stressed that education and capacity building to a greater extent would help avoid unnecessary frictions, said the partnership between EMTECH and GIC would be strategic in helping the sector create a seamless understanding.
Cadet said theprogramme will enable regulators, banks and Fintechsaccelerate the transformative changes seen in the evolving financial services regulatory environment.

According to her, African central banks are moving forward with their innovation and digitisation efforts, and with change, there is a need for collaboration and regulatory frameworks to enable successful outcomes that will impact over a billion people across the continent.

“That has always been our mission and we are doing so with our Modern Central Bank Sandbox Platform and a Modern CBDC Platform built with Open Banking architecture. With that, we recognise the need to complement this by providing enhanced education and understanding of the impact of technological innovation on regulatory and policy approaches to the ecosystem players,” she stated.

Elaborating more, Executive Director, Africa, EMTECH, TunjiOdumuboni, said that the areas to be focused on were selected as they represent the core pillars enabling regulators and innovative financial services providers with the tools to enhance financial inclusion while fostering resilience of the entire financial market infrastructure.

Odumuboni said the programme will offer global perspectives tailored for the nuance of the Nigerian financial ecosystem as a whole and individual players on the selected knowledge domains.

Founder and CEO, Global InfoSwift Consulting Ltd, Afolabi Oke, added: “Our objective is to provide this ‘Capacity Building Programme’ to the entire financial services ecosystem in Nigeria. This means attracting all financial services regulatory agencies and all financial services providers, from commercial banks to Fintechs.

“We are excited to team up with EMTECH, who have hands-on experience with their API-led Modern Regulatory Sandbox Platform, in enabling central banks and other financial services regulators in getting actionable regulatory insights into the broad ecosystem of private-sector innovators while accelerating the readiness of Fintechs for regulatory reviews and go-to-market approvals.”