Step in the Right Direction?
Late last year, the Central Bank of Nigeria (CBN), in a bid to create a new regulatory and licensing regime for Payment System Banks (PSBs) in Nigeria issued the Guidelines for Licensing and Regulation of PSBs in Nigeria (the ‘Regulation’).
This post seeks to underscore the need for a Regulation like the instant one, to always strike a balance, between the protection of the interests of consumers, while promoting innovation, growth and financial inclusion. It should be noted, however, this post does not attempt to pass ‘full judgement’ on the age-long fight for regulation preference or supremacy among champions of performance-based or goal-setting regulation or even self-regulation over prescriptive regulation.
For starters, the Regulation attempts to accord with the National Financial Inclusion Strategy (NFIS) which seeks to reduce the percentage of Nigerians that are excluded from financial services from 46.3% in 2010 to 20% by 2020. While the intention behind the NFIS is quite laudable, it remains to be seen whether the seemly lofty goals of the NFIS will be achieved by 2020.
The Regulation came just after the CBN had reiterated the need to secure payment systems and curb fraudulent activities in the financial sector, while having in place, regulations that protect online, mobile and payment services in Nigeria. The Regulation can arguably be attributed to the efforts of selected stakeholders in the industry, to develop efficient and reliable electronic payment systems in Nigeria.
While a read of the rationale for the Regulation is likely to leave one with the impression that the Regulation was made with the intention of protecting the financial system in Nigeria and in particular, protecting users of online, mobile and payment services, FinTech enthusiasts could argue that the Regulation hardly takes care of the interests of both existing and potentials FinTech operating as PSBs. The position of the FinTech enthusiasts is better appreciated when one looks at the financial requirement for grant of the PSB License.
Requirement for the PSB License: How Onerous?
Apart from the licensing, Prudential Regulation, Risk Management and Corporate Governance requirements imposed in the Regulations, the financial requirement for grant of the PSB License has been great source of concern to FinTech companies. This is because for a PSB license to be given by the CBN, the applicant company is expected to demonstrate the ability or show through credible evidence and compelling documentation, that it can meet the minimum capital requirement of Five Billion Naira (approximately $13.9 Million).
For FinTech enthusiasts, the approximately 13.9 Million United States Dollars Minimum Capital Requirement may come off as being on the high side, capable of stifling growth, kill innovation, militate against the actualization of the 20% exclusion rate by 2020 and by effect, the actualization of the financial inclusion contemplated under the NFIS.
Towards Effective Regulation: Finding the Balance Regulation and Innovation
The foregoing in mind, there is a need to strike a balance between innovation and regulation of innovation. No doubt, the emergence of FinTech in our financial system accentuates some known risks within the financial system. Taking into consideration the fact that the banking industry lost about N12.30 billion to various frauds in the banking system between 2014 and 2017, it is very expedient for financial sector regulators, and in this particular instance, the CBN, to come up with innovative ways of securing electronic transactions, while ensuring that such regulation does not stifle growth, kill creativity and murder ingenuity.
FinTech companies have facilitated the expansion of electronic payments. They have also helped in providing financial services to previously unreached groups. The important role they play in the actualization of financial inclusion our society must be given the rightful mention and very much deserving of commendation. Hence, it augurs well that FinTech companies should not be inhibited through onerous regulations that discourage innovation and stifle growth.
Given how closer our world is now, more than ever, susceptible to changing times with respect to disruptive innovation and impacts of the emerging technology, particularly, in the financial services sector or industry, it becomes pertinent for the CBN to ensure that a balance is reached in enacting regulations that cater for the interests of FinTech companies offering financial services, including payment services on one hand, and protection of consumers on the other hand, with a view to ensuring the development of a secure, competitive and innovative environment for electronic payments. This point even becomes more crucial should the CBN be wholeheartedly committed to the realization of the financial inclusion strategy and cash-less policy.
Conclusively, suffice to say that the CBN will do well to strike a balance between having in place, a regulation that encourages the growth of innovations, while harmonising payment operations in Nigeria. This is because adopting dynamic policies and regulations for payment systems that are targeted at maintaining a delicate balance amongst all the industry players, FinTech companies and consumers as well as the general public, will ultimately bring about a friendly and blossoming environment, where innovation, growth and safe transactions can be guaranteed.
Keywords: Financial Technology, Financial Regulation, Technological Innovations, Corporate Finance, Commercial Law
*This publication does not constitute legal advice. Whilst reasonable steps were taken to ensure the accuracy of information contained in this publication, the author and/or Primus Grace LP does not accept any responsibility for any loss or damage that may arise from reliance on information contained in this publication.