FEATURES OF THE FINTECH INDUSTRY
- Payments
The Banks and Other Financial Institutions Act of 2020 (BOFIA) serves as the primary regulatory framework for payments, with the CBN periodically issuing additional rules that are applicable to both traditional companies and Fintechs. A CBN operating license is necessary for Fintechs that act as payment service providers (PSPs).
- Lending
This is likewise primarily governed by BOFIA, with different recommendations, including pertinent prudential norms, periodically released by the CBN that apply to both legacy companies and Fintechs. Fintechs must have any of the following in order to keep deposits and conduct lending activities in Nigeria:
- A commercial banking license (national or regional);
- A merchant banking licence;
- A specialized banking license, or a microfinance banking license (national or state or unit); or
- A finance company license from the CBN.
However, in accordance with the moneylender rules of the relevant state(s) they operate, Fintechs that are not focused on storing deposits or offering loan services nationwide may function with a moneylender’s license. Fintechs are drawn to the moneylender license application process because it is less onerous than the BOFIA process. Another option is for a fintech to collaborate with organizations that have the necessary lending licenses, and only offer the technological foundation on which the loans are made.
- Crowdfunding
The Crowdfunding Rules allow micro, small, and medium-sized businesses to raise capital through intermediaries, who will enable fundraising activities including an offer to sell securities or other financial instruments via crowdfunding websites. Retail investors are only permitted to spend a maximum of 10% of their net annual income in a calendar year in a crowdfunded investment by the SEC, in order to safeguard the investing public. However, high net worth persons are exempt from this restriction.
- Personal Finance
To accept payments from clients, Fintechs must get one of the CBN’s banking licenses listed under “Lending” in order to receive deposits from customers. However, in reality, Nigerian Fintechs that provide personal finance applications often run through collaborations with reputable DMBs or MFBs. Additionally, fintech companies have started to get licenses from microfinance banks to sell their goods. Fintechs are required to get from the CBN, any of the banking licenses listed under “Lending.” However, in reality, Nigerian Fintechs that provide personal finance applications often run through collaborations with reputable DMBs or MFBs. Additionally, fintech companies have started to get licenses from microfinance banks to sell their goods.
- The use of Telecommunication Structure to provide Financial Services
The Nigerian Communications Commission (NCC) oversees companies that provide financial services using mobile phones or other telecommunications infrastructure, in accordance with the License Framework for Value Added Services.
Compensation Scheme in The Fintech Industry
In Nigeria, the compensation structure for payment services is strictly regulated. Businesses in this industry make money by keeping a portion of the transaction fees that are generally charged when sending money. In this regard, the Electronic Payment Guidelines state that service providers, banks, and entities to whom the services are being given, must come to an agreement on fees and charges for web transactions. Additionally, they state that the CBN’s Circular on the Implementation of Interchange Fee provisions must be taken into consideration during negotiations between the merchant and the acquirer (the bank that manages the merchant bank’s account), regarding the maximum total fee that can be charged to a merchant for web transactions (the “Interchange Guidelines”).
For online lending, the moneylender laws of various states prescribe limitations on the interest on loans that may be imposed by moneylenders.
