INTRODUCTION
Financial Technology, commonly known as FINTECH, has rapidly emerged as a game-changing force within the financial services industry. By leveraging technology, FINTECH has successfully transformed the delivery of financial services, leading to significant advancements and revolutionizing the way transactions are conducted. This has been achieved through a combination of simplifying the processes, reducing the cost, enhancing convenience, saving time, and ensuring the utmost security for customers’ sensitive information. This article discusses the legal framework for Fintech operations in Nigeria.
STATUTORY REGULATION OF FINTECH:
The process for obtaining operating licences for Fintech service firm in Nigeria vary depending on the type of Fintech services the investor intends to offer. There are several kinds of Fintech services, and as a result, there are different licences obtainable for the provision of those services. It has to be noted that only registered businesses are eligible for these licences.
REGISTRATION AND PERMITS:
An investor who wants to get involved in Nigeria’s Fintech sector must first create a business with the intention of offering financial services. A limited liability company must be registered under Part C of the Companies and Allied Matters Act, CAMA, 2020, in order for this to be allowed.
If the company intends to hire an expatriate, then an additional permit known as an Expatriate quota would have to be obtained from the Ministry of Interior in Nigeria. Obtaining a Business Permit and registering the business would have to be registered with the Nigerian Investment Promotion Council (NIPC) are additional mandatory requirements.
Additionally, the investor must apply for and obtain a Certificate of Capital Importation (CCI) if he intends to import capital into Nigeria by way of loan, cash or even equipment for the operation of the business. This certificate authorises him to lawfully import the capital, and amongst other benefits, it grants him the passage to repatriate his profits out of Nigeria.
TYPES OF FINTECH OPERATIONS:
A fintech company can either be a Digital Bank, A Payment Service Bank (PSB), or a Payment Service Provider (PSP).
REGULATIONS AND LICENCING:
LICENSES:
- Alternative Lending/Digital Credit Licenses: Alternative lending or Digital Credit simply refers to the Fintech-based lending platforms for the quick and usually uncollateralized procurement of micro-credit facilities as opposed to the more traditional method of securing loans through paper applications. Today, these platforms are simply known today as “Loan apps”
- Digital Crowdfunding Intermediary Licenses: Crowdfunding is simply the practice of funding a project or venture by soliciting contributions from a large number of people through the Internet. In Nigeria, crowdfunding is regulated by the Securities and Exchange Commission (SEC) through the Security and Exchange Commission (SEC) rules on Crowdfunding 2021. Consequently, any investment/crowdfunding intermediary portal that is not licensed by SEC is deemed illegal and liable to SEC’s Regulatory sanctions.
- Digital Banking Licenses: Digital Banking is a non-physical delivery of Banking services (taking cash deposits from customers, opening and operating bank accounts for its customers, and giving loans through Digital platforms such as Apps or Virtual Chatbots operating 24 hours a day. The Central Bank of Nigeria undertakes the licensing and regulation of Digital banks in Nigeria. Obtaining a Digital Banking license involves the presentation of a strictly scrutinized IT Policy that will include a privacy policy; an Information ownership/disclosure policy; a Network security policy; a Password policy; a Confidential Data policy and a Backup & Restore policy among others. Below are some of the other licenses for digital banking services obtainable in Nigeria.
- Switching and Processing License: Switching and Processing services involve the rendering of value exchange between financial service providers, merchants, customers and other stakeholders, connecting payment transactions between multiple acquirers & payment service providers. A good example of a Payment and Switching company is Interswitch. Financial Requirement: Application fee of ₦100,000, payment of the refundable sum of ₦2 billion in escrow to CBN and licensing fee of ₦1 million to be paid before the issuance of the final license. A Switching and Processing license application requires a minimum share capital of 2 billion Naira ($ 4 million).
- Mobile Money Operator License: A Mobile Money Operator (MMO) is a licensed service provider that develops and renders financial services through mobile telecommunications networks and mobile phones. Application fee of N100,000, payment of the refundable sum of ₦2 billion in escrow to CBN and licensing fee of ₦1,000,000 to be paid before the issuance of the final license.
- Payment Solution Services (PSS): Application fee of ₦100,000, payment of the refundable sum of up to 250 million (depending on which of the licenses the company wishes to obtain) in escrow to the CBN and licensing fee of N1,000,000 to be paid before the issuance of the final license.
- Payment Terminal Service Provider (PTSP) License: A PTSP is a CBN-licensed company that specializes in ensuring the effectiveness of Point of Sale (POS) operations as well as support and maintenance structures. Application fee of ₦100,000, payment of the refundable sum of N100 million in escrow to the CBN and licensing fee of ₦1,000,000 to be paid before the issuance of the final license.
- Payment Solution Service Provider (PSSP) License: A PSSP is simply a Digital payment intermediary acting as a link between the merchants and branches. Non-refundable application fee of ₦100, 000 payment of the refundable sum of N100 million in escrow to the CBN; and licensing fee of N1 million to be paid before the issuance of the final license.
- Super-Agent License: A super-agent is a company licensed by the Central Bank of Nigeria for Agency banking which involves the provision/delivery of financial services within rural communities on behalf of Banks as a way of low-cost mass financial inclusion using Fintech tools. Non-refundable application fee of ₦100, 000, payment of a refundable sum of 50 million in escrow to the CBN and licensing fee of ₦1 million to be paid by the applicant before the issuance of the final license.
INSURTECH:
Insurtech is a merger of the words “Insurance” and “Technology”. This refers to the use of technology aimed at making more efficient current Insurance operation models.
Insurtech companies are Digital platform Insurance service providers and insurance Web Aggregators which are companies registered and licensed to act as an intermediary between Insurance companies and the public.
Licensing in the insurance industry is under the Insurance Act 2003 through the National Insurance Commission.
ROBO-ADVISORY LICENSES:
A Robo-Advisor is a digital financial advisor that provides investment advisory and management services with moderate to minimal human intervention. Robo-Advisory operations are governed by the Securities and Exchange Commission (SEC), through the Robo-Advisory rules and like traditional Corporate Investment Advisors, are required to comply with the same Licensing and operational requirements.
SANDBOX OPERATIONS FRAMEWORK:
A Regulatory Sandbox is a framework set up by a regulator, in this case, the Central Bank of Nigeria, that enables Fintech Start-ups and other innovators to live-test innovative products, services, delivery channels or business models in a controlled environment with regulatory oversight, with specific safeguards and conditions in place.
A company that scales through the six months maximum testing period of the Sandbox may likely meet the relevant legal and regulatory requirements and subsequently, enter the market. The CBN places a high amount of regulatory seriousness on Confidentiality and Data Protection in the Sandbox designed to preserve startups’ Intellectual Property.
CONCLUSION:
The Fintech industry in Nigeria has experienced significant growth and transformation. As it continues to evolve, adherence to regulations and compliance with data protection and confidentiality standards remain crucial factors for the success of these companies.
Fintech companies in Nigeria have driven financial inclusion and innovation in the country’s financial services sector. This is owing largely to the robust legal framework in place and the strict requirements for adherence to regulatory guidelines. Hence, the fintech industry is remarkably booming in Nigeria and more investors are encouraged to participate.
