A Legal Perspective on Fintech In Nigeria
It is no longer in question that fintech is the future of the financial sector in Nigeria, and even the rest of the world. This is made potent with the country’s total population and the rate at which the traditional banking system is getting replaced in daily transactions. Fintech refers to a new technology or innovation that disrupts the traditional ways of conducting financial transactions to a digitized process. Fintech provides financial services by making use of software and modern technology. Fintech disrupted the processes that were previously handled with paper money and human interaction into one that is fully involved in online transactions. There is a long history between financial services and information technology. For instance, the Telegraph, an apparatus for communicating rapidly between distant points was introduced in 1838 for commercial purposes. Likewise, the advent of Automated Teller Machine (ATM) in 1967 by Barclays Bank defensively marks the commencement of the modern evolution of today’s fintech.
In Nigeria, the fintech landscape is fast gaining ground and, as a concept arising from disruptive technologies, it is certain to radically transform the traditional way of offering financial services to the larger public. The transformation comes with regulations and laws that will guide fintech start-ups. This article considers the laws that regulate fintech in Nigeria.
The most prevalent Fintech businesses in Nigeria are: Mobile Payments, Mobile Lending and Personal Finance
- Payments: The Payment subsector is the most developed and most active area of the Fintech sector. Over the years, Nigeria has witnessed an increase in the number of mobile payments. One of the reasons for the rapid growth of mobile payment is the Payment Systems Vision (2020) of Central Bank of Nigeria (CBN) in 2007 which encourages electronic payment methods. The adoption of Unstructed Supplementary Service Data (USSD) and Artificial Intelligence such as Chatbox are milestone innovations of the sector. Mobile Payment Fintech start-ups include: Page, Flutterwave, Chatpay, e-tranzart etc.
- Lending: The application and review process for mobile lending is completed on mobile phones and the loans are without collateral. Microfinance banks and other financial institutions are becoming irrelevant to the small businesses that need loans, because mobile lending shares market with them and makes the process quite easier. Fintech start-ups in the Mobile Lending sub-sector are: 247Cash.com, Pay later etc.
- Personal Finance: Fintech businesses and some traditional banks now offer personal savings service which are accessible on mobile phones. However, fintech businesses are partnering with existing financial institutions in order to take deposits. Fintech Start-ups in the Personal Finance category are: Piggyvest, OsusuMobilw, Cowrywise etc.
LAWS GUIDING THE FINTECH SECTOR
There are no Fintech specific laws in Nigeria. However, several enactments of regulatory laws that could affect the fintech sector are envisaged. Depending on the services provided by the fintech company, the authorities that regulate the activities of the sector are: CBN; SEC; Nigerian Stock Exchange; Corporate Affairs Commission; and Nigerian Communications Commission (NCC)
The Central Bank of Nigeria (CBN) plays the major role as the policy maker and financial regulator of fintech businesses. The regulations issued by the CBN include:
•CBN Regulatory Framework for the Use of Unstructured Supplementary Service Data (USSD) for Financial Services, 2018
•CBN Guidelines on International Mobile Money Remittance Service, 2015
•CBN Regulation for Direct Debit Scheme in Nigeria, 2018
•CBN Guidelines on International Money Transfer Services in Nigeria 2014; and
•CBN draft Risk-Based Cybersecurity Framework and Guidelines for Deposit Money Banks and Payment Service Providers 2018
•CBN Guidelines on Mobile Money Services, 2015
•CBN Guidelines on Operations of Electronic Payment Channels in Nigeria, 2016
•CBN Regulation for Bill Payments in Nigeria, 2018
And, Other circulars and guidelines issued by the CBN
These regulations seek to promote a sound system for the financial settlement of transactions. The regulations support technology as a financial inclusion.
Other regulatory guidelines which are tailored towards promoting sustainable financial services and development of fintech include:
- The Cybercrimes Act, 2015
- The Bank and Other Financial institutions Act, 2004
- The Payment Systems and Management Bill
- The Proposed Regulatory Framework For Crowd funding Activities by the SEC
- Investment and Securities Act
- SEC Rules 2013
The Fintech industry possesses a whole lot of opportunities, but it’s imperative to have legislation that covers the entirety of the financial market which would give legal certainty to industry participants.