Banks were reminded of existing CBN guidelines being disregarded

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The Nigeria Inter-Bank Settlement System (NIBSS) says its latest directive to banks is meant to ensure safety of people’s funds and serves as a reminder of a 2014 Central Bank of Nigeria (CBN) directive to lender advising them not to list Fintechs that are not supposed to keep people’s money in their platforms, because they were not licensed to receive deposits from the public.

In a clarification note available on its website, the switching company stated that the circular was sent requesting all financial institutions on the NIBSS Instant Payment Platform to list only licensed deposit-taking financial institutions as beneficiary institutions on instant payment channels, in compliance with the CBN Guidelines on Electronic Payment of Salaries, Pensions, Suppliers and Taxes in Nigeria, dated February 2014

According to the circular which listed about 32 unlicensed financial service entities assuming the role of deposit-taking institutions, the guidelines applies to all public and private sector organisations and entities operating in Nigeria and mandates adoption, implementation and compliance with the directives on end-to-end electronic payments of all forms of salaries, pensions, suppliers and taxes , in line with the timelines prescribed by the banks.

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NIBSS concerns centre on unlicensed financial services companies posing as deposit-taking institutions, in a sign that the industry is looking to step up regulatory enforcement, following outcry over fraud and lapses in customer verification processes by payment providers.

In a memo to banks, fintechs and other payment providers, NIBSS warned that companies holding switching, payments processing, and superagent licenses are non-deposit-taking institutions and should not be listed as beneficiary institutions when customers attempt to make bank transfers.

Superagents, payment solution service providers (PSSPs) and switches are three crucial players providing payment infrastructure and offline distribution that have accelerated financial inclusion over the last decade.

The PSSP license category authorises companies to operate digital gateways for card payments and money transfers by everyday consumers and enterprise customers.

“Listing [these] institutions… as beneficiary institutions on your NIP funds transfer channels contravene the CBN Guidelines on Electronic Payments,” said Ngover Ihyembe-Nwankwo, executive director of business development at NIBSS.

NIBSS, which operates Nigeria’s many instant payments system used by all financial services providers, ordered commercial banks, mobile money operators and microfinance institutions to disable outward fund transfers into wallets operated by these firms.

A switching license allows to quickly settle transactions without relying on the real-time infrastructure provided by NIBSS.

And the superagent license, used by Y Combinator-backed Nomba and Interswitch Financial Inclusion Services Limited (also called Quickteller Paypoint), has been a pivotal category driving financial inclusion, authorising companies to build a network of retail agents armed with a point-of-sales device to provide payments services across the country.

However, some companies holding any of the three licences might also hold other banking licenses, allowing them to hold deposits.

Companies can simultaneously hold a microfinance bank licence which ensures deposits are insured by the Nigeria Deposit Insurance Corporation (NDIC).

Telecom companies like MTN and Airtel both hold a superagent licence and a payments service bank licence, allowing them to operate a wide range of services.

By regulation, superagent companies rely on banks to secure POS devices and digital wallets for consumers.

According to the Central Bank of Nigeria (CBN), there are nearly 50 superagent companies in Nigeria, at least 75 PSSP license holders and a little over a dozen switching companies.

However, over the last few years, as fintechs expand, many of these companies now offer deposit-taking services. Excluding commercial banks, payments service banks and microfinance institutions, there are less than two dozen financial institutions, namely mobile money operators, licensed to accept and hold consumer deposits directly, according to the CBN.

But on consumer payments apps, including bank apps, the list is much larger and includes dozens of unlicensed deposit-taking companies, such as superagents and switches.

“Switches, PSSPs and [superagents] may process outward transfers [from wallets] as inflows to Banks but are not to receive inflows as their licenses do not permit them to hold customers’ funds,” NIBSS wrote in the memo

The latest order could purge several fintechs away from consumer payments apps as banks and fintechs tighten scrutiny over illicit fund transfers and concerns over weak verification processes by other companies.

Financial services companies are also proposing other initiatives to strengthen security and anti-fraud measures in the industry.

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