Nigeria: 'Collaboration Necessary to Deliver Digital Payment Services'

4 March 2021

Financial experts who participated at the Nigeria Finance virtual forum, which held on Tuesday, have stressed the need for collaboration between fintech developers, the banks and the financial institution regulator, in order for Nigeria to develop and provide affordable digital payment solutions to customers.

In one of the sessions with the theme: 'Partnerships and Infrastructure to Support the Cashless Economy,' the panelists were of the view that collaboration would produce quality and cost-effective solutions that would enhance financial inclusion among the served, underserved and unserved communities in Nigeria.

Chief Executive Officer of Innovectives Group, Emmanuel Agha, said collaboration would profitably deliver last mile services in digital payments.

"The financial needs of those at the bottom of the financial pyramid, varies, and no single operator can provide the solutions that will address the myriad of financial needs of the people.

"Lack of collaboration will not only lead to high cost of operation, it will also lead to poor service delivery. Research has shown that collaboration will discourage a single operator to build and deliver end-to-end digital payment solution, which is always very expensive to accomplish and it will encourage combined value proportions from different operators that will serve the end-uses better," Agha said.

According to him, there had been a lot of distortions in the financial services space in the last few months because of lack of collaboration between the fintechs and the financial services regulator.

"The internet is universal, but payment is jurisdictional because there is a governing law within every jurisdiction that fintech developers must obey as service providers," Agha said and warned against working in silos.

Addressing issues about how Mastercard is supporting the transition to cashless economy in Nigeria, Market Product Management, Digital Payments and Labs for Mastercard, Mr. Azuka Mordi, explained that the COVID-19 pandemic also compelled businesses and individuals to adopt digital payment solutions.

Mordi said security gaps however exist, and has created fears in some Nigerians, who are still scared to use digital payment system.

Responding to questions on why Nigeria has the highest cost of in-bound cross-border transactions, which the forum said could hamper growth of digital payment system in Nigeria, Mordi, said "cross-border transaction in Nigeria is well regulated and cannot be compared with what happened with cross-border transactions in developed countries, because every market has its policies and the demands are different from each other."

He however said Mastercard has enabled solutions that help to reduce the cost of cross-border remittances.

Managing Director, and CEO, Hope PSBank, Mr. Ayotunde Kuponiyi, said with advancement in technology and adoption of more digital payment solutions, the cost of in-bound cross-border remittances in Nigeria would become a lot cheaper and competitive with what is obtainable in other regions.

The CBN recently announced a new capital requirement and licence categorisation for payment service providers.

The CBN, in a circular signed by its Director, Payment System Management Department, CBN, Mr. Musa Jimoh, had put the new capital requirement for mobile money operations as well as switching and processing companies at N2 billion respectively. The circular was dated December 9, 2020,

The minimum capital requirement Payment Solution Services (PSS) was pegged at N250 million while that of super-agents is now N50 million.

Also, Payment Terminal Service Providers (PTSP) and Payment Solutions Service Providers (PSSP) are required to have N100 million minimum capital requirement respectively.

The CBN had said the move was in line with its commitment to promote a strong and credible payment system.

"The new licensing framework offers clarity for new and existing market participants given the significant evolution and innovation in the Nigerian payment system," it added.

According to the CBN, payment system licensing has been streamlined into four broad categories. These it listed to include switching and processing; Mobile Money Operations (MMOs); PSS and Regulatory Sandbox.

It said: "Only MMOs are permitted to hold customer funds. Companies with licences within any of the other categories are not permitted to hold customers' fund. Companies seeking to combine activities under switching and MMO categories are strongly permitted to operate under a holding company structure with the subsidiary entities delineated to prevent co-mingling.

"Payment system companies in the PSS category may hold any of PSSP, PTSP and super agent licence or a combination of the licences thereof. All licensed payment service providers in any of the categories covered by this framework holding or seeking any other CBN issued licences are required to obtain a no-objection from the Payment System Management Department.

"The object clauses in the Memorandum and Articles of Association of Payment Service Providers shall be limited to the permissible activities under their licensing authorisations. Collaboration between licensed payment companies, banks and other financial institutions in respect of products and services are subject to CBN's prior approval.

"All new licensing requests including those with approval-in-principle are to comply with the new requirements immediately. Existing licensed payment companies are to comply with the new licensing requirements where applicable not later than the end of June 2021."

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