A university lecturer, author and the Lead Faculty of Tekedia Institute, Professor Ndubuisi Ekekwe, has applauded the Nigeria Inter-bank Settlement System (NIBBS) on the circular asking switches, superagents and payment solution service providers, to be disconnected from the NIBSS instant outward payment system.
NIBBS, on December 5,2023 sent out the circular, noting that these companies are “non-deposit taking financial institutions”, and by implication should not “hold customers’ funds.”
NIBBS stated that these companies are “non-deposit-taking financial institutions”, and, by implication should not “hold customers’ funds.”
According to Ekekwe, it does seem like Nigeria just woke up. Yet, this should not affect these fintechs as their business models are not built on lending. So, not holding the customers’ funds will not derail them at scale.
He said most of the major fintech companies in the payment space are affected but while these fintechs are not the real culprits, Nigerian banking is under stress despite the “huge profits” they declare yearly.
His words: “Those profits are vapour-profits, powered by mindless fees on customers and FX-anchored arbitrages. When it comes to real banking, which is interest-anchored banking, Nigerian banking has disappointed.
“And that disappointment is evident as there is no catalytic project in Nigeria which any bank can come and claim that it funded. In America, banks tell you dams, bridges, etc they financed and challenged Americans to support them so that they can finance the future for shared prosperity and progress.”
According to him, banks are under stress because of the aggregation business model. These fintechs he said, which have figured out how to aggregate users are capturing value, making it challenging for banks.
In other words, one fintech handles $14 billion monthly in Nigeria and if a huge part of that stays in its wallet, that is money not for the banks to lend.
“It is key to note that Nigeria’s largest financial institution does not have a bank license; it is a fintech aggregator which delivers APIs which millions of users use to collect payments.
“And the big one, when these startups operate, they stay at the edges of the smiling curve where they capture value. What that means is clear: they can quickly improve gross margins at a pace banks which fund the foundational stacks cannot.
“So, in the end, the government wants to help the banks, to ensure the deposit funds stay with them so that they can fund businesses via loans, “ the Don emphasized.
This is not a new policy across nations; in small regions in China, fintechs are mandated not to allow funds to stay more than 3 days in wallets without moving them to banks. China did that to save many small banks which were running into liquidity problems due to WeChat and AliPay.
“In 2018, I wrote a simple post and a Kenyan member of parliament asked to speak with me. I had written that the ordinance which Kenya was trying to approve WeChat Pay in the nation could pose challenges to its banking system:
“The Kenyan banking regulator has run a regulatory regime where market forces are allowed to play. Allowing WeChat and Alipay in Kenya would certainly have real challenges to the Kenyan banking system. Even in China, WeChat has become so popular that local banks are having liquidity problems as what users do is to move their monies from their bank accounts into WeChat, and from there spend as they want. The banks have become pipelines into and out of WeChat and nothing more.
“For the banks, this is a very huge test because if WeChat warehouses lots of cash in its platform, some banks may fold. Interestingly, that is what Alipay and WeChat plan to do”. Kenya changed the structure, “ he narrated.
The objective of the CBN’s earlier guideline of the end-to-end electronic payment of salaries, pensions, suppliers and taxes initiative is fully aligned with the core objectives of the National Payment Systems Vision 2020 (NPSV), which is to ensure the availability of safe and effective mechanisms for conveniently making and receiving all types of payments from any location and at any time, through multiple channels.
It is intended to reduce the time and costs of transactions,minimize leakages in Government revenue receipts and at the same time provide reliable audit trails, thereby making the Nigerian payments system comply with global payment standards.
“This Guidelines therefore is set out to provide all stakeholders with the operational procedures and regulations that guide end-to-end electronic payment of all forms of Salaries, Pensions, Suppliers and Taxes in Nigeria as defined in section 6.0 of this Guideline, “ the apex bank had stated in the 2014 document.
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