Home commentary Fintech in Nigeria: An exposition on an Alternative to Traditional Finance and...

Fintech in Nigeria: An exposition on an Alternative to Traditional Finance and its Legal Prospects_ Onuabuchi Precious Chiamaka

It is fun fact that the world has evolved into what we call the digital age in which human endeavors by each day, gets more dominated by science and technology. The financial world is not exception to the fast growing influence of technology and internet and, neither is Nigeria excluded from this phenomenon.

    Fintech is an abbreviated term conned from the consummation of the two concepts, ‘Finance’ and ‘Technology’. Simply put, FinTech is a derivation from traditional financial operations through the application of technology in carrying out financial activities which includes payment, banking, investments, fundraising and similar activities. PayPal, Flutterwave, PiggyVest are examples of FINTECH platforms. This use of technology is not limited to the use of internet as some Fintech medium makes use of mobile applications like Palmpay.
  The aim of this technological innovation is to provide solutions to the challenges faced in traditional financial operations. With the speed of the light of time, financial transactions can be carried out, for instance, compare the time spent in making a transfer payment through a platform like paystack to having to go through the rigorous process of making a physical deposit in a bank. As the old saying goes “time is money” what saves time saves money.
During the lockdown period in the heat of the COVID-19 pandemic, financial institutions at a point were placed under locks and placed a standstill on financial transactions, Fintech was a step ahead and provided a non-physical easy platform for conducting financial activities. This also exposed people to technological education needed to operate through this means however easy and self-teaching. Also, platforms like Softcom and Palmpay were recorded to have assisted the government in raising support funds for covid-19 relief packages.
     In an age when the commercial activities are more inclined towards the online market, Fintech serves as a middle agent platform between buyers and sellers. For instance, some Fintech platforms could serve as a third party intermediary to ensure that goods bought are paid for before delivery and the seller is only paid after delivery has been made to buyers. It is easy, fast, secure and innovative. This secures commercial transactions.
   Fintech, also provides a platform for financial assistance and money lending for small scale businesses or individuals with guaranteed means of paying back with interests regulated by the money lenders Act, and investment options or help to manage ones personal finance like PiggyVest which is a Fintech platform in which consumer’s personal finances are managed through an option of a savings account to manage spending at the will of the consumer.
 This helps consumers to be financially prudent. In instances of financial crisis, some Fintech platforms provides a means of crowd fundraising or peer to peer funding with secured financial transactions, for instance, GoFundMe is a platform on which financial deficient persons can solicit for funds from crowd, this has massively helped in solving financial deadlocks for persons in urgent need of money and connecting them with persons who can assist in such situations.
This alternative to traditional financial institutions has helped reduces the unemployment rate by employing staffs who are digitally advanced. This in return would increase technological education and advancement.
Nigeria is of high potential to make better exploration of this innovative employment of technology in the financial sector. Insight2impact in a study carried out in 2019, reported that Nigeria has the highest number of platforms offering financial services in the region and a key opportunity is in large urban population which is fifty percentage (50%), out of which seventy percentage (70%) has a basic and or feature phone in 2018 while thirty percentage (30%) owned a smart phone. 
The urban population which is usually technologically inclined alongside the higher percentage of access to a mobile phone places the country at an advantage of higher participation in the employment of technology in financial transactions.
Early stage start ups are supported. An innovation office is created by Securities and. Exchange commission (SEC) to encourage, welcome and develop financial technical innovations. Mckinsey report, 2020 revealed that Nigeria is home to over two-hundred and fifty (250) Fintech companies aside traditional bank and mobile network operators, with funds amounting to six-hundred million dollars ($600 million), attracting 25 percentage which monetize in one hundred and twenty-two million dollars ($122 million) of the $491.6 million raised by Africa technology start up in 2019 alone. Also, according to Frost and Sullivan, Nigeria Fintech revenue is expected to reach USD$543.3 million in 2022 from USD$153.1 million in 2017. Nigeria is undeniably a fertile ground for the exploration and growth of financial technology.
Although there are no specific unified document nor regulatory body that serves as a legal pillar to Fintech, it is regulated by relevant legislations and regulatory bodies produced by sectoral regulators whose jurisdiction extends to Fintech by implication of involving activities that is associated with those legislations and regulatory bodies. First of which is the Central Bank of Nigeria (CBN) regulations, Company and Allied matters Act (CAMA), Securities and Exchange commission (SEC), Nigeria Data Protection Regulation (NDPR), National Information Technology Development Agency (NITDA), as well as other legislation and regulatory bodies associated with company structure, tax, cyber security, data protection and privacy.
However, there clogs in the wheels of a fast running financial technological exploration in Nigeria, these shortcomings has reduced an advancement of Fintech and bringing Nigeria to the forefront.
      The fragmentation of the legal framework for financial technology makes it difficult to grasp the entirety of the concept of Fintech in Nigeria. This places possible investors and start up entrepreneurs at odds of what is expected to start up a Fintech institution in Nigeria. Plurality of regulations gives it a shattered outlook that is confusing to a common man which is discouraging. 
A split approach has in return inhibited the growth of financial technology in Nigeria. This disunite legal framework has fuelled the ignorance of prospective investors whom are very unlikely to invest in what they do not understand.
As a legally regulated activity, licences are required by the Central Bank of Nigeria (CBN) which is the head legal tender regulator, before operators can perform. On December 9, 2020, the Central Bank of Nigeria (CBN) issued a circular, recategorizing Payments System licensing in Nigeria into four major categories: Switching and Processing; Mobile Money Operations; Payment Solution Services; and Regulatory Sandbox. There was, however, no unified document containing the requirements for each of these licensing categories. 
This made gathering information on the licenses cumbersome for potential license applicants. To resolve this issue, the CBN recently released a compendium containing all the requirements for Payment System licenses, which contained for instance, The mobile money operators licence requires an application fee of a hundred thousand naira (100,000), payment of the unrefundable sum of two billion naira in escrow to CBN, then a licensing fee of one million to be paid before the issuance of final license. The cumulative amount required for a mobile money operators can be considered to be exuberant and the process discouraging.
In order to secure their operations, Fintech companies have to ensure they collect specific information from their users. This is regulated by National Information Technology Development Agency to ensure that data protection and privacy is insured by operators to protect users and consumers. Inability to collect specific data information places some financial transactions in jeopardy. Since compulsory data compliance audit commenced in October 2019 under the Nigeria Data Protection Regulation, over a hundred non-compliance notice has been issued by the regulator, National Information Technology Development Agency. 
There was an instance of an online lending platform that was fined 10 million naira for violation of this regulation. This in return discourages platforms that involves in money lending from conducting transactions as a result of inability to insure the recovery of money.
Fintech is a novel development in the financial sector, by implication, investors are tentative about their full involvement in supporting the innovation. 
This was fueled, when in February 2021, cryptocurrency was banned and all regulated financial institution in Nigeria were prohibited from dealing in cryptocurrency or facilitating payment in cryptocurrency in Nigeria and ensure that such accounts are shut down based on the grounds of anonymity of users and the unregulated and unlicensed entities involved in cryptocurrency transactions. This grounds can however be alternatively resolved by providing possible solutions to the perceived challenges of cryptocurrency transactions instead of entirely shutting down the innovative technological development.
 The ban was pronounced and executed without a wide consultation or a prior public notice, this blow to the Fintech industry which includes the development of cryptocurrency was a huge setback that serves as discouraging factor to potential investors in Nigeria Fintech industry. This has evenly given the Nigeria financial technology industry a negative outlook as an industry that is not entirely receptive to financial innovations and has an unsteady reception.
Conclusively, Financial technology as an alternative to traditional financial institutions is an innovative idea that proven to be a bedrock to an advanced financial industry. Nigeria, however already a fast growing country in financial technology industry can transcend to a better position by providing a unified and clearer legal framework and structure for Fintech. Also a welcome development of the creation a specific regulatory body for financial technology would aid the development of the Financial technology industry in Nigeria. Improvement of cyber security would sheath consumers and operators from data protection infringement and fraudulent activities.
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