Unraveling the recent NIBSS Memo that rattled Nigerian Fintechs

Written by: Oluwatobiloba Onigbogi EsqPhoto sourced from: energepic.com

The decision to disconnect these entities from the NIP Outwards System stems from concerns about compliance with CBN guidelines. 

On December 5, 2023, the Nigerian Interbank Settlement System (NIBSS) released a memo that sparked confusion for stakeholders in the fintech and banking industry. For context, NIBSS is a central infrastructure that facilitates automated processing, settlement of payments, and fund transfer instructions between Nigerian banks, discount houses, and card companies. Owned by all licensed banks and the Central Bank of Nigeria (CBN), it ensures a secure and efficient financial ecosystem. The memo directed all deposit money banks, merchant banks, switches, mobile money operators, payment service banks, microfinance banks, mortgage banks, payment solution service providers (PSSPs), and super agents to disconnect Switches, PSSPs, and Super Agents from the NIBSS Instant Payment (NIP) Outwards System.

The NIBSS Instant Payment (NIP) Outwards System (NIP) is a popular payment platform for person-to-person, person-to-business, and business-to-business transfers which is available 24/7. It enables customers to send money instantly from their account in any Nigerian bank to their beneficiary. The NIBSS directive states that while switches, PSSPs, and super agents can process outward transfers as inflows to banks, they are not permitted to receive inflows directly. This restriction arises from the fact that their licenses do not allow them to hold customers’ funds.

The decision to disconnect these entities from the NIP Outwards System stems from concerns about compliance with CBN guidelines. Specifically, listing non-deposit taking financial institutions as beneficiaries contravenes the CBN’s guidelines on electronic payment of salaries, pensions, suppliers, and taxes in Nigeria, which were issued in February 2014.

This highlights the crucial role of licenses in the business model of any fintech company. It serves as a reminder of the recent incident in Ghana where a popular fintech was forced to discontinue its services due to lack of licensing. Similarly, in Nigeria earlier this year, another fintech lost its Microfinance Bank License from the CBN for violating guidelines. This resulted in disconnection from other banks and prevented customers from transferring or withdrawing funds.

The CBN has established various license categories, each with specific permissions and restrictions. Examples include switching and processing licenses, mobile money operator licenses, payment solution services, payment terminal service provider licenses, payment solution service provider licenses, super agent licenses, microfinance bank licenses, and money & merchant bank licenses.

In essence, the NIBSS memo emphasizes the fact that non-deposit taking financial institutions like switches, PSSPs, and Super Agents cannot hold funds and therefore should be delisted as beneficiary accounts. While they can still process outward transfers and perform other activities permitted by their licenses, they are no longer allowed to hold or receive funds directly on behalf of their clients.

One way for these fintechs to navigate this situation is to partner with existing deposit money banks and Microfinance banks. These institutions can issue them virtual accounts, allowing the banks to act as the official “holders” of the funds instead of the fintechs. This solution would enable fintechs to continue their operations while complying with the NIBSS directive and CBN regulations.

In conclusion, the recent NIBSS memo signifies the CBN’s commitment to maintaining a sound and stable financial system in Nigeria. This directive, while impacting some fintechs, ultimately aims to promote transparency and compliance within the industry. By understanding the regulations and exploring creative solutions like partnerships with licensed institutions, fintechs can adapt and continue to thrive in the evolving Nigerian financial landscape.

Oluwatobiloba Joseph
is a Lawyer and Business Analyst at an African Fintech building the
PayPal for Africa. Before now, he worked with the most active pre-seed investor
in the world, Techstars where he was part of the team that pioneered their only
current accelerator in West Africa. While at Bowen University, he was the first
student in its history to have held three top leadership positions
simultaneously in his final year. He is very much interested in doing hard
things and he is passionate about contributing to the booming tech and
investments ecosystem in Africa which has already produced 7 unicorns-
companies valued at 1 Billion USD.

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