The Federal Government has announced its decision to upgrade the licenses of Financial Technology (fintech) enterprises such as OPAY, PalmPay, Kuda, and other microfinance banks to national status.
Prior to the announcement, fintechs leveraged technology to provide financial services to private and commercial customers, but within restricted regions. This meant that, despite offering advanced services such as online banking, mobile payments, digital wallets, and savings and investment tools, they lacked a physical presence in the areas where they operated.
We have highlighted below what this upgrade, which grants these fintechs and microfinance banks national status, means.
- They can operate nationwide
The national license issued by the Federal Government permits fintechs and microfinance banks to operate legally across all Nigerian States, erasing regional or state-level barriers. This would give their customers a way to interact with them in person if a transactional issue arises.
- Higher capital and institutional compliance standards
Microfinance banks that operate nationwide must have a capital threshold of N5 billion, from N2 billion. Tier two unit microfinance banks must have a capital threshold of N50 million, while tier one unit microfinance banks must have a capital threshold of N200 million. State microfinance banks must have a capital threshold of N1 billion. These newly upgraded fintech companies are now positioned to compete with tier-one traditional banks, allowing customers to set up salary accounts and have statements accepted for international visa applications.
- Stronger regulations
Licensing these microfinance banks and fintech companies at the national level further exposes them to stricter regulations and closer monitoring by the Federal Government. These include their operational services, customer-focused business approach, and compliance with financial laws.
- Guaranteed consumer protection and rights
Due to the mandatory physical presence required for national status, customers of these microfinance banks and fintechs can now lodge their complaints, as with traditional banks, and expect an immediate response. This safeguards customers’ trust and business transparency.
- Expansion of agent banking
Since microfinance banks and fintechs affected by the recent upgrade must be domiciled in all States where they operate, they must hire and deploy additional staff to attract more customers. These banking agents help to advertise and provide firsthand details to customers about the banks.
- Wider financial inclusion and local economies
The government’s decision to upgrade these microfinance banks and fintechs would prompt the Central Bank of Nigeria (CBN) to place unfaltering trust in their integrity. Permitting these banks to operate at the national level would enable cash and fiscal activities beyond traditional banks, as microfinance and fintech institutions leverage advanced technologies in their banking systems.
- Increased operational cost
Certainly, expansion into other regions of the country would entail higher capital costs for these non-conventional banks. Expansion would entail higher corporate taxes, additional paid labor, and increased administrative and logistics costs.
- Tighter data protection
Realising that the CBN will now closely monitor the operations of these microfinance banks and fintechs, including customer transactions, responses to frequently asked questions, and customer feedback, these upgraded banks will further tighten customer data protection and privacy. This is to prevent data breaches and privacy rights violations that may attract heavy fines and penalties from the national regulator, customer losses, and license revocation.
- Severe consequences for regulatory breaches
Assuming this status also means the government can determine the banking and financial regulations that apply to microfinance banks and fintechs. They can also impose punitive penalties on these non-conventional banks for regulatory breaches, which would be difficult to contest.
- Higher transparency expectation
The operations of microfinance banks and fintechs would be closely scrutinised by the Federal Government, including bank statements, records, documents, proof of working capital, and tax audits.