Increased instances of fraud and customer verification challenges within the payment sector have prompted the Nigeria Inter-Bank Settlement System (NIBSS) to express concern over unlicensed financial service entities assuming the role of deposit-taking institutions.
This move signals an enhanced regulatory focus.
The term “unlicensed financial service entities” describes businesses and organizations that provide banking and related services but lack the proper authorization from the appropriate financial regulators.
Without following the rules and regulations established by the government, these organizations can accept deposits, process payments, and offer other financial services.
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To emphasize that firms with switching, payments processing, and superagent licenses are not deposit-taking entities, NIBSS issued a notice to banks and fintechs warning against designating them as beneficiaries for bank transfers.
The purpose of this notice is to make it clear that these organizations are not authorized to take deposits.
For the sake of clarity, NIBSS is requesting that conventional financial institutions detach payment solution providers—which are mostly fintechs—from their NIP (NIBSS Instant Payments) transfer outbound gateways. This is because these organizations do not have the legal right to keep client funds.
The importance of superagents, PSSPs, and switches in payment infrastructure and offline distribution was emphasized in the memorandum, as was their significance in promoting financial inclusion.
The notice highlighted the fact that these organizations had been found to be in breach of the electronic payment regulations set out by the Central Bank of Nigeria (CBN).
An executive director of business development at NIBSS named Ngover Ihyembe-Nwankwo raised the concern that the inclusion of such organizations as beneficiaries goes against CBN norms.
That being the case, banks were told to stop sending money to wallets run by certain groups.
Fintechs with switching licenses can settle transactions autonomously outside of real-time infrastructure, whereas businesses with superagent licenses, such as Nomba and Quickteller Paypoint, can offer payment services to retail agents, which helps to expand access to financial services.
There are concerns that certain superagent companies are now offering deposit-taking services, which contradicts restrictions that restrict them to relying on banks for point-of-sale devices and digital wallets.
Possible illegal fund transfers and insufficient verification procedures have been brought to light by this.
The National Institute of Banking and Securities Services (NIBSS) has stressed once again that organizations holding switching, PSSP, or superagent licenses are not authorized to receive inflows.
Concerns about these entities keeping client funds are the target of this regulatory effort.
This regulatory action may affect several fintechs that are involved in consumer payment apps, and it is expected to be a deliberate effort to fix deficient verification methods and increase monitoring over illicit financial transfers.
Rebuilding Consumer Trust in the Fintech Industry Revived by NIBSS Intervention Following Unlicensed Incident
Unlicensed companies posing as deposit-taking institutions has been recorded, leading to an increase in occurrences of fraudulent activity in digital transactions. This caused NIBSS to issue its latest advisory.
The need for regulatory measures is highlighted by the fact that financial fraud cases surged by 35% in the latest quarter, according to the Central Bank of Nigeria (CBN).
Not only have recent cyberattacks on big payment systems brought attention to the financial ecosystem’s weaknesses, but they have also forced NIBSS to take preventative action.
An investigation by a cybersecurity company found that attempted cyberattacks on banks in Nigeria have increased by 50% over the previous six months.
Rebuilding consumer trust with NIBSS intervention
The majority of consumers(78%) are worried about the safety of their online purchases, according to a recent survey.
New financial platforms have made many things easier, but some have wondered if they are following regulations. In response, NIBSS has made it clear what licenses are required.
Over the past year, investments totaling over $400 million have poured into Nigeria’s fintech sector, highlighting the importance of strong regulatory frameworks.
The decision of NIBSS to conform to worldwide standards for electronic payments is in keeping with a worldwide trend toward stricter regulation of non-traditional financial institutions.
According to a World Bank research, international financial watchdogs are keeping an eye out for cross-border financial transactions that include unauthorized organizations.