In response to mounting concerns over fraud and lapses in customer verification processes, the Nigeria Inter-Bank Settlement System (NIBSS) has escalated regulatory efforts by clamping down on unlicensed financial services companies masquerading as deposit-taking institutions. The move underscores a broader industry push for enhanced regulatory enforcement to safeguard consumers.

In a memo addressed to banks, fintechs, and payment providers, NIBSS explicitly cautioned against listing companies with switching, payments processing, and super-agent licenses as beneficiary institutions during bank transfers. Ngover Ihyembe-Nwankwo, the executive director of business development at NIBSS, emphasized that this practice contravenes the Central Bank of Nigeria’s (CBN) Guidelines on Electronic Payments.

Highlighting the significance of superagents, payment solution service providers (PSSPs), and switches, the memo stressed that these entities play vital roles in providing payment infrastructure and offline distribution, contributing significantly to the nation’s financial inclusion efforts over the past decade.

The PSSP license category, held by industry players like Paystack, Flutterwave, and eTranzact, authorizes them to operate digital gateways for card payments and money transfers for both consumers and enterprise customers.

However, the memo issued on December 5 by NIBSS ordered commercial banks, mobile money operators, and microfinance institutions to disable outward fund transfers into wallets operated by these licensed entities, highlighting a clear stance against their unauthorized deposit-taking activities.

Switching licenses enable fintechs, including Remita, HabariPay, Moniepoin, and Interswitch, to settle transactions swiftly without relying on NIBSS’s real-time infrastructure. Meanwhile, the superagent license, used by companies like Nomba and Quickteller Paypoint, has been pivotal in driving financial inclusion by establishing a network of retail agents providing payment services nationwide.

Despite the pivotal role of these licenses in expanding financial services, there has been a concerning trend where many fintechs, beyond their authorized activities, offer deposit-taking services. The Central Bank of Nigeria reports nearly 50 superagent companies, at least 75 PSSP license holders, and just over a dozen switching companies operating in Nigeria.

The regulatory Intervention is a response to fintechs increasingly providing deposit-taking services, a domain typically reserved for mobile money operators among fewer than two dozen licensed financial institutions, excluding commercial banks, payments service banks, and microfinance institutions.

In light of the latest directive, several fintechs may face expulsion from consumer payments apps as banks and fintechs intensify scrutiny over illicit fund transfers and concerns about weak verification processes by other companies.

This regulatory move echoes a similar action taken by Fidelity Bank in October, which temporarily restricted consumer fund transfers to neobanks like Moniepoint, Kuda, OPay, and PalmPay. While the bank did not comment on the issue, industry insiders attributed the move to rising fraud and concerns over customer verification, prompting financial services companies to explore additional initiatives to bolster security and anti-fraud measures in the industry.