The Nigerian Inter-Bank Settlement System (NIBSS) has issued a stern warning to unlicensed financial services companies operating as deposit-taking institutions. This move signals a significant step towards stricter regulatory enforcement in the wake of rising fraud and inadequate customer verification processes within the payments sector.

NIBSS’s memo, addressed to banks, fintechs, and other payment providers, clarifies the roles and limitations of companies holding switching, payments processing, and superagent licenses. These entities are non-deposit-taking institutions and should not be listed as beneficiary institutions during customer bank transfers.

This directive specifically targets three crucial players who have played a vital role in accelerating financial inclusion in Nigeria over the past decade:

• Superagents: These companies, such as Y Combinator-backed Nomba and Interswitch Financial Inclusion Services (Quickteller Paypoint), leverage POS devices and agents to provide financial services across the country.
• Payment Solution Service Providers (PSSPs): This category includes companies like Paystack, Flutterwave, and eTranzact, enabling digital gateways for card payments and money transfers.
• Switches: Fintechs like Remita, HabariPay, Moniepoin, and Interswitch fall under this category, facilitating rapid transaction settlements through alternative infrastructure.

NIBSS’s order requires commercial banks, mobile money operators, and microfinance institutions to disable outward fund transfers to wallets operated by these unlicensed firms. This move aims to curb unregulated deposit-taking activities and ensure compliance with the CBN’s Guidelines on Electronic Payments.

While these companies promote financial inclusion, concerns have risen regarding their expansion into deposit-taking services beyond their permitted licenses. Excluding licensed financial institutions like mobile money operators, banks, and microfinance institutions, less than two dozen entities are legally allowed to hold consumer deposits directly. However, consumer payments apps often list dozens of unlicensed companies, including superagents and switches, as potential beneficiaries.

NIBSS’s directive explicitly states that switches, PSSPs, and superagents can only process outward transfers from wallets as inflows to banks, but cannot receive inflows themselves. This move is expected to significantly impact the presence of unlicensed deposit-taking companies on consumer payments apps.

This initiative aligns with a broader trend of increased scrutiny and regulatory action within the Nigerian fintech space. Following Fidelity Bank’s temporary restrictions on transfers to neobanks due to fraud concerns, other financial services companies are proposing additional security and anti-fraud measures.

NIBSS’s latest order signifies a major step towards safeguarding the Nigerian financial ecosystem and promoting responsible financial inclusion. By establishing clear regulations and enforcing compliance, this move aims to protect consumers, reduce fraud, and ensure the stability and sustainability of the payments sector.