President of the Africa Fintech Network (AFN), Dr. Segun Aina, has said that some of the regulatory issues facing fintechs in Nigeria are due to the dynamic nature of their technology-enabled business.
Speaking in an interview with Nairametrics against the backdrop of the recent clampdown on some fintechs by the Central Bank of Nigeria (CBN), Dr. Aina said governments and regulators globally are struggling to regulate technology because it moves at a very fast pace.
While noting that regulations may create impediments for the fintechs at the beginning, he said in the end, it would benefit them and the financial system. He, however, warned against policies that could stifle innovation.
Innovation vs regulation
Pointing to the fact that innovation is always ahead of regulation, Dr. Aina said:
“One of the fastest and most dynamic sectors today is technology because it continues to change. So, the regulators and governments have to struggle to cope with how to regulate fintech because when you say innovation, these are things that did not exist before.
“Regulation may create some encumbrances for those who are in the business, but eventually it’s going to benefit the system because it will make everyone better at the business.
“What is important is that the policies must be friendly, must recognize that there is a need to innovate, and the policymakers must make sure that they carry along all the stakeholders so that they don’t just come up with a policy that will stifle innovation because that is worse.”
Corporate governance issue
Dr. Aina said fintechs are also having challenges due to corporate governance issues. According to him, because most fintechs are small businesses, they do not have corporate governance structures that could compare to that of a commercial bank.
However, he noted that as they grow over time, they will begin to put the right structure in place. He said the first set of Nigerian fintechs that are moving to other markets are putting in place proper corporate governance.
The AFN President said the issue of corporate governance has now become a focal point for all fintech stakeholders in Nigeria as that is expected to spark the next stage of fintech growth in the country.
The backstory
The CBN recently directed four fintechs – OPay, Palmpay, Moniepoint, and Kuda Bank – to stop onboarding new customers over the suspicion that their platforms are being used by criminal elements to maneuver foreign exchange through crypto trading.
Earlier, a court order had been obtained by the Economic and Financial Crimes Commission (EFCC) to freeze at least 1,146 bank accounts belonging to different people and businesses that were allegedly engaged in illicit foreign exchange dealings.
Some of the fintechs have argued that while 90% of the accounts in question were commercial bank accounts, only the fintechs were asked to stop onboarding customers. However, industry analysts said the ease with which new fintech accounts can be opened with little KYC instigated the CBN’s action against the companies.
