Nigerian Mobile Payment Wallets: Smart Solutions or a Pending Disaster

As I got into the vehicle I requested for via a popular ride hailing app on a hot sunny workday in Lagos, I had one question for the cab driver. “Why was it so difficult getting a ride in the middle of Lekki?” Isaac, my middle aged cab driver replied, “All the riders are moving to O-pay, Oga, that one pay us pass all these other apps” the driver continues “I like their model, but, you know I do not really trust them, since I discovered they are a Chinese Company.”

With a few clicks on the internet, I quickly understand that this relatively new Company has the ambition to be the one-stop mobile-based platform for payment, transportation, food, airtime purchase, deposits, withdrawals and very interestingly, wealth management services, as well. In essence this company is positioning itself as the preferred financial intermediary for the large unbanked segment of the Nigerian population.

It is also worthy to note that in 2018 the CBN, in an effort to promote financial inclusion and enhance access to financial services for low income earners and the unbanked population, the CBN commenced granting licenses for the operation of Payment Service Banks (PSB). It is expected that PSB’s leverage on technology to promote a sound financial system, primarily in rural centres. The licencing and regulation of PSB’s was also communicated to the general public.   

Consequently, O-Pay is by no means the only player in the market, additionally, similar companies such as flutterwave, Paga, PocketMoni, Fortis Mobile Money etc., have all attempted to scale, in their ability to provide mobile wallet services to Nigerians.

Giving that these companies are basically set up to hold deposits and subsequently facilitate payments, these companies are practically operating in the space of conventional deposit financial institutions.

Financial institutions are heavily regulated globally, this is because there is hardly a riskier venture than handing your cash to an unknown third party. Nigeria as a country is also no stranger to the collapse of financial institutions, most especially deposit money banks. Therefore, it has constantly developed guidelines governing the operation of financial institutions in general, these guidelines are referred to as “Prudential Guidelines.” The Centeral Bank of Nigeria (CBN) is the regulator and enforcer of these operational guidelines. These guidelines contains regulations covering, credit risk, investments options, capital adequacy ratios, liquidity requirements, statutory reserves e.t.c.

In 2010 the CBN issued revised prudential guidelines, as part of its efforts to enhance the assets of financial institutions. Subsequent to this, in August 2019, the CBN released exposure drafts on the revised prudential guidelines addressing a changing financial landscape for the following financial players:
  1. Development Finance Institutions
  2. Commercial, Merchant and Non Interest Banks
  3. Finance Companies
  4. Microfinance Banks
  5. Mortgage Refinance Companies and
  6. Primary Mortgage Banks
A review of the content of the above prudential guidelines leaves us struggling to identify the guideline regulating the operations of mobile wallet companies. Can an argument be made that mobile wallet Companies qualify as “Finance Companies?” Unfortunately, the exposure draft for the prudential guidelines of Finance Companies, fails to define what Finance Companies are.

A risks exists that in the absence of an unambiguous prudential guideline for the operation of mobile wallet companies, investors or depositors into this e-wallet systems will have a higher exposure to the loss of deposits. This is of heightened concern, because, the primary target of mobile wallet companies is the unbanked population. Further to this, there is no indication that deposits into mobile wallets will be insured by the NDIC, as is the norm for commercial bank deposits.

A strong regulatory framework for mobile wallet companies is therefore need to reinforce the confidence of individuals like Mr. Isaac mentioned earlier, who is apprehensive of trusting his money to a Chinese company. Developments around this will further drive the national goal of providing financial intermediation services to the large percentage of unbanked Nigerians at a reduced risk level.