NIBSS bans Paystack, Flutterwave and other non-deposit fintechs from fund transfers (See List)

The Nigerian Interbank Settlement System Plc (NIBSS) has issued a directive impacting the operations of non-deposit-taking financial institutions, including prominent fintech platforms like Paystack, Flutterwave and many others

The circular, addressed to banks in Nigeria, mandates the exclusion of such institutions from the NIP (Nigeria Interbank Payments) fund transfer channels.

NIBSS’s directive encompasses switching companies, payment solution service providers (PSSPs), and super agents, preventing them from being listed as beneficiary institutions for fund transfers through channels such as USSD, mobile banking apps, POS, ATMs, and web platforms.

Ngover Ihyembe-Nwankwo, Executive Director of Business Development at NIBSS, emphasised that this action aligns with the CBN Guidelines on Electronic Payment of Salaries, Pensions, Suppliers, and Taxes in Nigeria dated February 2014.

The directive clarifies that while these financial institutions can process outward transfers to banks, they cannot receive fund inflows due to their licenses not permitting them to hold customer funds.

According to the circular released by it, “listing non-deposit taking financial institutions such as switching companies (switches). Payment Solution Service Providers (PSSP), and Super Agents (SA) as beneficiary institutions on your NIP funds transfer channels contravenes the CBN Guidelines on Electronic Payment of Salaries, Pensions, Suppliers and Taxes in Nigeria dated February 2014.” 

Read similar: NIBSS slashes electronic transfer fees from N5 to N3.75k effective July 1

What you should know

Superagents are pivotal players in driving financial inclusion in Nigeria. These entities act as intermediaries or aggregators between financial institutions and consumers, particularly in underserved areas. They operate networks of retail agents equipped with point-of-sale (POS) devices and digital wallets to offer various financial services, such as cash deposits, withdrawals, utility bill payments, and transfers.

Their operations often involve collaborating with banks or licensed financial institutions, leveraging their infrastructure to extend financial services to communities where traditional banking services might be limited.

PSSP operators act as intermediaries that facilitate digital payment transactions between consumers, businesses, and financial institutions. These entities manage digital gateways for card payments, online transactions, and money transfers, catering to both individual consumers and enterprise customers.

Companies falling under the PSSP category, such as Paystack and Flutterwave, offer technological infrastructure and platforms that enable seamless payment processing.

Lastly, platforms with switching licenses function as transaction processing entities that facilitate the smooth and efficient routing of electronic payments between different banks and financial institutions. They provide the technological backbone for the secure and swift transfer of funds across various payment networks.

These entities, including companies like Interswitch and Remita, enable interoperability between different banks and payment systems, ensuring that transactions, such as ATM withdrawals, POS transactions, and interbank transfers, can seamlessly occur regardless of the banks involved.

“For clarity, Switches, PSSPs, and SAs may process outward transfers as inflows to banks but are not to receive inflows as their licenses do not permit to hold customers’ funds.”

According to the memo

These three players—superagents, PSSPs, and switches—collectively contribute to the infrastructure, accessibility, and efficiency of Nigeria’s financial ecosystem, fostering financial inclusion, enabling digital payments, and facilitating seamless transaction processing across diverse networks and platforms.

See the list below:

What NIBSS directive means for Nigerians, fintech platforms

Consequent to the directive, the NIBSS, which manages Nigeria’s widely-used instant payment system utilized by all financial service providers, has instructed banks, mobile money operators, and microfinance institutions to deactivate external fund transfers to wallets operated by these companies.

This enforcement is poised to affect small business owners significantly, given their heavy reliance on these fintech platforms for transactions and receipt of payments. For many Nigerians, these fintech platforms have been integral in facilitating seamless and convenient financial transactions.

This directive might disrupt their ability to easily transfer funds between conventional bank accounts and these fintech wallets through various channels like mobile apps, USSD codes, POS terminals, and ATMs.

Beyond its immediate impact, the directive reflects broader concerns within the Nigerian financial services industry. It raises alarm bells over unlicensed financial services companies masquerading as deposit-taking entities, signalling an intensified stance on regulatory compliance and oversight.

This directive is not an isolated event; it resonates with recent occurrences highlighting the industry’s susceptibility to fraudulent activities and lapses in customer verification processes.

Just recently, Fidelity Bank, a major commercial bank in Nigeria, temporarily suspended fund transfers to neobanks including Moniepoint, Kuda, Opay, and Palmpay, citing concerns over rising fraud incidents and the need for robust verification procedures.

As the fintech sector navigates these regulatory shifts, industry players are exploring initiatives to bolster security and anti-fraud measures, seeking to reassure customers and maintain operational integrity.

The far-reaching consequences of NIBSS’s directive transcend immediate operational disruptions, sparking introspection and action within Nigeria’s fintech sphere and fundamentally reshaping the narrative of financial technology in the country.

Note: While Moniepoint’s parent company, Team Apt was on the list of fintechs banned, Moniepoint has a microfinance licence therefore does not fall into this category as earlier posited.