In a significant move to reinforce regulatory guidelines, the Nigeria Inter-Bank Settlement System (NIBSS) has issued directives instructing banks and various financial institutions to disconnect switches, payment solution service providers, and super agents from its Instant Payment Outwards System (fund transfer channels).
This directive, outlined in a circular dated December 5, 2023, with Ref: NIBSS/BD/NI/PO/005/051223, is poised to reshape the landscape of financial transactions in Nigeria.
The NIBSS circular, addressing Deposit Money Banks, merchant banks, switches, mobile money operators, payment service banks, microfinance banks, mortgage banks, payment solution service providers, super agents, and others, elucidated that the listing of non-deposit taking financial institutions as beneficiaries goes against the guidelines set by the Central Bank of Nigeria (CBN) on electronic payments in Nigeria, dating back to February 2014.
The crux of the matter lies in the contravention of CBN guidelines related to the electronic payment of salaries, pensions, suppliers, and taxes.
The circular explicitly stated, “Directive to disconnect switches, payment solution service providers (PSSPs) and super agents (SA) from NIBSS Instant Payment (NIP) Outwards System.”
The communication from NIBSS underscored the importance of adhering to regulatory frameworks, emphasizing that switches, PSSPs, and SAs may process outward transfers as inflows to banks but are not authorized to receive inflows as their licenses do not permit them to hold customers’ funds.
This directive has far-reaching implications, particularly for financial technology companies (Fintechs) that have been utilizing the NIBSS Instant Payments (NIP) platform.
Fintechs that previously appeared on the platform as banks, receiving deposits by generating reference numbers mimicking bank accounts and utilizing core-banking applications, will no longer be able to engage in such practices.
As a result of this enforcement, the names of accounts created by Fintechs will no longer feature in the lists of banks when customers attempt to credit such accounts. However, it’s essential to note that outward fund transfers will remain operational.
This shift in policy aims to ensure greater transparency and compliance with established banking regulations.
It’s crucial to highlight that this directive does not impact Fintechs that collaborate with banks. Fintech-bank partnerships, where dedicated accounts carry the bank’s name, will continue to operate within the regulatory framework.
However, Fintechs using customized names, in an attempt to appear as standalone banks, are likely to face repercussions from this change.
The NIBSS directive signals a strategic move towards aligning financial practices with regulatory standards, fostering a more secure and compliant financial ecosystem.
As the industry adapts to these changes, stakeholders, including banks, Fintechs, and customers, will need to navigate the evolving landscape of fund transfers, with an increased emphasis on regulatory integrity and adherence to established guidelines.
