Amidst efforts to fast track the digitisation of the economy and payment systems, the onus is on regulatory institutions to mete out clear-cut responsibilities to both operators and consumers to ensure sanity, trust and security of the payment architecture, James Emejo writes
The advent of financial technology companies (FinTechs) has thrown up enormous opportunities, challenges and responsibilities for regulatory institutions and operators alike.
The federal government said it hoped to generate over N1 trillion in tax revenues from the digital economy but the increasing vulnerabilities of electronic and digital payment platforms have necessitated the need for effective regulatory oversight of the payment systems.
The rising cases of electronic fraud in financial institutions had been a major cause for concern as billions of naira are lost to Internet fraudsters, thereby calling the safety of online transactions to question.
Banks and FinTechs are regularly introducing innovative financial products and solutions, sometimes without proper considerations for the safety of vulnerable consumers.
If anything, government’s efforts to grow the digital economy to diversify its sources of revenues further calls for the need to sanitise the digital platforms.
However, in order to address the seeming chaos, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, recently advocated increased and intensive regulatory scrutiny on the part of regulators to proactively monitor developments in electronic and digital payment systems amidst the growing impact of FinTechs. He said regulators must also ensure the continuous safety and soundness of the financial ecosystem adding that by its sheer population estimates, the country remained primed to be an active playground for digital transformation and could not afford to ignore the FinTech challenge.
The CBN governor noted that discussions had increased around the issue of the digital economy as more opportunities have emerged for financial institutions and other players within the payment ecosystem to innovate and provide more efficient options for payments and settlements.
Keeping Pace with Development
Emefiele, at the open the CBN’s 31st Seminar for Finance Correspondents and Business Editors, themed: “Trends in Nigerian Payments System: Regulating the Fintech Digital Playing Field” in Enugu state, said that regulators must keep pace with the exponential developments in the digital financial landscape and leverage new knowledge and technology tools to enhance the efficiency and effectiveness of their mandate.
He pointed out that from all indication, digital revolution would remain a focus for financial institutions in the months ahead, therefore making fintechs a major driver of the industry.
Represented by CBN Deputy Governor, Corporate Services Directorate, Mr. Edward Lamekek Adamu, the apex bank boss said technology had continued to change the face of the financial services industry, adding that the advent of digital financial services had created faster, more efficient, and typically cheaper transactions compared to traditional financial services.
Emefiele said, “As the global economy recovers from COVID-19, it is obvious that fintech will play a more important role towards resilient and sustainable recovery. Studies have already shown that only one per cent of fintechs have been critically affected by COVID-19 and two per cent severely affected. By comparison, around 17 per cent of other high-growth companies fall into these categories. It is therefore unsurprising that many Finfechs have experienced a surge in demand as working practices and customer banking habits changed.”
Emefiele further stressed that the CBN’s decision to introduce Central Bank Digital Currency (CBDC) also known as the eNaira, would help in attaining its goals of fostering greater inclusion, using digital channels, supporting cross border payments for businesses and firms as well as providing a reliable channel for remittances inflows into the country.
He said with the deployment of the eNaira, Nigerians in remote areas could conduct financial activities using their digital as well as features on phone devices.
He said, “Partnering with our stakeholders in the financial industry, I believe that more Nigerians will be financially included” adding that the theme of the seminar was in tandem with an increasingly evolving banking landscape characterised by acceleration in the digitalization of financial services which is facilitated by Fintechs, open banking and emerging new technologies.
He said the eNaira, expected to be launched in a couple of days, would make Nigeria one of the first countries in Africa, and indeed the globe, to adopt the digitisation of its national currency.
He added that the payments system of any country played a pivotal role in its economy, being the channel through which financial resources flow from one segment of the economy to the other.
However, stakeholders in the electronic payment space during a roundtable discussion on ” Creating a Secure Cyber Environment for Financial Transaction”, agreed that the protection of end-users of financial technology remained paramount.
They also harped on the need for proper sensitisation of consumers in order to minimise the level of fraudulent transactions, which had cost banks and individuals a fortune.
At the panel discussion, CBN Assistant Director, Payment Management System,
Rakiya Yusuf, said every stakeholder including the consumers have the responsibility to safeguard electronic payment systems from any form of compromise.
Customer Protection
Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, said dispute resolution needed to be accorded attention in digital transactions.
Interswitch’s Akeem Lawal also said customer protection was paramount, adding that the focus should be on how to help customers recover funds where there is a theft.
He said to achieve safety of the digital ecosystem; the CBN’s guidelines on payment systems must be taken seriously by all.
Chief Product Officer, Accelerex, Mr. Chuks Anakudo said as much as it is the responsibility of service providers to ensure safety of consumers, the end-users should also have the responsibility to protect their sensitive information from fraudsters and the public.
He said financial end users are gullible and careless on how they exposed their financial details to third parties and called for increased enlightenment of the public.
The panelists commended the CBN on the proposed eNaira lunch as it would significantly benefit the economy.
Strengthening Cyber Resilience
In August 2021, the CBN moved to strengthen the cyber resilience of Other Financial Institutions (OFIs) to ensure that they remain safe and sound amidst increase in the number and sophistication of cybersecurity threats and attacks against them.
The apex bank had released an “Exposure Draft of the Rise-Based Cybersecurity Framework and Guidelines for Other Financial Institutions” which was addressed to all OFIs in the country and stipulated the minimum requirements for enhancing cybersecurity.
The apex bank explained that the purpose of the guidelines which provides a risk-based approach to managing cybersecurity risk, was to among other things create a safer and more secure cyber environment that supports information system security and promote stability of the OFI sub-sector.
Earlier in June 2020, the CBN had released the draft framework for the regulation of Sandbox operations going forward.
The regulation seeks to set standards for live trials or demonstration of new innovative products and financial technology in the industry.
The CBN said the move became necessary in view of the increasing consumer appetite for payment solutions and emerging disruptive technology in the financial services space as well as the need to ensure new, more flexible ways of engaging with the industry.
Essentially, the regulatory sandbox is a formal process for firms to conduct live tests of new, innovative products, services, delivery channels or business models in a controlled environment, with regulatory oversight, subject to appropriate conditions and safeguards.
The draft exposure among other things, highlights the set of consumer safeguards in order to mitigate the risk to consumers participating in the testing exercise.
The process will further outline the nature of the risks identified, and will be proportionate to the impact and probability of the risks occurring or causing consumer disadvantage.
The apex bank in a circular to deposit money banks and mobile money operators and payment service providers, which was signed by both CBN Director, Payments System Management Department, Mr. Musa Jimoh and Director, Financial Policy and Regulation and Department, Mr. Kelvin Amugo, stated that the proposed framework will enable the Bank stay abreast of innovations while promoting a safe, reliable and efficient payments system to foster innovation without compromising on the delivery of its mandate.
The CBN stated that the framework further defines the establishment, rules and operations of a regulatory sandbox for the Nigerian payments system in order to promote effective
Competition, embrace new technology, encourage financial inclusion and improve customer experience, with a view to engendering public confidence in the financial system.
The objective is to among others things increase the potential for innovative business models that advance financial inclusion; reduce time-to-market for innovative products, services, and business models; increase competition, widen consumers’ choice and lower costs; ensure appropriate consumer protection safeguards in innovative products as well as clearly define the roles and responsibilities of stakeholders and the operations of the Sandbox for the Nigerian Payments System industry.
