Amechi Ogbonna and Omodele Adigun
“There are two main concerns on Fintech: these are how to identify and insure non-bank deposit-taking institutions licensed by CBN and other agencies like SEC. Currently, there is an ongoing engagement with the relevant regulatory agencies on how to actualise that within the limits of a legal provision. The second is how to tap into the potential of Fintechs to effectively execute its business processes easily, speedily and reliably”.
These were the words of the Managing Director/Chief Executive Officer of the Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, Wednesday in Kaduna during the just concluded NDIC annual workshop for Business Editors and members of the Finance Correspondents Association of Nigeria (FICAN) while speaking on the theme: “COVID-19 & FinTech Disruption: Opportunities & Challenges for Banking System Stability and Deposit Insurance”.
According to him, NDIC is ready and willing to continue partnering different strategic stakeholders in the financial services industry to deepen its deposit insurance services practice and strengthen financial system stability in Nigeria.
For him, the risks, implications and opportunities posed by the COVID-19 Pandemic and FinTech on the Nigerian banking sector, and the global financial system as a whole, are quite huge and needed to be tackled through stakeholder collaboration.
His words: “The impact of the COVID-19 pandemic and its resultant disruptions to social and economic activities have had negative consequences on all nations of the world. The threat of recession, increased national debt, increase in non-performing loans and potential financial crisis have put pressure on regulators to reassess their supervisory activities to strengthen their capabilities to address these challenges and forestall any impending financial crisis.”
On Fintech, Ibrahim noted that despite its promising innovation and economic growth through disruption of traditional finance, fintech disruptive financial services such as chip-based debit/credit cards, mobile and web-based payments, cloud computing also pose major challenges to the regulatory paradigm.
Quoting McKinsey & Company in a recent report, the NDIC boss said Nigeria is now home to over 200 fintech standalone companies, plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio. Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million.
According to him, managing financial system risks requires collaboration as financial system instability increases the volatility of asset prices and investor behaviour, leading to deteriorating credit conditions, increased costs to firms and households and potentially the collapse of the payment system.
The NDIC helmsman also observed there has been increasing evidence that Fintech innovations have many advantages for businesses and customers in line the 2017 World Economic Forum position that Fintech is “disruptive”, “revolutionary”, and armed with “digital weapons”, that will “tear down” traditional financial institutions.
“Fintech will enhance market competition and financial inclusion. However, the increasing sophistication and proliferation of technology in banking operations also ushered in unintended consequences like operational and legal risks, as well as the security of consumer personal data”, he said
In a related presentation themed “COVID-19 and Fintech in the Nigerian Financial System, Dr. Kabir Katata, NDIC Deputy Director, Research Department, noted that COVID-19 pandemic has created new opportunities for FinTechs to accelerate and enhance financial inclusion, amid social distancing and containment measures.
He explained that the global Fintech market is expected to grow at a compounded annual growth rate (CAGR) of about 20 per cent and is projected to reach a market value of approximately $305 billion by 2025, according to a new report from Research and Markets.
Coming home, Katata said Nigeria Fintech market has raised $600 million in funding.
“Fintech sector is thriving because of a youthful population; increasing smartphone penetration; focused regulatory drive to increase financial inclusion and cashless payment system
Nigeria is now home to over 200 fintech standalone companies plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio.
Nigeria offers significant opportunities for fintechs across all consumer spectrum, notably within SMEs and affluent segments and, increasingly, in the mass-market segment.” He said
Looking into the future, Katata inferred that collaboration between banks and FinTech startups could be the key to finding solutions in the new environment that the COVID-19 pandemic has brought about.
He said : “The coronavirus crisis may lead to a series of changes forcing many companies to rethink their business models as COVID-19 has resulted in expansion of digital finance, blurring borderlines between banks, Big Tech and Fintechs.
Such ongoing accelerations of digital trends are likely to remain beyond the COVID-19 pandemic. The world may never return to the original Fintech position that was there before the outbreak of this virus.”
Speaking on the vulnerability of financial consumers, Mr Haruna Mustafa, Director, Consumer Protection Department of the Central Bank of Nigeria (CBN) lamented power imbalance between consumers and financial services providers the customer standing in the position of weakness relative to the banks in particular.
According to him, experiences from “the global financial meltdown of 2007/2008 exposed the vulnerability of financial consumers and impaired their confidence in the financial system”.
On the COVID-19 Pandemic and Challenges of Consumer Protection in the Financial System, Mustafa explained that the goal of Consumer Protection was usually to mitigate the risks associated with the use of financial products or services by the consumer.
His words: “Consumer Protection (CP) is the whole range of laws, policies, structures, actions and behaviours designed to protect consumers in the market place. One of the Core Mandates of the Central Bank of Nigeria is to “Promote a Sound Financial System in Nigeria. Critical to this is engendering public trust and confidence in the financial system through: ensuring easy access and usage of financial services and protection of Consumers from the possible excesses of Financial Service Providers (FSPs);this underscores the need for a robust conduct supervision/consumer protection regime in the Nigerian banking industry; CP is key in the financial industry owing to the imbalance of power between FSPs and consumers.
Since 2003, the CBN had issued Regulations, Guidelines, Policies etc. to facilitate development of the Payments System. The guidelines contain provisions on consumer protection – dispute resolution, consumer education, responsible market conduct, anti-fraud, among others. The COVID 19 Pandemic has indeed exposed humanity to a “new normal” that is continuously affecting social and economic activities; concerted and coordinated efforts among policy makers, regulators, FSPs and indeed entities that are interested in consumer welfare is critical to ensure that financial services bring about the greatest benefits to consumers. There is need for more investment in research to sustain innovation, be able to address the associated consumer risks and enhance the regulatory process.”
Meanwhile, the board and management of banks that are in liquidity need due to the effects of the Covid-19 on the economy may have cause to rejoice as the NDIC has reviewed its Financial and Technical Assistance framework and would be providing loans and assistance to specific banks. According to its Director in charge of Insurance Surveillance Department, Galadima Gana, the review is in readiness for assisting banks that are faced with liquidity and solvency challenges during the pandemic and beyond.
He, however, expressed satisfaction that the banking industry is strong and well capitalised as average non-performing loans (NPLs) stood at six per cent, slightly above the regulatory benchmark of five per cent, while average capital adequacy ratio (CAR) stood at 15 per cent.
Gana explained that the industry-wide average liquidity stood at 36 per cent as at September 30, 2020, indicating that the banks are liquid, adding that, loan- to-deposit ratio stood at 60 per cent, as against 65 per cent stipulated by CBN. To this end, he said, there is a need for banks to increase their lending to customers.
He added: “The condition of the industry is generally satisfactory. However, the impact of the pandemic had also led to a decline in credit facilities despite the increase in deposits during the period March to June 2020. The regulatory and supervisory authorities have introduced measures to tackle the impact of the pandemic on the banking system with incentives such as interest rate reduction, moratorium, liquidity injection and regulatory forbearance on loan restructuring among others.
“Closer monitoring of banks and increased campaign on the safety of banks’ deposits through sustained public awareness and building of trust and confidence in the financial remain the key priorities of Regulators/ Supervisors.
“Also, the Corporation is reviewing the Framework for Financial and Technical Assistance in readiness for assisting banks that are faced with liquidity and solvency challenges during the pandemic and beyond,” Gana stated.