NIBSS Directive Shakes Nigerian Fintech: Paystack Responds as Flutterwave and Others Face Disconnection

2025-01-06

In a recent development that has sent ripples through Nigeria’s fintech ecosystem, the Nigeria Inter-Bank Settlement System (NIBSS) issued a directive ordering commercial banks to disconnect non-deposit financial institutions from fund transfer channels. This move has raised concerns among industry players, including major payment platforms like Paystack and Flutterwave. Paystack, however, has moved swiftly to reassure its customers, emphasizing that its services remain unaffected due to its strategic partnership with Titan Trust Bank.

Paystack’s Assurance Amidst Regulatory Changes

Paystack, one of

The NIBSS circular specifically targets non-deposit financial institutions, including switching companies, Payment Solution Service Providers (PSSPs), and Super Agents (SAs). These entities are now barred from receiving funds through NIBSS Instant Payment (NIP) channels, which include USSD, mobile banking apps, PoS terminals, ATMs, and web platforms. However, they are still permitted to process outward transfers into banks.

Understanding the NIBSS Directive

The NIBSS directive stems from the

This regulatory move aims to ensure that only licensed deposit-taking institutions, such as Mobile Money Operators (MMOs), can hold customer funds. According to Punch, operators in Nigeria must obtain at least one of the following licenses from the CBN: Switching and Processing, Mobile Money Operations, Payment Solutions Services, or Sandbox.

Paystack’s Workforce Reduction

In a separate but related development, Paystack recently announced the layoff of 33 employees in Europe and the United Arab Emirates (UAE). Shola Akinlade, Paystack’s CEO, described the decision as “a difficult day” for the company. He explained that the layoffs were part of a strategic restructuring to focus on core markets and ensure long-term sustainability. Affected employees were offered a four-month pay-off package as part of the transition.

What Undercode Say:

The NIBSS directive and Paystack’s response highlight the evolving regulatory landscape in Nigeria’s fintech sector. While the directive aims to enforce compliance with CBN guidelines, it also underscores the challenges faced by non-deposit financial institutions in navigating these regulations. Paystack’s proactive approach in partnering with a commercial bank demonstrates the importance of adaptability and strategic alliances in maintaining operational continuity.

However, the directive raises questions about its potential impact on innovation and competition in the fintech space. By restricting non-deposit financial institutions from receiving funds, the CBN may inadvertently stifle the growth of smaller players who rely on these channels to offer innovative payment solutions. This could lead to a consolidation of power among larger, deposit-taking institutions, potentially reducing consumer choice and slowing the pace of financial inclusion.

On the other hand, the directive could be seen as a necessary step to safeguard customer funds and ensure the stability of Nigeria’s financial system. By limiting the ability of non-deposit institutions to hold funds, the CBN is reducing the risk of mismanagement or fraud, which has been a concern in the rapidly growing fintech sector.

Paystack’s layoffs, while unrelated to the NIBSS directive, reflect the broader challenges faced by fintech companies in balancing growth with profitability. As the industry matures, companies are being forced to make tough decisions to streamline operations and focus on core markets. This trend is likely to continue as investors demand clearer paths to profitability and regulatory pressures increase.

In conclusion, the NIBSS directive and Paystack’s response are indicative of a fintech sector at a crossroads. While regulatory clarity is essential for the long-term health of the industry, it is equally important to strike a balance that fosters innovation and competition. As Nigeria’s fintech ecosystem continues to evolve, stakeholders must work collaboratively to create a regulatory framework that supports growth while protecting consumer interests.

The coming months will be critical in determining how these regulatory changes shape the future of Nigeria’s fintech landscape. For now, Paystack’s ability to navigate these challenges serves as a testament to the resilience and adaptability of Nigeria’s fintech pioneers.