INTRODUCTION
Nigeria has the most FinTech unicorns in Africa, with five out of the seven African unicorns being Nigerian companies, and two of three Nigerian unicorns for 2021, being FinTech companies. This is the direct result of many innovative founders who keep creating new approaches for improving financial inclusion and solving the existing problems in financial services.
What is a FinTech company and what do these companies do?
FinTech means financial technology, and it is used to describe any technology that is deployed to assist financial service providers by automating the use and delivery of financial services. Originally, (i.e., some 20 years ago) it meant the backend technology deployed by established financial institutions. The definition has changed as FinTech services have become more consumer-oriented. FinTech now includes sectors and industries such as retail banking, investment banking, education, fundraising, investment management, non-profits etc. There are several Fintech companies in Nigeria and by a recent ranking of Fintech unicorns in Africa Nigerian fintech companies lead the park.
HOW DO I START A FINTECH COMPANY IN NIGERIA?
LICENCE
The most crucial part of starting a fintech company in Nigeria is obtaining a fintech license because without one you cannot release a product to the public. There are different categories of licenses based on the type of FinTech product/service that the FinTech company intends to offer to the Nigerian populace. Therefore, a founder must determine the type of legal structure that will be appropriate for the product/service that the FinTech will offer in Nigeria.
The following are the categories of FinTech companies in Nigeria and the licensing/regulatory bodies:
Payment service providers, mobile money operators, digital banks, switch companies - Central Bank of Nigeria (CBN)
Lending – CBN & State Ministry of Home Affairs
Savings, stock trading, personal finance, asset management and Peer-to-peer lending/Crowdfunding – CBN & Securities and Exchange Commission
Blockchain & Cryptocurrency - currently, the CBN does not issue licenses to cryptocurrency companies or permit banks to do business with cryptocurrency companies.
It is important to note that some regulators have cross-sectorial responsibilities, such as the National Communications Commission, which governs FinTech companies providing value-added services and the National Information Technology Development Agency, which governs data users.
Cost of Obtaining a FinTech Licence in Nigeria
FinTech companies in Nigeria are generally regulated by the Central Bank of Nigeria (CBN). As the primary regulator of FinTech, the CBN has set the minimum share capital requirement for different classes of FinTech companies. Therefore, in addition to the application fees payable to the CBN and incorporation fees payable to the Corporate Affairs Commission (CAC), any individual seeking to incorporate a FinTech Company must deposit certain refundable sums (i.e., the minimum share capital) into an escrow account with the CBN. These sums make up a huge part of the capital required to start a FinTech company in Nigeria.
Here are some types of FinTech Companies in Nigeria, the initial share capital requirements and the application and licences fees payable to the CBN:
- Mobile Money Operators - N2,000,000,000.00 (two billion naira) is the minimum share capital requirement. Payment of a non-refundable application fee of N100,000.00 (one hundred thousand naira) and a licensing fee of N1,000,000.00 (one million naira) to the CBN.
- Switching and Processing Companies - N2,000,000,000.00 (two billion naira) is the minimum share capital requirement. Payment of a non-refundable application fee of N100,000.00 (one hundred thousand naira) and a licensing fee of N1,000,000.00 (one million naira) to the CBN.
- Payment Solution Service - N250,000,000.00 is the minimum share capital requirement. Payment of a non-refundable application fee of N100,000.00 (one hundred thousand naira) and a licensing fee of N1,000,000.00 (one million naira) to the CBN.
- Payment Terminal Service Provider - N100,000,000.00 (one hundred million naira) is the minimum share capital requirement. Payment of a non-refundable application fee of N100,000.00 (one hundred thousand naira) and a licensing fee of N1,000,000.00 (one million naira) to the CBN.
- Payment Solution Service Provider - N100,000,000.00 (one hundred million naira) is the minimum share capital requirement. Payment of a non-refundable application fee of N100,000.00 (one hundred thousand naira) and a licensing fee of N1,000,000.00 (one million naira) to the CBN..
- Finance Companies – N100,000,000.00 (one hundred million naira) minimum share capital is the minimum share capital requirement. Payment of a non-refundable application fee of N100,000 (one hundred thousand naira) and a licencing fee of N250,000.00 (two hundred and fifty thousand naira) to the CBN.
- Payment Service Banks - N5,000,000,000.00 billion naira minimum share capital. Payment of a non-refundable application fee of N500,000.00 (Five Hundred Thousand Naira and a licensing fee of N2,000,000.00 (two million naira) to the CBN.
- Digital Banks - There is no regulatory regime for digital bank. Hence they are usually established as Microfinance Banks (MFB). The minimum capital requirement for MFBs is N50,000,000.00 (fifty million naira) for Tier 2 Unit MFB, N200,000,000.00 (two hundred million naira) for Tier 1 Unit MFB, N1,000,000,000.00 (one billion naira) for State MFB, and N5,000,000,000.00 (five billion naira) for national MFB. Digital Banks can also be established as Finance Companies, Payment Service Banks or Commercial Banks.
INCORPORATION WITH THE CAC
Once the FinTech founder has decided on the type of FinTech company, gotten the Approval-in-Principle which is issued upon payment of the application fee, the founder needs to incorporate the company with the CAC in order to obtain the license.
INTELLECTUAL PROPERTY
Founders of FinTech companies should ensure that their intellectual property rights are protected. There are three categories of intellectual property rights - copyrights, patents and trademarks. Copyright protects original works of authors/software developers that have been fixed in any definite medium of expression. For a work to be eligible for copyright protection, it must be in a tangible medium like software codes, and cannot be abstract or an idea. Software codes enjoy automatic copyright but it is advisable to carry out registration of same at the Nigerian Copyright Commission. Patents are forms of intellectual property rights that protect inventions. In contrast to copyright, a patent protects ideas embodied in an invention that solves a problem. The requirements for registering a patent are that: 1) the invention must be a new inventive step that is capable of industrial application; or 2) an improvement upon a patented invention, that is new, results from inventive activity and is capable of industrial application. A trademark refers to any inscription or mark that is used by an individual or a company to distinguish his/its products or services from those of other companies. In order to be registered as a trademark, a mark must be distinctive, unique, and not descriptive of the product or service it identifies. In contrast to copyright, which does not require registration, patent and trademark holders typically need to register before they can enforce their rights.
CONCLUSION
Founders who wish to establish a FinTech company in Nigeria should engage the services of a lawyer who can advise on the appropriate entity that should be incorporated.