Financial Technology (FinTech), the technological innovation that continues to disrupt the financial services industry is on an upward trajectory and shows no signs of letting up. The FinTech Movement, fueled by a surge of start-ups with new creative businesses, revenue models, products, and services is transforming finance operations for the better in Nigeria and around the world. These firms offer customers a variety of financial services that were once almost solely in the purview of traditional banks.
The birth and rise of FinTech is firmly rooted in the 2008 global financial crisis and the loss of confidence caused by it. People's frustration over the traditional banking system was the ideal breeding ground for financial innovation. FinTech providers saw this gap and came in via well-designed web platforms and mobile apps; offering new and fresh services at lower costs. An instant win!
As alternative finance gains momentum in Nigeria, FinTech is reaching a point where the critical mass of consumers and business customers will see technology-driven solutions provided by new players on the market as the viable, and often preferred alternative to the services offered by incumbent banks.
This article explores the challenges FinTech firms face, as well as the financial reporting and risk management practices shaping their operations.
Challenges Faced by FinTech Companies in Nigeria
Entry and Regulatory Compliance Issues: Nigeria's ever-changing regulatory climate is a constant obstacle for all sorts of financial institutions, but it's even harder for FinTech firms. For example, Nigeria's Mobile Money Services Guidelines require interested parties to have at least ?2 billion in their shareholders' funds to receive a mobile money license from the Central Bank of Nigeria (CBN). Very few FinTech start-ups can fulfill this requirement. Moreover, while the licensed mobile money provider may integrate its platform with other financial service providers under this guideline, the CBN requires all financial solution providers to be licensed. So, the CBN typically imposes fines on licensed mobile money operators for integrating with unlicensed financial solution providers.
Besides, entrepreneurs need too many licenses to participate in the FinTech space. Given the rapid speed of technology, the requirement for licenses is becoming obsolete as it hampers market growth and investment. It generates supply-side credit obstacles as eager investors cannot satisfy the credit demand of qualified startups due to legal rather than technological issues. Regulatory compliance is a prerequisite for success for FinTech companies in Nigeria and globally.
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