The Central Bank of Nigeria’s directive to track PoS transactions through licensed aggregators has sparked controversy, raising concerns about centralisation, industry disruption, and heightened regulation. September 12, 2024.
In a bold move that has already sent shockwaves through Nigeria’s financial and retail sectors, the Central Bank of Nigeria (CBN) has mandated that all Payment Service Providers (PSPs) must route Point of Sale (PoS) transactions through approved Payment Terminal Service Aggregators (PTSAs). This directive, issued by the apex bank in a circular signed by Oladimeji Yisa Taiwo of the CBN’s Payments System Management Department, sets the stage for the introduction of enhanced tracking mechanisms for electronic transactions. But is this truly a strategic move to streamline Nigeria’s payment systems and combat fraud, or is it another example of CBN’s creeping overreach that threatens to disrupt an already fragile economy?
The Directive: A Technical Leap or Centralised Control?
At the heart of the CBN’s directive is a 30-day ultimatum for all PSPs to comply with new routing guidelines that require PoS transactions to be processed through CBN-licensed PTSAs. On the surface, this move seems like a laudable attempt to decentralise the country’s PoS infrastructure, which has often been criticised for its over-centralisation under a single entity, the Nigeria Interbank Settlement System Plc (NIBSS). However, the more one delves into the matter, the more it becomes apparent that this is not just a technical adjustment but a calculated decision that may have far-reaching implications for merchants, agents, and the overall Nigerian economy.
The CBN’s circular clearly states, “PTSAs are required to send PoS transactions to only processors certified by the relevant Payment Scheme, nominated by the Acquirer, and licensed by the CBN.” This might sound like a regulatory safeguard, but critics have quickly raised concerns about what this really means: a bureaucratic stranglehold on the nation’s electronic payment system.
For merchants and agents, this new policy spells disruption. With just 30 days to implement these changes, payment service providers will face massive technical and operational challenges in redirecting their transaction flow. This could trigger a ripple effect, causing transaction delays, increased operational costs, and potentially higher service fees for end-users, all in the name of compliance with a directive that many say was pushed too hastily.
Unpacking the Motive: Is the CBN Targeting Fraud or Squelching Competition?
One of the key justifications provided by the CBN for this sweeping policy change is its effort to curtail rising cases of fraud, particularly those involving PoS terminals. According to a report by the Nigeria Inter-Bank Settlement System Plc, PoS terminals accounted for a staggering 26.37% of fraud incidents in 2023. This statistic has been wielded by the CBN like a sword, cutting through dissenting voices who have called out the draconian nature of the new guidelines.
But does this data really justify the CBN’s latest directive, or is there a more nuanced agenda at play?
In recent years, PoS services have seen an astronomical rise in Nigeria, fuelled by the country’s cashless policy drive and the push for financial inclusion. However, alongside this growth, there has been increasing tension between traditional banks and emerging fintech companies, with the latter encroaching on territory once dominated by brick-and-mortar banking institutions. Many industry insiders argue that the CBN’s move to tighten control over PoS transactions is a thinly veiled attempt to regain influence over the burgeoning fintech sector, which has long been seen as a disruptor to the old order.
The directive to route all PoS transactions through CBN-licensed aggregators appears to centralize control within the hands of the few, while squeezing out smaller players who may struggle to meet the rigid licensing and compliance demands imposed by the apex bank. This could stifle innovation, reduce competition, and ultimately lead to higher transaction costs, a burden that will inevitably be passed on to consumers.
Impact on PoS Agents and the Informal Sector: Another Blow?
The timing of this directive is not accidental. It follows the expiration of a separate, but equally contentious, deadline that required PoS agents to formally register their businesses with the Corporate Affairs Commission (CAC). This move, touted by the CBN as a measure to clamp down on fraud and promote regulatory compliance, has already caused widespread unrest among PoS agents and operators, many of whom operate within Nigeria’s vast informal sector.
With PoS terminals emerging as lifelines for businesses, especially in remote areas where traditional banking services are limited or non-existent, the imposition of stringent guidelines and the sudden enforcement of formal business registration seem more like a calculated attempt to control the narrative than a genuine effort to combat fraud.
One can’t help but wonder: why is the CBN pushing so hard to bring PoS agents under such tight regulation now? Is the apex bank genuinely concerned about fraud prevention, or is this part of a broader strategy to curb the influence of unregulated entities in the digital payment space?
While the CBN may argue that this is a step towards financial stability, the PoS registration mandate and the new routing guidelines create yet another barrier for small-time operators, many of whom lack the resources or knowledge to navigate complex registration processes and licensing requirements. In the long run, this could drive many PoS agents out of business, leaving a vacuum that will likely be filled by larger, more established players who have the resources to comply with these regulations.
Cryptocurrency Ban: The Ghost in the Room?
No discussion about Nigeria’s financial landscape is complete without addressing the elephant in the room: the CBN’s longstanding opposition to cryptocurrency. The ban on cryptocurrency trading, instituted in February 2021, casts a long shadow over the current PoS directive, especially given the CBN’s ongoing concerns about the use of digital currencies for fraudulent activities.
While the new PoS guidelines don’t explicitly mention cryptocurrency, the timing and framing of the directive hint at the CBN’s broader agenda to maintain control over all forms of digital transactions. The centralisation of PoS transaction routing could serve as an additional layer of oversight, enabling the CBN to monitor for any signs of cryptocurrency-related activity within the payment ecosystem. This adds a chilling dimension to the policy, raising questions about the real motivations behind the directive and whether it is another step toward a more comprehensive clampdown on digital currencies.
The Future of Nigeria’s Payment Systems: What’s Next?
The CBN’s directive has set the stage for a new era in Nigeria’s payment ecosystem, one that promises greater oversight but at what cost? As PSPs scramble to comply with the 30-day deadline and PoS agents grapple with the fallout from forced registration, the future of digital payments in Nigeria hangs in the balance.
While some may applaud the CBN for taking decisive action against fraud and ensuring regulatory compliance, others see these moves as part of a disturbing trend toward centralisation and control, with the potential to stifle innovation and hinder the growth of Nigeria’s fintech sector.
One thing is certain: the battle for the soul of Nigeria’s payment systems is far from over. The coming months will reveal whether the CBN’s directive was a masterstroke of regulatory reform or a misguided overreach that could unravel years of progress in the country’s digital finance space.
In the end, the real question is whether the CBN’s attempt to “track” PoS transactions will result in genuine improvements in transparency and fraud prevention, or if it will become yet another costly bureaucratic bottleneck that benefits a select few at the expense of the many.
Conclusion: The Fallout Looms
As the dust settles, merchants, agents, and fintech players must brace for what lies ahead. The CBN’s PoS directive is poised to redefine Nigeria’s digital payment ecosystem, but not without substantial controversy and unintended consequences. In the race to track and regulate, will Nigeria’s financial landscape emerge stronger, or will it fall victim to overregulation and centralisation? The coming months will provide the answers, but for now, uncertainty reigns supreme.