Early in August the Central Bank of Nigeria (CBN) made sudden and unexpected changes to its International Money Transfers and Operators (IMTOs) policy. So drastic were these changes that the majority of the international money transfer organizations at work in Nigeria, had their licenses revoked, reports CNBC Africa.
Only three money transmitter organizations are still eligible to do business in the West African powerhouse. They are Ria Money Transfer, Western Union and Moneygram. All three of these authorities are established in the field and have been thus for many years.
The decision may seem sudden, but when analyzing the situation, it becomes clear that it has been a fair time coming. A growing number of unlicensed money transmitters have started operating in Nigeria, and the country stated in a press release that these transmitters were undermining its foreign exchange regime. The change in policy resulted in all unlicensed transmitters to seize operation, thereby curbing any illegal activity.
While this is certainly a positive outcome, hundreds of legally operating transmitters also had their licenses revoked. Many of these were startups, but some have been also established themselves in Nigeria.
A curb in innovation
The difference between a startup and an established company usually points to innovation. Startups tend to find more technological ways to do what more traditional, established companies are already doing. It’s easier to implement new practices and experiment with new ways of doing things without influencing a complicated system.
A lot of the time startups and younger companies also find solutions that are more affordable than traditional methods. In the case of Nigeria’s change in remittance policy, this was definitely the case.
The concept of Digital Payment Services (DPS) was being examined and implemented by some of the younger remittance organizations in Nigeria. There are thousands of Nigerians living and working abroad in order to supply a better life to their families back home. In 2015 Nigerians in diaspora sent a total of $20.8 billion home. This is according to data from Global Knowledge Partnership on Migration and Development. It is important the diaspora to be able to send money in a way that is affordable and simple. Being able to do it with their cellphones will be a major draw card, since access to mobile financial services has greatly improved in Africa in the last number of years. This is a crucial service to offer in Africa, as many of its people don’t even have a bank account, but they still need to be able to send money home.
Eliminating startups and innovators from the country entirely might curb innovation in Africa. This could have negative effects, especially considering the fact that India is hosting their first ever International Money Remittance Conference this year, the main topic of which is DPS. It could also have the opposite effect and encourage more traditional companies to find modern solutions.
More security and better control
It is now much easier for Nigeria to manage the large amounts of money coming in and out of the country. This will greatly decrease and prevent fraud and money laundering. By drastically reducing the amount of channels in and out of the country, it is significantly easier to regulate what goes out and what comes in.
One of the reasons the Central Bank of Nigeria gave for its sudden policy changes is that it’s part of a strategy to maintain stability in the exchange rate. Such stability would be widely appreciated, especially after the significant drop in oil price – Nigeria’s main export. This drop severely impacted the Nigerian naira.
Yet according to a report on Quartz Africa, Nonso Obikili, research associate at Economic Research Southern Africa, says it’s “unlikely” the new policy will stabilize rates; if anything, the reverse. “It creates more inefficiency,” Obikili says. “It is likely to increase demand at the black market because the former bulk buyers from the money transfer operators have to buy from somewhere else.”
Serve the interest of established money transfer operators
The new policy changes might be part of a bigger plan. In 2015 CBN released a memorandum that set minimum requirements for companies offering international mobile money transfer services to Nigeria. The guidelines specify that any company offering such transfers must have minimum net assets of $1 billion and have been operating for more than 10 years.
While the new decisions have a much more direct impact on money transfer operators, both seem to support the notion that Nigeria is serving the interest of established money transfer operators rather than those of startups and young companies.
Once again, this notion can definitely stablize money matters in Nigeria, as control over the financial channels into the country is stricter.
Nigerians can trust the available services
While innovation might decrease, reducing the amount of international money transfer operators from hundreds to only three, means that all three these companies can be fully trusted. The Central Bank of Nigeria is sending a clear message to its diaspora: Use the services of trusted and established operators rather than companies that might potentially disappoint.
Because international money transfer is so important to Nigerians living abroad, it is equally important to be able to trust the provider of this service. While innovation is crucial, dependability is perhaps even more important.
The middle ground between innovation and dependability
At this point in time, it is very important for all three the remaining money transfer operators to support and encourage innovation in the field.
According to the World Bank Development Research Group’s latest report, integrating digital payments into the economies of emerging and developing nations such as Nigeria addresses crucial issues of broad economic growth and individual financial empowerment. Digital payments offer immediate benefits for both senders and receivers in developing economies.
Digital payment services will also increase the financial independence of women by moving them from the limitations of a cash-only economy and connecting them with the financial mainstream.
The most important finding of the report for money transfer, is that the establishment of digital payments for remittances instead of cash is of enormous benefit to poor people in emerging markets and also contributes to financial development. This could also help address concerns about the transparency and traceability of remittances.
The report presents an action plan for governments to adopt to realize the benefits of digital payments. One of the calls to action is specifically directed at remittance providers and reads as follows:
“Governments must recognize the role of remittance providers in offering a digital entry point to formal financial services for senders and receivers. Instead of remittances being cashed out, remittances sent to a bank account, e-wallet, or smart card, for example, can go into accounts that support safe saving and also increase transparency and traceability.”
Now that Nigeria streamlined the financial channels into the country and provided its citizens with three trusted service providers, it is time to focus on making these services more accessible digitally. The market for remittance in Nigeria is proven strong, but by presenting solutions like e-wallets or smart cards, it could strengthen the market even more.