Since floating the Naira, the new leadership of the apex bank in Nigeria (CBN) has been making several regulatory changes in a bid to stabilise the currency. The latest being a revised regulatory and supervisory guideline for Bureau de Change (BDC) operations.
Essentially, from a tech perspective, this involves digitising BDC operations to allow the CBN to monitor their activities more effectively.
The number of licensed BDC operators in Nigeria grew from 74 in 2005 to over 5500 in 2021. Despite being licensed entities, many illicit activities such as street trading and round-tripping occur off the books, often hidden from regulators.
The previous administration expressed concerns about these activities and took measures, including banning of forex sales to the BDCs. However, these actions did not yield the desired result of regulatory oversight over the BDCs' activities. This is where technology can play a significant role.
According to clause 2.0 of the guideline[1], the CBN does not permit PSPs, PSBs, commercial banks, merchant banks, non-interest banks, or other financial institutions (OFIs) including holding companies, to own BDCs, either directly or indirectly. This is an opportunity for the tech ecosystem and payment engineers who aspire to establish their own companies.
Opportunities
There are some fintech verticals that can be explored by fintech experts and payment engineers which we will discuss below;
There are some fintech verticals that can be explored by fintech experts and payment engineers which we will discuss below;
- A BDC operating system;
- connecting with NIBSS
- connecting with banks
- connecting with IMTOs
- we might see virtual USD accounts from Nigerian banks
- know your customer
- automated financial reports and;
- confirming air tickets
- Card Issuing Services
- A consumer app offering eSIM + bank account (Revolut-esque)
A BDC operating system
Think core banking, without the holding of customer funds and more of the book keeping.
The serious BDCs will be in the market for an out-of-the-box solution for its operations. There should be a local market for such product, a hybrid software that can be deployed on a local private network or in the cloud.
For a business sector dominated by the Northerners a lot of people have made comments on X (formerly Twitter) about how the Northerners will not be able to meet up with the new regulations due the IT requirements (a view I find distasteful).
Similar to banking, majority of banks use an off the shelf core banking software that is developed by a third party software company. I see the same playing out here. Existing license holders with serious business intentions will be in search for a BDC operating software.
Some of the features this solution must have include:
Some of the features this solution must have include:
a) Connecting with NIBSS is one of the primary functions that should be available, for BVN verification and inter-bank transfers as all customers are to receive payouts in their bank account. While the guidelines explicitly mentioned connecting to NIBSS for the purpose of verifying BVNs which suggests that inter-bank APIs will be provided by the deposit money banks. The banks themselves might point you to NIBSS which is the central switch of the country that they use as well, instead of offering you a NIBSS wrapper that might be unstable.
b) Connecting with banks. With less cash in circulation customers will want to make bank transfers to the BDC operators. Providing visibility, without every cashier having access to the bank account will mean connecting to the bank APIs for transaction confirmation, inter-bank transfers and automated payouts. Being able to create an order, generate a virtual account, receive webhooks from the bank and automatically doing payout in the exchanged currency will set your solution apart especially for those who will want to offer consumer apps to facilitate customer-not-present exchanges.
c) Connecting with IMTOs to receive funds in the BDCs’ account on behalf of customers is now allowed. This means you can send money from the abroad via an International Money Transfer Operator (IMTO) and the recipient will cash-out at a BDC.
A simple flow will be:
- The sender to select the BDC
- The sender provides the details of the recipient for inquiry via the BDCs APIs (recipient must have been KYC’d by the BDC)
- Finally the IMTO will pay into the account of the BDC and funds to be confirmed in real-time.
Since IMTOs can already directly pay out to recipients in their Naira accounts I assume this is to cover the unbanked, and tourists without bank accounts.
d) We might see USD virtual accounts from Nigerian banks: This is more of a wishful thinking than a possibility right now. Similar to how customers with NGN accounts will want to make bank transfers and receive fast confirmation from the BDC. For customers with USD domiciliary accounts that want to exchange USD for Naira, issuing a USD virtual account will make that possible.
e) Know your customer (KYC). For the CBN to get its desired results out of its new regulation KYC must be thorough. This is a part that will be scrutinised by the regulators when vetting the IT infrastructure of any BDC to ensure compliance with KYC requirements.
While all standard personal identifiable information should be collected and stored privately, BVN and TIN data must be verified against government issued identification documents as explicitly stated in the guidelines. This is to ensure tax compliance as well as ensuring proper AML/CFT monitoring.
f) Automated financial reports; In line with the new regulations, financial auditing will be key to overseeing the activities of the BDCs hence every BDC must provide transaction reports in compliance with Anti-money Laundering/Combating the Financing of Terrorism/Countering Proliferation Financing (AML/CFT/CPF) provisions and guidelines.
Auto generating end of day reports such as balance sheets and income statements are also important for reconciliation and revenue recognition.
Building a solution that streamlines generating of these reports will ensure BDCs remain within regulatory boundaries effortlessly. Such a solution not only simplifies the process of staying compliant but also mitigates the risk of human error and ensures a seamless operational flow.
g) Confirming of air tickets by the BDCs in real-time will be crucial for its operations as they can now officially issue Personal Travel Allowance (PTA) and Business Travel Allowance (BTA).
This will mean integrating with flight booking system, airline reservation system or even specific airlines themselves as they are required to verify travel documents before issuing USD debit card to travelers.
Card Issuing Services
For non-residents visiting the country who would normally exchange their foreign currencies at the airports with BDC agents, hotels or with locals. They are now required to receive Naira in a debit card when they trade with BDCs since they are likely not to own Naira bank accounts.
Typically the BDC should partner with their banks to issue these cards and be able to fund them immediately. If you have attempted to issue cards via the banks you’ll know how difficult and unreliable the service can be. This opens up and opportunity for fintechs to offer this service to the BDCs.
One of the only fintech providing such service is Sudo Africa head quartered in Abuja. They offer both physical and virtual programmable cards with very flexible controls, which is uncommon but important. For a non-resident visitor you’ll want to maybe issue cards that you can programmatically disable when their visa expires, directly fund since they are not attached to accounts etc.
I see a play for Sudo winning this slice of the market with the company having a reliable infrastructure and based in the North where majority of the BDCs are situated.
A consumer app offering eSIM + bank account (Revolut-esque)
Some companies outside of Nigeria already offer this. Revolut, a global neobank, which initially made its name as the travel card recently launched phone plans attached to eSIMs for travelers in the UK. Also Zolve, an Indian credit card startup that helps immigrants set up banking before arriving in the US started offering physical SIMs and eSIMs to immigrants before they fly off to the US, last year.
Although eSIMs are still not fully main stream with the telcos in Nigeria. I expected the Mobile Virtual Network Operators (MVNO) to accelerate this adoption, but none of the companies who have received an MVNO license has really taken off. Regardless the Revolut-esque approach might be a play the existing neobanks and mobile money license holders are already looking into, to expand revenue streams.
This will greatly improve the experience of non-residents visiting Nigeria. Think of the possibility of getting an eSIM, bank account and a travel card (which can be funded at a BDC by exchanging foreign currency) all within a single app.