How African fintechs can achieve regulatory compliance

2 months ago 25

Regulatory issues have recently plagued the tech ecosystem in Africa. Fintech, the biggest sector by funding, has been the most hit. To satisfy investors, fintechs have often had to blitz scale their services across the continent. These scaling efforts are mostly carried out without having the required licences to operate in these countries. 

In July, Flutterwave, Africa’s biggest startup, faced regulatory challenges in Kenya and Ghana. In response, the company issued a statement, where it claimed to have applied for a payment service provider licence in Kenya in 2019. “Like many other financial technology service providers in Kenya, our entry into the market was through partnerships with banks and mobile network operators licenced by the Central Bank of Kenya,” the company said in the statement

This has been the go-to strategy for most startups. To scale quickly in an ecosystem rife with confusing and suppressing regulations, many startups have had to form strategic relationships with existing players. While central banks previously allowed these fintechs to operate without licences, that has now changed. Fintechs like Chipper Cash and Dash have also seen the same fate as Flutterwave as more stringent regulatory requirements are established across the continent. 

At a webinar titled “Identity and KYC: How African fintechs can achieve regulatory compliance” on Friday, September 2, TechCabal sought to seek out solutions to this complicated conundrum from the perspective of industry experts. 

The conversation shed light on how regulators and operators can collaborate to build a robust framework of regulations in the fintech industry. Speaking at the event were Ebi Wanapere, head of operations, Bamboo; Daluchi Iweanya, head of compliance, Quidax; Esigie Aguele, co-founder/CEO, VerifyMe; and Michael Safo, head of compliance/AMLRO, Guaranty Trust Bank, Ghana. 

On how early-stage fintechs can navigate compliance

When asked how early-stage companies can successfully establish themselves as regulatory compliant, Wanapere advised founders to do extensive research in the sector they want to operate in. “The very first thing every fintech founder needs to do to be compliant is to research heavily and understand the regulations around the space you’re playing in.”

He added that in a scenario where there are no clear regulations, founders should “try to get as close as you possibly can”. He also advised that for fintechs that have intertwined services, to avoid being subject to many regulatory bodies, the phase where business ideas are developed should involve thinking about how the company wants to comply regulations-wise. 

On the relationship between fintechs and identity verification 

Aguele said that the biggest challenge most startups face with identity verification is documentation maturity for the masses, and he attributed the financial inclusion problem in Africa to this problem. 

He said that a lot of his customers, fintechs, face access problems to anti-money-laundering (AML) compliance digital identities and regulatory datasets. He also added that enforcing the regulation that strengthens the ecosystem so that operators like VerifyMe can get access and share that access in an open banking environment remains a roadblock. 

On the relationship between expansion and regulation 

Iweanya advised fintechs that are in their expansion phase to proactively engage with regulators in foreign countries. She added that because regulation that pertains to fintechs is still evolving, regulators often have to play catch up, and the best way to enable them to catch up is to collaborate with the regulators. 

She also advised fintechs to partner with existing players in the country where they are expanding. She added that by collaborating with other fintechs, the possibility of encountering blindsides will be drastically reduced. 

On how fintechs can fortify themselves against fraud and other crimes

Wanapere advised all fintechs to, first of all, take the know-your-customer (KYC) phase very seriously. He said that although it might be a painstaking process, the stage of knowing your customers will help mitigate the occurrence of fraud. He added that fintechs should spare no expense in getting AML check services. The process of verifying might make fintechs lose customers, but according to Wanapere, this is a small price to pay. 

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