BUSINESS MODELS | STRATEGY
When a leading digital bank considers stepping into the realm of commercial banking, it sparks a critical question: can innovation thrive within the confines of regulation?
Just days before reports surfaced of Moniepoint exploring a commercial banking (CB) license, I had written about Nigeria’s need for a digital banking license. At the time, I dismissed the possibility outright. Now, with this development, it’s time to revisit that stance and consider what this move could mean for Moniepoint and the future of digital banking in Nigeria.
Here’s my commentary on it:
Some believe larger digital banks are mature enough to obtain a commercial banking license. It is doubtful if the plans outlined by these fintechs in their pitch to investors for funding include becoming another traditional Nigerian bank…
While Opay and ChipperCash have no funding shortfall, allocating 31% and 83% of their funding to licensing concerns is not a business proposal any serious investor will fund. Of course, this is a back-of-the-envelope calculation and omits several considerations but it does poke holes in the pro-commercial banking license argument.
While I only considered the national banking license, the recent news means the regional license needs some scrutiny. The international authorization remains dismissed as the $312.5 mn capital requirement is out of reach.
Here’s the question I asked myself before deciding to write;
Providus is a regional bank. Can a Providus customer use their bank app anywhere in Nigeria? Will their card work anywhere in Nigeria? What is the difference between a regional or national license when you are a digital-first entity? How significant is it?
This analysis explores Moniepoint’s potential pursuit of a regional banking license, examining the regulatory implications, operational challenges, and strategic trade-offs between domestic growth and international expansion. The decision could reshape not only Moniepoint’s future but also the trajectory of digital banking regulation in Nigeria. First, an important distinction to properly contextualize the article.
Moniepoint: More Than Just a Microfinance Bank
Through its subsidiaries, Moniepoint Inc. processes $17 billion monthly for its customers while operating profitably.
Moniepoint Inc. is a fully remote tech company with a diverse workforce worldwide and is headquartered in London, with offices in the US, Nairobi and Lagos
News reports and public commentary don’t make this distinction regularly but the company is not just the bank. Moniepoint Inc. includes:
- Moniepoint Microfinance Bank: Personal & Business Bank accounts, Credit, Payments & Business Management
- Monnify: Payment Gateway
- TeamApt: Payment Switching
- Moniepoint GB: Incorporated in February, The UK subsidiary’s offerings are unclear, but they’ve been hiring.
- Moniepoint Kenya? Moniepoint’s acquisition of Kopo Kopo is still in progress and its Kenya CEO, Ravi Jakhodia, is now its UK CEO. (Revisiting this later in the article)
Any additional Moniepoint Inc. subsidiaries operate behind the scenes. For clarity, Moniepoint in this article would refer to the group and Moniepoint MFB, the microfinance bank. Having established Moniepoint’s current structure, let’s examine the implications and requirements of a regional banking license.
Regional Banking: Opportunities & Constraints
The regional banking authorization is currently the least popular. Parallex, Providus, Signature, and SunTrust Bank are the only licensees. With the Providus-Unity Bank merger in the works, the license holders will be down to three very soon as Unity Bank is a national bank. Should Moniepoint MFB proceed with this license, it will be following the footsteps of Parallex Bank, previously a ten-year-old MFB that was granted a license in 2021 after applying in 2019.
At $31.25 mn, the regional license’s capital requirement makes it financially feasible for Moniepoint, compared to other licenses. First, all the boring details.
Nigerian Commercial Banks have restrictions on the activities they can undertake, that apply to all license authorizations — regional, national and international.
However, the differences between each license are minimal — though consequential.
With the banking authorizations differentiated, we can go over the license of concern.
Unpacking The Regional License
A Commercial Bank with regional banking authorisation shall be entitled to carry on its banking business operations within a minimum of six (6) and a maximum of twelve (12) contiguous States of the Federation, lying within not more than two (2) Geo-Political Zones of the Federation, as well as within the Federal Capital Territory
— CBN SCOPE, CONDITIONS & MINIMUM STANDARDS FOR COMMERCIAL BANKS REGULATIONS NO. 01, 2010
The license allows national banking hopefuls to begin operations on a smaller scale before expanding nationally. But the Central Bank’s location restriction on them is consequential in a physical banking-only world. Ideally, this operational restriction would mean they should not bank customers outside their permitted locations.
To fully enforce the restriction today, their banking apps would either be geofenced to work only in the states they operate, or only customers living in those states would be allowed to digitally open accounts with these banks. Geofencing is not a good idea as it would mean customers will be stuck once in a state where the bank has no branches.
Account opening restriction by location is currently not happening. Nigerians anywhere can open and operate an account with a regional bank digitally. This is the same with digital banks holding MFB licenses, some of which do not have national MFB authorization.
This arrangement means that the ₦150 bn difference between a national and regional authorization is essentially the cost of a settlement banking permit. Banks with either license can serve customers anywhere in Nigeria digitally.
Nigeria’s Agent Banking regulations don’t explicitly place any location restrictions on financial institutions that undertake it. SunTrust and Parallex Bank have an agent network. All SunTrust agents operate in states without a SunTrust Bank branch, except FCT. But, all agents are in the two geopolitical zones where SunTrust has branches. This has implications for Moniepoint MFB as it has a nationwide agent banking network.
While all four banks meet the maximum of two geopolitical zones for operations in the branch sense, none chose a Northern geopolitical zone. All except Signature Bank chose South-West and South-South. As the Abia State Governor is the bank’s founder, it is no surprise that it chose the state as its only South-East state.
Before an upgrade from a regional to a national bank in 2015, Wema Bank also operated only in South-West and South-South. Should Moniepoint MFB take this license, we can safely guess its choice of zones for physical branches.
To fully understand the implications, a direct comparison between regional and microfinance licenses is necessary.
Weighing the Regional and Microfinance Banking Licenses
Without controversy, a CB license — any category — is better than an MFB license, for an entity with banking ambitions. The regulatory framework for Microfinance Banks can be found here.
While understanding the regulatory framework is crucial, the practical implications for Moniepoint’s operations warrant careful consideration.
Between Ambition and Restriction: Implications of a Banking License for Moniepoint
A Regulatory Puzzle: Moniepoint’s Curious Absence
In an intriguing twist, Moniepoint MFB is not listed with the Central Bank of Nigeria’s microfinance institutions registry. This omission is unlikely an administrative oversight but potentially a significant signal of the company’s banking direction.
While other banks undergoing transitions, such as Nova Bank (upgraded to a Commercial Bank in July 2024) and Unity Bank/Providus Bank (received merger approval), remain clearly listed, Moniepoint, with “Microfinance Bank” on its website, is nowhere to be seen.
Recent job postings for an FX Trader hint at operations beyond traditional microfinance boundaries. The company appears to be testing the edges of its current regulatory framework, possibly in the advanced stages of obtaining a CB license.
Navigating Regulatory Constraints
For Moniepoint MFB, a regional banking license works— all things being equal— as the location restriction will not impact its business and personal banking footprint on the mobile banking front. However, its agent banking business would hit a roadblock. It cannot be confirmed if the scope of a CB license trickles down to its agent banking business but SunTrust’s agent network hints at a possible limitation.
Moniepoint is a nationally known name, unlike the current licensees, with a presence in 33 states via its support offices. Will the CBN mandate it to restrict its operations to two geopolitical zones, shutting down existing support offices or will the restriction apply only to the physical branch network? Should Moniepoint MFB take this license, it will raise questions about its fairness and relevance of the license in today's banking system.
The regional license would put Moniepoint MFB ahead of every digital bank in Nigeria from a scope of business perspective, as detailed above. However, this advancement comes with significant regulatory constraints.
Under current MMO and MFB licenses, digital banks operate with relatively limited CBN oversight. A commercial banking license would dramatically change this, subjecting Moniepoint to extensive regulation. Additionally, the group’s international expansion plans would face increased scrutiny with a regulated bank entity in its structure. This transformation would effectively shift Moniepoint’s identity from an innovative fintech startup to a traditional commercial bank.
With its prominent location restriction, the license still doesn’t look plausible for Moniepoint MFB. The restriction is a baggage less-known entities can bear. For a company associated with Nigeria’s most popular POS, it will be a surprise if it gets a regional license without regulatory clarity on geographic operation by the Central Bank.
On the flip side, Moniepoint may be gunning for a national license for its MFB and the recent raise is part of its efforts to meet the new capital requirements. In this case, it gets all the CB advantages without restrictions on locations it can operate. It may have another funding round in the works, as its latest round doesn’t cover the requirement for a national license. Under the previous capital requirements, the international license cost ₦50 bn, the current cost of a regional authorization. That license is now ₦500 bn ($312.5 mn), larger than Moniepoint’s funding since inception.
The capital requirement of $31.25 mn for a regional license is 28.4% of Moniepoint’s latest funding. Spending nearly 30% of a funding round to meet licensing requirements signals doubling down on Nigeria. With the macroeconomic landscape looking topsy-turvey, Moniepoint going the CB route means it is positioning itself for future growth but faces the risk of entrapment in Nigeria’s volatile market. This act not only affects Moniepoint but the fintech ecosystem at large.
Beyond Moniepoint: Implications for Digital Banking
Regulation is not expected to stay ahead of innovation but it must catch up. As technology makes its way into every industry, blurring the lines between traditional and technology companies, regulators cannot afford a “wait and see” approach. Its sandbox is not enough. The transition to holding companies by Nigerian banks is a response to restrictions placed on the CB license. As companies continue to bend to regulators and their old rules, they remain less incentivized to make changes.
Today, digital banks carry an MFB license originally designed to serve the country’s poorest — the group least likely to have smartphones and participate in web/mobile banking. Choosing the MFB license as a workaround did not incentivize the Central Bank to consider a framework for digital-first banks. Should Moniepoint bag a CB license — regional or national — we would be digging deeper into the do-nothing approach to digital banking regulation.
The 2010 guidelines for CB — across the three tiers — view banking as a business that can be done only via physical branches. This is outdated and should Moniepoint take a license and begin building out branches, we would be putting the nail in the coffin, everyone will have to become another traditional bank.
All things being equal, other digital banks will be expected to toe the same path. Strict CBN compliance would prohibit regional licensees from any national operations, digital or physical. Thus, closing the window for nationally operating digital banks to take the cheapest CB license. Not a pleasant outcome.
While the domestic regulatory considerations present significant challenges, they must be weighed against Moniepoint’s stated global aspirations and recent international moves.
Reconciling Nigerian Expansion with Pan-African Aspirations
The capital raised will accelerate our growth across Africa, as we build an all-in-one, seamlessly integrated platform for African businesses of all sizes. This platform will include services such as digital payments, banking, cross border payments, credit, and business management tools, making it a one-stop shop for business solutions.
— Tosin Eniolorunda in Moniepoint has raised US$110 million to power the dreams of millions of Africans everywhere
From Kopo Kopo in Kenya to the senior hires for Moniepoint UK, Moniepoint’s non-Nigeria plans are not hidden. Financial Times report on the funding round emphasizes expansion. It says Moniepoint plans to “use the funds to expand into other countries in Africa”.
The funding announcement does not emphasize a doubling down on Nigeria but a raise for expansion. In 2023, Moniepoint was rumoured to be planning to acquire PayDay, a cross-border payment startup, after leading its $3 mn funding round. This was an indicator of its interest in global payments — a move similar to Stripe’s approach with Paystack. However, the acquisition fell through, with Bitmama acquiring PayDay.
If all reports on the Series C round are to be simplified; here’s the breakdown:
- Target Customers: Businesses (size-agnostic)
- Target Location: Africa
- Product Focus: Integrated platform, designed to serve all business needs
Moniepoint intends to double down on the segment it is popular with, businesses. But Africa is vague. If experience serves us well, it just may be hogwash. Kuda sold a similar African banking story. Today it has chosen the UK and Canada for its expansion.
Side eyeing that startup planning to build “Global Banking for the African Workforce”
If the disruptive innovation theory holds, Moniepoint intends to go after customers served by commercial banks after cornering businesses that have been least profitable for them; SMBs. Moniepoint has already made inroads with large businesses by deploying its POS terminals at some of the country’s largest retail stores. The raise announcement signals it is moving further upwards to serve businesses that are mainstream and highly profitable for commercial banks.
The announcement of Moniepoint’s funding and the potential CB plans align with its target customers and product focus. While the MFB license primarily caters to individuals and small businesses with caps on lending, a CB license broadens the scope to include high-net-worth individuals (HNIs) and businesses of all sizes. This expanded capability enables banks to offer services tailored to the nation’s largest and most demanding businesses, making the CB license a logical step to support Moniepoint’s growth ambitions.
However, this move conflicts with the company’s geographic aspirations. While “Africa” is presented as a target market, interpreting it as solely Nigeria would require significant simplification. A CB license with regional authorization introduces geographic restrictions that could hinder Moniepoint’s broader expansion goals. If 28.4% of its recent funding round is allocated to a license with limited reach, can the company effectively balance its local operations with ambitions to grow across the continent?
The goal of a funding round is not to spend the entire thing in a year or two. Moniepoint has historically been financially prudent, claims to be profitable, and of the eight Unicorn title holders in Africa, it has raised the least funding before the unicorn status. Bar Interwsitch, it has taken the longest to reach the status. Hence, it is difficult to make sense of spending big in Nigeria and simultaneously expanding on the continent.
If Africa means Nigeria, we’re good to go. If not, we’re in uncertainty.
The UK subsidiary and its ongoing hiring activities suggest another dimension to Moniepoint’s strategy. Sources indicate a focus on cross-border payments, aligning with the company’s stated goals if the UK entity aims to facilitate global payments for African businesses.
This positioning would place Moniepoint in direct competition with established global players like Stripe, Remitly, MFS Africa and Wise, as well as IMTO licensees like Flutterwave and Paga.
The global expansion play has more credibility than the CB license moves. Moniepoint’s hiring efforts in the UK and Kenya are clear indicators of an expansion with roles in FX & Cross Border Payments, Market Research (Kenya, UK), People, and Compliance.
It is unknown what happened with Kenya in the last year, but some staff previously at Moniepoint Kenya are now at Moniepoint UK, including the CEO mentioned earlier. However, Moniepoint’s interests in the country are active. In its now closed opening for a Head of FX, Kenya, the hire is supposed to “lead Moniepoint’s expansion into the Kenyan market, with a primary focus on driving the growth of services for SME importers and exporters”.
The central question remains, can Moniepoint double down on Nigeria and expand simultaneously with $110 mn?
Moniepoint’s Crossroads: A Balancing Act
Moniepoint faces a critical strategic decision: pursue a commercial banking license in Nigeria or prioritize pan-African expansion. While a commercial banking license could strengthen its position in Nigeria, offering access to a wider customer base and more sophisticated financial products, it comes with greater regulatory oversight and potential limitations on its expansion goals. The recent $110 mn funding, while substantial, is inadequate to allow local and global emphasis. Focusing a large portion on securing a license, especially a regional one with geographical restrictions within Nigeria, could hamper simultaneous expansion into other African markets.
Moniepoint’s journey embodies the challenges faced by digital-first financial institutions in Africa. Balancing regulatory compliance with innovation and growth will determine its success and influence how similar institutions navigate these complexities in the future. Whether Moniepoint becomes a model for navigating these challenges or a cautionary tale of the limitations of existing systems remains to be seen.
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