The Global Payments Innovation Jury in a press conference held in Nairobi Wednesday said for the sector to succeed, start-ups need to overcome challenges such as access to financing and regulatory bottlenecks.
Given that the regulation impacts almost all areas of the payments value chain, the Africa Jury considered where specifically regulators cause issues for new payments businesses.
Two major areas of concern were identified: licensing/permission to operate and KYC/AML.
Many jurors pointed out that their regulators and/or central banks are usually staffed by ex-bankers and this can lead to protection of the existing banks and traditional models.
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This may not be overt, as often the regulators consider that they must prioritize risk control over innovation and the risks can be easier to understand with established players and business models.
The practical result of a preference for ‘tried and trusted process’ is that in many markets
it is very difficult for new market entrants to become licensed – either licensed at all or licensed in an acceptable time-frame.
KYC regulations are outdated
KYC/AML are also widely seen as a problem area for payments companies – both established players and startups. Several Jury members comment that KYC regulations are outdated and that the requirements are not proportionate to the risk of transactions.
At the macro level, established banks are often declining to participate in profitable activities such as money transfer because the risk of a large fine for non-compliance overshadows any profits that can be earned.
And for new players, the onerous KYC requirements can kill a new business because it is not viable
to recruit a customer base. The fintech segment is currently regulated by central banks in African countries but the industry players and the jury is recommending separation.
- “One must remember that regulation’s purpose is not to speed up innovation, but rather to manage risk. And the regulators understand (or think they do) the risk of traditional banks.”
- The willingness of regulators to open the market to new entrants is countered by existing operators demanding that the same rules apply to all operators.”
- “The regulator doesn’t give clear and speedy feedback about the likelihood of an innovative business model to be compliant or not. Investors and founders have to live with the insecurity that regulator might at times intervene.”
- “More than any other regulation KYC gets mixed up with a synthetic desire to do something in the face of terrorism or other forms of crime. No assessment is done as to whether the controls are effective, they just get ratcheted up as a knee jerk response to events merely driven by the desire to do something.”
Regulations causing the biggest challenge
LICENSING/PERMISSION TO OPERATE 30%
UNDERSTANDING OF REGULATIONS 20%
SPEED OF REGULATORY CHANGE 12%
CONTROL OF USER PRICING 7%
REGULATION FAVOURING CONSUMERS 3%