Experts in the blockchain technology industry say the recent directive by the Central Bank of Nigeria (CBN) on digital currencies would negatively impact financial technology (Fintech) companies in Nigeria, especially crypto exchanges.
Many Nigerians who engage in business transactions using cryptocurrencies were utterly shocked, on February 5, when CBN directed financial institutions to close accounts of persons or entities involved in cryptocurrency transactions within their systems.
The apex bank, in the memo, stated in clear terms that cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited.
Nigeria is arguably the largest market of cryptocurrency in Africa. According to Paxful, a leading peer-to-peer bitcoin marketplace, Nigeria has the world’s second-largest Bitcoin trading volume, trading 60,215 Bitcoins in the last five years, or more than $566 million. Data here.
REACTIONS FROM TRADING EXCHANGES
With growing popularity, fintech platforms in the country have also mainstreamed digital currency investment into their operations, by allowing the buying and selling of cryptocurrencies as well as conversion to Naira.
The CBN’s latest directive was met with immediate compliance by fintech platforms in Nigeria and those outside the country, as most of the fintechs announced to their customers that they will no longer facilitate crypto-transactions via naira deposit while disabling the option.
Fintech platforms that had enlisted cryptocurrency investments on their platforms disabled the option to comply with the directive.
“In light of the recent directive by the Central Bank of Nigeria prohibiting financial institutions from engaging in cryptocurrency. We regret to inform you that we will not be able to further extend our services to support cryptocurrency use cases in Nigeria in line with our terms and conditions,” Flutterwave, a Nigerian fintech platform, said in a memo to its customers.
Binance, a Chinese-owned fintech platform, in a statement via its owner Twitter handle, Changpeng Zhao, asked its Nigerian customers to quickly withdraw their naira deposits “as early as possible” to avoid potential channel issues.
Four days later, Binance announced that it had removed its trading pairs associated with the naira.
A SETBACK FOR THE ECOSYSTEM
Commenting on the implications of the CBN’s directive on fintech platforms, Iniobong Williams, a crypto analyst, said fintech platforms with a large customer base of Nigerians will no longer see huge inflow of processing fees for crypto transactions, adding fintech platforms would have to remodel their platforms function on a peer to peer basis.
Williams noted that fintech platforms would have to bear the extra cost of remodeling their platforms to confirm with the current realities or risk losing out on many of their Nigeria customers.
“A halt to crypto currency activities simply means bad business for the fintech industry because daily Crypto transactions run into billions. These companies will no longer see a huge inflow of processing fees for such transactions,’’ he said.
“They have to remodel their platforms to function on to peer to peer basis. They may have to bear the cost of doing that.”
Fejiro Agbodje, CEO of Patricia, a fintech platform that transacts business in cryptocurrencies, in a blog post, said the CBN policy would lead to “mass exodus” of fintech companies away from Nigeria for countries with “better policy”.
Explaining how the directive will affect the operations of Patricia, he said: “Basically, it means, we can no longer receive money from customers who want to buy bitcoin with Naira.
“In the same light, we cannot payout to customers who want to withdraw Bitcoin to Naira, which today is the core of our Nigerian operations as users can only now exchange cryptocurrency but can no longer touch the Nigerian Naira.”
Agbodje noted that the directive will make investors’ confidence further decline in investing in the country, adding that the recent CBN directive on cryptocurrency is a clear repetition of the Lagos state government policy that placed a ban on motorcycles and ride-hailing services in the state.
Speaking with TheCable, Adedayo Adebajo, a blockchain specialist and managing director of Jelurida Africa, said the ban on cryptocurrencies transactions by CBN is a “major and unexpected blow”, adding that start-ups providing blockchain and crypto services that employ Nigerians locally and international may have to reduce their staff base, owing to the policy.
Adebajo noted the directive has made some fintech platforms stagnant, while startups due to be launched are considering available options, stressing that the aim of blockchain technology is to do without conventional banking systems and that innovative ways will soon be created for Nigerians to do crypto-transactions without Nigerian financial institutions.
Also, Jediael Mfreke Bassey, forex trader, said lack of employment opportunities in the country led many Nigerian youths to engage themselves with trading of digital currencies, adding that the ban will lead to an increase in the number of unemployed Nigerians.
Bassey said transactions on fintech platforms, that mostly transact with digital assets, will reduce, since it is very easy to buy and sell digital currencies via either debit card or bank transfer, using Nigerian financial institutions.
Also, Jediael Mfreke Bassey, forex trader, said lack of employment opportunities in the country led many Nigerian youths to engage themselves with trading of digital currencies, adding that the ban will lead to an increase in the number of unemployed Nigerians.
Bassey said transactions on fintech platforms, that mostly transact with digital assets, will reduce, since it is very easy to buy and sell digital currencies via either debit card or bank transfer, using Nigerian financial institutions.
“Buying and selling crypto currencies directly from the bank either via debit card or bank transfer was very easy and cheap. This way anyone could easily carry out a crypto transaction. Because it was easy, the volume of transactions per day was huge and this was good for fin techs,” he said.
“Now the ban will have a negative implication on fin techs because peer to peer transactions will not only affect the price of crypto per dollar, it will also be difficult to find a buyer or seller which will affect the volume of crypto transactions per day.”