By Favour Chinaza Ibe, Startup/Technology Lawyer
Nigeria’s fintech sector is a trailblazer, driving Africa’s financial inclusion revolution with its unmatched dynamism. In 2023, Nigerian fintechs raised $1.2 billion, securing 33% of Africa’s total fintech funding despite a global venture capital slowdown according to Africa Tech Startups Report 2024. Yet, this vibrant ecosystem operates within a complex regulatory framework overseen by the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), and Federal Competition and Consumer Protection Commission (FCCPC).
For founders, success hinges not just on understanding licensing requirements but on preparing strategically to navigate this high-stakes landscape. As a tech lawyer that have consulted for many Nigerian tech startups, this is a practical roadmap for getting ready, exploring whether licenses are always necessary, evaluating partnerships with larger fintechs as an alternative, confronting the hard truths about operational licenses, and blending actionable insights with key data to empower early-stage startups.
The Hard Truth About Fintech Licenses in Nigeria
The reality of Nigeria’s fintech licensing landscape is stark and unforgiving. Licenses are often mandatory for consumer-facing platforms, and the barriers are steep. A Mobile Money Operator (MMO) license from the CBN demands ₦2 billion ($1.2 million) in capital, while a Payment Solution Service Provider (PSSP) license requires ₦100 million ($60,000).
Processing times stretch from 6 to 18 months, delaying product launches and draining resources. In 2024, 65% of license applications were delayed or rejected due to insufficient capital or documentation errors according to CBN Annual Report, 2024.
Regulators show no mercy: in 2023, the CBN imposed ₦1.3 billion ($800,000) in fines on unlicensed operators and froze their accounts, while the SEC shut down 12 unregistered investment platforms, seizing ₦500 million ($300,000) in assets. The FCCPC delisted 88 non-compliant loan apps from Google Play Store for violating consumer protection rules.
Compliance is a costly but critical investment, and ignoring it risks fines, shutdowns, or lost investor trust.
Are Licenses Always Needed? Exploring Alternatives
Determining whether a license is necessary depends on your business model, target market, and growth ambitions. Consumer-facing platforms handling payments, mobile wallets, lending, or investments typically require CBN or SEC licenses. For instance, a payment platform needs a PSSP license, a lending app requires a Finance Company license and FCCPC registration, and an investment platform lmust secure an SEC Investment Advisers’ license.
Startups issuing tokenized securities or crypto assets classified as securities fall under SEC’s 2020 Virtual Assets Rules and ISA 2025 digital assets. If you aim to scale nationally or attract institutional capital, licenses are essential. 70% of VCs in 2023 prioritized regulatory compliance when evaluating Nigerian fintechs (KPMG Fintech Survey, 2024).
Conversely, B2B startups providing infrastructure like APIs or KYC tools (e.g., Okra) or non-financial services like budgeting apps can often operate without licenses. The CBN’s Regulatory Sandbox, launched in 2020, offers another avenue, allowing startups to test innovative products for 6–12 months without a full license, provided they demonstrate novelty and consumer benefits.
In 2023, 15 startups, including a DeFi platform and a micro-savings app, used the Sandbox to validate their models according to the CBN Sandbox Report, 2023. Partnerships with licensed fintechs or banks provide a third option, enabling startups to launch quickly without upfront licensing costs by leveraging established players’ infrastructure.
The Partnership Route: Pros and Cons
Partnering with larger fintechs or banks was once a popular shortcut for early-stage startups to quickly enter the market without enduring lengthy licensing processes or meeting high capital requirements.
These partnerships offered access to infrastructure like KYC systems and payment rails but came at a cost, often 20–40% of transaction fees, hurting profit margins. However, the Central Bank of Nigeria (CBN) now discourages such arrangements and has penalized companies like Zap by Paystack, signaling increased regulatory scrutiny. Startups must now weigh the legal and financial risks carefully before choosing this route.
In 2023, 30% of partnered fintechs were mandated to apply for licenses after reaching certain transaction volumes according to CBN Circular, 2023.
How to Prepare for Nigeria’s Fintech Regulatory Landscape
Preparation is the foundation for thriving in Nigeria’s regulatory maze, whether you’re pursuing a license, entering the Sandbox, or partnering. Begin by mapping your business model to identify regulatory exposure, payments trigger CBN oversight, lending requires CBN and FCCPC compliance, and investments fall under SEC.
A fintech lawyer can conduct a regulatory scoping exercise to clarify requirements, because 45% of fintechs cited regulatory uncertainty as their top challenge in 2024 (KPMG Fintech Survey, 2024).
Embed compliance into your product from the outset. Integrate KYC and AML checks using tools like Smile ID. Treat NDPR compliance as a priority. It’s crucial to align with NDPR by implementing good legal policies and ensuring that user experience (UX) clearly communicates fees, terms, and conditions. This also supports compliance with FCCPC and SEC standards.
According to the 2024 PwC Consumer Report, 60% of Nigerians in 2023 avoided fintech platforms with unclear terms, so getting this right is not optional; it’s a growth and trust imperative.
Hence, engage lawyers early and stay agile by monitoring CBN circulars and FCCPC guidelines, as policies evolve rapidly.
Opting For The Regulatory Sandbox
Securing expertise and exploring the CBN Sandbox further strengthen your position. A fintech lawyer, costing ₦1–3 million for initial scoping, can navigate and streamline licensing processes.
Budget for these costs plus operational reserves, as 50% of fintechs underestimated regulatory expenses in 2023, leading to cash flow crises according to TechCabal, 2024.
The Sandbox offers a low-risk way to test innovations, signaling credibility to investors and regulators; in 2023, participants used the 6–12-month window to validate MVPs, enhancing license applications. If partnering, target the right players and negotiate scalable terms, while planning for eventual licensing.
A Fintech client of mine in 2023 partnered early, then secured a license to reach a $150 million valuation by 2024. Also an earlier fueltech client of mine partnered with Interswitch, so this is a strategy with proven potential.
Treat your startup legal compliance as a moat. Licensed Nigerian fintechs like Branch captured 40% of Nigeria’s digital lending market by leveraging FCCPC approvals (Statista, 2024), and compliant startups grew revenue 25% faster than non-compliant peers in 2023 per KPMG Fintech Survey, 2024.
The Big Picture: Preparation Over Panic
Nigeria’s fintech licensing maze is challenging but navigable with the right preparation. While licenses are often necessary for consumer-facing platforms, partnerships and the CBN Sandbox offer viable alternatives for early-stage startups. By mapping regulatory exposure, embedding compliance, engaging regulators, and leveraging expertise or partnerships, founders can turn complexity into opportunity.
Compliance is not a barrier but a competitive edge. 80% of funded fintechs in 2024 held licenses or Sandbox approvals, and the sector is projected to reach $20 billion by 2030 per African Tech Startups Report, 2024 and McKinsey, 2024. Those who prepare strategically today will lead Africa’s fintech future tomorrow.
Favour Chinaza Ibe is a startup and technology lawyer who works with high-growth tech startups; fintech, proptech, SaaS, crypto, cyber law, and other emerging technologies. She helps founders navigate legal complexities from formation to scale.
Email: [email protected]
