The Role of Regulatory Bodies in Shaping Payment Systems in Africa
The African payment infrastructure has undergone significant transformation in recent years due to advancements in technology and the evolving economic structures of many African countries.
Regulatory bodies also play an important role in this transformation, as they determine what technologies penetrate and thrive in the financial ecosystem. The end goal is to foster innovation, ensure security, and promote financial inclusion in Africa.
This article discusses the role of regulatory bodies in shaping payment systems in Africa.
The Role of Regulatory Bodies in Shaping Payment Systems in Africa
Policy Formation
The key role of the regulatory bodies in the African payment industry is to develop and implement policies that guide the operation of payment systems on the continent. These policies are centered on transaction security, interoperability, consumer protection, financial inclusion, and more.
The goal is to create an enabling environment for digital payments to thrive in Africa. To do this, regulatory bodies collaborate with key stakeholders in the industry, including financial institutions, technology providers, network providers, and consumers.
Each country’s regulatory body strives to create a level playing field and an enabling environment for its representatives to thrive in the African market.
Licensing and Supervision
Licensing and supervision are other key roles of regulatory bodies in shaping payment systems in Africa. They issue licenses to payment service providers (PSPs) such as banks, fintech companies, and mobile money operators.
They also enforce strict supervision of the operations of these PSPs to ensure compliance with established regulations, risk management, and operational standards. For strict enforcement, they set up units to conduct regular audits and inspections and impose penalties on PSPs that failed to comply with the set standards.
For example, this document details Nigeria’s regulatory framework for mobile payment services.
Fostering Innovation and Technology
Regulators foster innovation and technology by creating an enabling environment for them to develop and thrive. They create an environment that encourages the adoption of new technologies, such as mobile payments, blockchain, etc. For example, in Kenya, people are allowed to pay taxes, buy government bonds, pay national social security fund fees, and other important fees.
Even without an official bank account, mobile money users were integrated into the financial system, enabling them to carry out many financial operations with their mobile phones.
While fostering innovation and encouraging the adoption of these technologies is a key responsibility of regulators, they also ensure systems are in place to manage the associated risks. They ensure there’s healthy competition for every innovation or technology to prevent monopolies from taking advantage of the masses.
Risk Management
The digital payment industry has numerous risks, ranging from cybersecurity threats to operational failures and liquidity challenges. If not addressed, these risks could lead to losses for individuals and businesses, resulting in a complete distrust of the system.
Therefore, the regulators establish solid risk management frameworks and collaborate with industry players to ensure strict compliance. Financial institutions, fintech companies, and other key industry players implement measures that help them identify, assess, mitigate, and manage these risks to maintain the reliability and stability of the African payment infrastructure.
Consumer Protection
The goal of every regulatory body is to protect the final consumer’s rights. Transparency in pricing and terms of the payment systems and access to clear information are rights every user of a digital payment platform has.
Effective regulatory bodies establish dispute-resolution mechanisms and ensure financial institutions adhere to fair practices. This helps protect consumers from fraudulent activities and promotes trust in the payment system.
For example, in Nigeria, all digital payment platforms and FinTechs are licensed and supervised by the Central Bank of Nigeria (CBN). In cases of longstanding failed transactions or debit-related issues of fraudulent practices on an account, the owner can report to the CBN, especially if the payment company involved is not complying accordingly.
To avoid certain disputes, regulators also establish campaigns to educate consumers about safe practices and their rights in these digital transactions.
Interoperability
For maximum efficiency and an exceptional customer experience, digital payment providers make their systems interoperable: to communicate, share, and process data from other systems. This allows users to seamlessly transact between various platforms.
Regulatory bodies promote interoperability among different payment systems. They set standards for data exchange, security protocols, and even messaging formats. In Kenya, for instance, mobile money systems interact and share data with traditional banking systems, enabling people to transfer money from their mobile money accounts to their bank accounts and vice versa.
Financial Inclusion
Providing access to financial services to a broader segment of the population, especially those in underserved communities, is another vital role of regulatory bodies in the African payment industry. They encourage the development of inclusive payment systems, ensuring that everyone in remote and underserved locations has secure, affordable, and unrestricted access to financial services.
Initiatives like agent banking, mobile money, digital wallets, and other inclusive financial services are promoted to facilitate the inclusion of people and businesses in the financial system.
The success of financial inclusion in Africa strongly indicates the strong regulatory payment framework on the continent. Currently, mobile money transactions in Sub-Saharan Africa account for 70% of the global figure, which is about $1.2 trillion.
Conclusion
The proactive engagement of regulatory bodies in African payment systems is helping foster a secure, innovative, and inclusive financial environment. As businesses in Africa continue to embrace digital transformation and the financial landscape witnesses the proliferation of payment systems, the need for regulatory bodies becomes more paramount.
Furthermore, as payment systems increase, the risks associated with them increase, too, leading to a stable infrastructure and regulatory framework that protects Africans and their businesses.
