The Central Bank of Nigeria has imposed a substantial ₦250 million fine on Paystack, one of Nigeria’s leading fintech companies, following regulatory violations related to the company’s new consumer product, Zap. The fine, approximately $190,000, stems from allegations that paystack operated its peer-to-peer money transfer app without proper licensing requirements.
The CBN claims Zap functions essentially as a deposit-taking product, which under Nigerian financial regulations is strictly reserved for institutions holding either a microfinance or banking license, which Paystack is neither a part of.
Paystack currently holds only a switching and processing license, which permits the company to route financial transactions between banks and other financial institutions, but is explicitly not authorized to hold customer funds. As such, this limitation forms the central basis for the apex bank’s substantial penalty.
According to TechCabal’s report, Zap does not directly store user funds but instead operates in partnership with Titan Trust Bank, a financial institution that is licensed to hold deposits. This partnership arrangement adds a layer of nuance to the regulatory situation, although it evidently did not shield Paystack from the CBN’s enforcement action.
Several reports also indicate that Paystack launched the product without securing the necessary prior approval from the CBN, a procedural violation that further complicated the original regulatory infringement.
Maintaining a relatively reserved public stance when the news broke out, a spokesperson for Paystack told TechCabal, “Paystack is working closely with the regulator as they further review Zap, and out of respect for the process, we won’t be making any public comments at this time.”
The ₦250 million fine marks Paystack’s first major regulatory compliance since receiving CBN approval to operate in 2016. Prior to this incident, the Stripe-owned company had maintained a relatively clean compliance sheet while operating primarily as a business-to-business payment processor. With the company shifting into offering business-to-consumer payment services, this regulatory fine, that comes less than two months after the product’s launch, represents the high risks fintechs face in a volatile landscape.
The recently launched product has also been enveloped in a trademark situation. Just a few weeks after it was launched, Zap Africa, a Nigeria crypto startup that was launched in 2023, formally accused Paystack of trademark infringements as regards the “Zap” name. The situation quickly evolved into a complex legal standoff, with Paystack reportedly issuing a similar legal warning back to Zap Africa.
As of the current date, there has been no resolution to this intellectual property dispute, thereby creating additional uncertainty for Paystack’s consumer product beyond the regulatory compliance issues. But questions have been raised on the work of the fintech’s compliance team.
The fine imposed on Paystack is not an isolated incident as it appears to be part of a broader pattern of increased regulatory enforcement by the CBN in Nigeria’s fintech sector. For instance, in December 2023, the Nigerian Inter-Bank Settlement System (NIBSS) instructed banks to remove non-deposit-taking financial institutions from their transfer lists, as per directives from the CBN.
Other prominent fintech companies such as OPay and Moniepoint have also faced significant penalties for similar compliance issues. These two fintech unicorns were fined ₦1 billion each over regulatory violations in the second quarter of 2024.
