What Does the Fintech Ban Mean for Thousands of Nigerian Investors?

The Federal High Court on Tuesday gave orders to freeze the bank accounts of fintech players — Bamboo, Rise Vest, Chaka and Trove — for half a year after the Central Bank of Nigeria charged them with “illegal forex trading.”

Google Play store shows that each of the four fintech players have 100,000+ installs. Based on third-party app download trackers, one can infer that there’s anywhere between 700,000-800,000 investors currently impacted. So does that mean billions of Nairas, sitting in the accounts of these fintech players, would get frozen?

Each of the fintech players rushed to inform the public that their money was safe and withdrawals possible. Rise Vest CEO Eleanya Urum on Tuesday said, “all user investments and funds are safely managed, funding and withdrawals will continue to be processed as normal and all our US operations are intact.”

Bamboo on Wednesday put out a statement that “Our legal and government relations teams are looking into it, but we thought it was important to let you know that your money remains safe..and will always be readily accessible.” Chaka also told its investors that their funds would be accessible to them at all times. It added that “customers’ funds were insured. And investments registered and regulated by SEC and Nigerian Exchange Group.”

Should we believe the reassurance from fintechs? Well Rise Vest Eleanya’s statement that “investments will not be affected as they are managed by third-parties” — does carry some weight.  For overseas investments, Bamboo, Chaka and Trove have partnered with DriveWealth LLC and Rise Vest with third-party vendors. For domestic investments, Bamboo uses Lambeth Capital, Chaka Citi Investment Capital and Trove Sigma Securities.

Will Investors Suffer?

Financial analysts say, new customers are most likely to be affected. “Older customers with deposits would have invested their money in buying stocks in the US. Since these fintech players partnered with third-party entities to be able to open US trading accounts – the Nigerian ban should not impact the trading in these overseas accounts. But for new customers, who have recently deposited and are yet to invest – it is possible this will become a long wait-out period; unable to withdraw and unable to invest,” says Issac Udoka, financial planner, Lagos.

Others who might be come to a standstill are those wanting to cash-out. “If you are thinking of liquidating your investments then there is the risk of funds getting frozen or trapped,” says Udoka.

Chaka’s statement that investments are insured could be a point of reassurance for customers – as in Nigeria the Securities Investor Protection Corporation (SIPC) protects each investor’s investments to upto USD 500,000.

A half year freeze?

Last year, the Securities and Exchange Commission came down hard on Chaka. And yet a year later after talks with regulators, Chaka managed to secure its digital broker license – a first in the industry. Financial analysts say it is likely that the Central Bank of Nigeria will not let investors suffer for the action of fintechs. It is possible the fintechs maybe fined and allowed to carry on business. Or it possible they might be asked to refund investor money.

But in the near-term atleast things are bound to be tough for the fintech players themselves. With their bank accounts frozen – payments to vendors, utility bills and crediting salaries will become difficult. 

Long term, financial analysts say such hasty regulatory action might impact FDI inflow into Nigeria. “The more the CBN damages investor confidence, the less dollars will flow to Nigeria. It’s hard to build a business in Nigeria,” says Kalu Aja, financial planner, Nigeria.

Image courtesy: Khaleej Times