The doorway to digital financial services in Nigeria has widened to include electronic contracts for digital financial services (“DFS”) that are generally a contract within a contract.
The Central Bank of Nigeria’s (CBN) exposure draft on the Digital Financial Services Awareness Guidelines July 2022 (the “DFS Awareness Guidelines 2022”) describes a DFS as “financial services delivered through digital channels, including electronic money, mobile financial services, online financial services, i-teller, and branchless banking, whether through a bank or non-bank institutions.”
Our commentary is limited to digital financial services delivered by entities within the CBN’s regulatory landscape.
- Captured in the financial services sector
- Overview of traditional DFS contract
- Forms of e-contracts for DFS
- Bindingness of e-contract for DFS
- Summarized rights and duties
- Enforcement options
Captured in the financial services sector
The 3-tiered know-your-customer requirements 2013 (the “3-tiered KYC requirements”) is the CBN’s financial inclusion dragnet for the socially and financially disadvantaged persons.
Following the 3-tiered KYC requirements, the CBN in the year 2014 introduced a centralized bank verification system and mandated all DMBs (deposit money banks), Switches, MMO, PSSPs (payment solution services providers), and Microfinance banks to require customers to enroll for the BVN. – This applies to PSBs (payment service banks).
The BVN was innovative and resolved the identity crisis in the Nigerian banking industry. It reduced all traditional forms of fraud but is now allegedly incapable of resolving scams that arise from financial technology services.
The Regulatory Framework for BVN Operations and Watch-list for the Nigerian Banking Industry 2017 (the “BVN Requirements”) should be read together with the 3-tiered KYC requirements.
To the extent that Tier 3 KYC practically includes the BVN requirements, the BVN is a mainstream capturing of a customer in the Nigerian financial services industry.
A customer is captured in Nigeria’s financial services industry if the customer – whether a corporate or an individual – has a traditional bank account or wallet.
Bank account or wallet is the doorway to other personalized financial services in Nigeria, including digital financial services.
Any unbanked financial services customer in Nigeria may access limited financial services without a traditional bank account or a wallet.
Overview of traditional DFS contract
The Nigerian Courts held – before the regime of CBN’s regulations on all crucial aspects of a banker-customer relationship – that banking was a relationship governed by contractual terms only.
We submit per recent decisions of the Nigerian appellate courts that contracts for financial services are valid if it does not exclude a party’s obligation under any legislation. The CBN’s regulations are subsidiary legislation in Nigeria.
In Bonaventure Iyida v. Guaranty Trust Bank Ltd (unreported) suit number MCL/1338/2019 Court 21A, Magistrate Court of Lagos State, the Magistrate found, wrongly, that the defendant “discharged the duty of care owed to the claimant in the ordinary course of banking business by providing the claimant with a (PIN) personal identification number), card details and other security features.”
The Court held that the defendant’s failure to place a daily limit on the claimant’s USSD (unstructured supplementary service data) banking under the CBN’s USSD regulation does not warrant a finding that the defendant was negligent.
We submit that the traditional banker-customer relationship approach influenced the Magistrate. On appeal at the High Court of Lagos State against the Magistrate’s judgment in Iyida v. Gtb (supra), the claimant voluntarily withdrew the appeal when GTB paid the sum in the disputed transaction.
The judicial approach to the traditional banker-customer relationship is no longer sustainable because of the CBN’s regulations.
All Nigerian courts should pro-actively lean toward the statutory-flavor approach to a financial services contract under the CBN’s regulatory purview.
DFS Awareness Guidelines 2022 supplants the word traditional banking service with conventional banking products.
DFS Awareness Guidelines 2022 define conventional banking products “as all banking products that are distinct from DFS.”
We submit that the meaning of the “ordinary banker-customer relationship” under proviso (d) of s.241(1), 1999 Constitution of the federal republic of Nigeria (as amended) includes all customer-facing digital financial technology services.
Forms of e-contracts for DFS
Where applicable, a customer’s request for (ATM) card is a contract for a card issuance regulated and governed by specific CBN regulations.
Similarly, mobile banking services such as mobile banking Apps and USSD are specific contracts within the ordinary banker-customer relationship.
Indeed, a contract for USSD banking is entirely a form of e-contract. Other forms of digital contracts for financial services include:
- electronic microlending or savings wallet
- electronic fund transfer or payments
- i-teller and branchless banking
Digital financial planning is not yet prevalent among ordinary Nigerian DFS customers.
Bindingness of e-contract for DFS
Essential ingredients of a binding contract are offer, acceptance, intention to create legal obligations, consideration, and contractual capacity. SUMMIT FINANCE COMPANY LTD VS. IRON BABA & SONS LTD (2003)
Nigerian courts are most respectful of the parties’ intentions to any contract except in the event of illegality or mistake. MR CHARLES MEKWUNYE VS. MR CHRISTAIN IMOUKHUDE (2019) LPELR-48996 (SC).
Any DFS contract executed electronically or exchanged electronically is valid subject to the certification required by the Evidence Act 2011.
Summarized rights and duties
We cross-examined the emergent trends in Nigeria’s digital financial consumer protection on ResearchGate.
Here we adopt the CBN’s Customers’ Bill of Rights and Duties that reaffirms a DFS consumer’s rights and duties as follows:
- rights to be informed and to choose
- rights to safety and privacy and confidentiality
- rights to redress and to good service
- rights to equality and to free monthly statement of account
- duty of knowledge and understanding
- duties of financial obligation and to protect instruments and information
- duty to provide factual information and not to mislead the bank
- duties to report suspected fraud or error and of personal safety and safety of assets
Notably, the CBN’s Bill of Rights and Duties do not exclude a customer’s rights or duties under any other legislation in Nigeria.
Nearly all DFS disputes are subject to arbitration. We are unaware of any financial institution that challenged the Court’s jurisdiction to hear a claim against it because the claimant breached the arbitration’s condition precedent.
In any case, a defendant who takes steps in the proceedings waives the right to arbitration. Obi Obembe v. Wemabod Estates Ltd. (1977) All NLR 130.
Globally, arbitration is more efficient and time-saving than litigation. We recommend arbitration to DFS consumers in case of any disputes or, where applicable, to initiate a suit through an originating summons or application.
All consumers’ rights in the CBN’s Bill of Rights and Duties and under any legislation are enforceable.
The exposure draft DFS Awareness Guidelines 2022 requires a financial institution to educate consumers and to promote financial literacy.
A paucity of financial literacy exists among key professionals and law enforcement agents in Nigeria. Most Nigerian lawyers did not study banking or financial technology at the university or law school.
Digital banking and fintech lawyers are very few in Nigeria. The banking law and financial technology regulation is generally an elective course in most Nigerian universities.
Under-training of Nigerian lawyers in digital banking and finance widens the knowledge gap. Professional development courses or training for career law enforcement agents should include financial technology and digital banking-related education to reduce the knowledge gaps.
Continuing professional development programs for members of the NBA (Nigerian Bar Association) and the Nigerian judiciary should include digital banking and financial technology regulations.
At the same time, professionals should regularly comment on critical changes introduced by different regulations and laws in the FinTech sector.
As digital banking and finance lawyers, we know it will improve. Nigeria may realize the 2020 financial inclusion agenda in 2030.
Transactional issues and disputes will erupt between then and now, and those who contributed to its growth may expectedly reap its fruits.