In July, the African payments company Flutterwave was banned from doing business with banks in Kenya because it has “operated money transfers and payment services without a license and authorization”, according to the central bank. In Ghana, the company’s relationship with banks is reviewed as part of a monitoring of the financial system.
The regulatory scrutiny from both central banks is adding to the tense attention on Flutterwave, Africa’s most highly valued and best-known startup. For several months, it has been the main topic of increased public curiosity about the state of compliance and corporate governance at African startups. It has denied recent allegations of money laundering, but questions about its regulatory status point to a request that other African startups may start receiving more frequently.
Regulators insist on registration before surgery
Following the Central Bank of Kenya’s statement to bar Flutterwave (and Chipper Cash) from operating in the country, Flutterwave said it had applied to the bank to obtain a payment service provider licence. “Like many other financial technology service providers in Kenya, our entry into the market was through partnerships with banks and mobile network operators licensed by the Central Bank of Kenya,” the company said.
It is one of the best-kept secrets of African fintech that a number of startups are launching services or expanding into new geographies without necessarily having the necessary licenses. Instead they do what Flutterwave said above. But the central banks no longer look the other way. In March, Ghanaian fintech Dash raised $32 million for its service that aims to connect bank accounts and wallets across Africa. But Ghana’s central bank quickly asked it to stop operations a week later, citing the absence of a license. Nothing has been heard of the startup since.
Startups cite the different regulatory requirements as a reason why it is difficult to expand a company across Africa, compared to having to deal with uniform rules for EU member states. But as the actions of the central banks of Ghana and Kenya show, the challenge is not going away. There is at least one implication of that: When startups say they have raised money for geographic expansion, they must disclose the licenses they have obtained to enable them to operate in the new destinations.
