Why chasing fintech licenses could lead to early downfall of your startup

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June 19, 2024
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4 min read

If you’re an early-stage startup, going after a license can be one of the worst things you can do. There are much smarter ways to approach this, which I’ll discuss in this article. 

Over the years working as a startup attorney,  I've worked with over 300 startups, guiding them through their entire journey from inception to funding and scaling. I've seen the hurdles startups face, particularly regarding securing funding, dealing with investors, and navigating the regulatory landscape. One thing I can say is that many issues can be avoided in  the early stages.

I’ve talked about the harsh realities of raising funds from investors the mistakes we make with cofounders, and now we’re diving deep into the realm of regulations and licenses. 

Understanding the market must be your first step

Gikomba market

Navigating fintech licences for early-stage startups can be a daunting task, but it's essential for any startup looking to thrive in the financial services industry. 

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Firstly, any fintech startup founder must understand the data surrounding our financial services industry and market. In Nigeria, we have a significant financial inclusion problem, with over 54% of adults of bankable age still excluded from the financial system. This represents a vast market opportunity for fintech solutions aimed at bridging this gap. Now, this is just one example, and you’ll find more if you look at the data closely. 

When you're considering building a payments company or any fintech solution, it's crucial to look beyond the usual suspects like payment gateways, super agents, and payment terminal operators. While these licenses are essential, they often come with hefty fees that can be prohibitive for a young startup.

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The regulatory landscape in Africa, and Nigeria in particular, can be fragmented and challenging. However, this also presents opportunities for startups that can navigate these complexities effectively. Understanding local and regional regulations and finding ways to comply with them while offering innovative solutions can set your startup apart.

Now, what does the licensing regime for fintechs look like today?

A table highlighting capital requirements for fintech licences in Nigeria
Capital requirements for fintech licences in Nigeria

So, what does an up-and-coming startup do?

The smart approach to fintech licensing

One of the first steps is to leverage partnerships rather than immediately going after a licence. Established entities already hold these licenses and have the necessary infrastructure. By collaborating with these entities, you can bring your innovative solutions to the market without the initial overhead of acquiring a licence. 

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For instance, you can approach a bank or a licensed payment service provider (PSSP) with your solution, negotiate a partnership, and use their licence to operate. This approach saves costs and helps you build credibility and scale quickly.

The key to these partnerships is to provide value that the larger entity currently lacks. For example, if your solution simplifies payment processes or enhances customer experience in a way that the larger entity's current system does not, you have a strong case for collaboration. 

Always remember that your end users care more about the speed, efficiency, and accessibility of your service than about who holds what licence. 

"You don't need an IMTO or PSSP license to disrupt the fintech industry.

Instead, go find strategic partnerships, existing tech solutions, and collaborative opportunities.

Your users care about speed, efficacy & innovation, not licenses." — @UyiDLaw

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House keeping before acquiring your own licence

One thing you must pay attention to at the partnership stage is Intellectual Property (IP) ownership and protection. Many founders overlook the importance of protecting their IP, which can become very problematic in the future, asides registration in the country of first focus, it is important to also keep in mind the need to register in every jurisdiction where they intend to scale to, intellectual property registration is local and registration in one location will not afford you protectection in the other location.   

Before pitching your idea or entering into any partnership discussions, ensure that your brand, app, and proprietary technology are adequately protected through patents,  trademarks, copyrights, and the right contracts. . An NDA (Non-Disclosure Agreement) is necessary before any detailed discussion with potential partners or investors.

Once you’ve established a partnership and your product gains traction, you can consider acquiring your own licences. This move should be driven by your need to expand, improve reach, or maximise profits. Having your own licence makes sense at this stage because you have a proven business model and a solid customer base.

I’ll leave you with this

Navigating fintech licences for early-stage startups involves a strategic approach that leverages partnerships, protects intellectual property, and thoroughly understands the market and regulatory environment.

I can already hear some of the questions, what if the bigger company steals my idea? What if I get sidelined? Don’t worry. I’ll delve deeper into the importance of intellectual property, trademarks, and trade secrets in a subsequent article.

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Stay tuned!

Omoruyi “Uyilaw” Edoigiawerie is the founder of Edoigiawerie and Company LP, a leading Startup Law firm in Nigeria.

He is a Notary Public of Nigeria with extensive experience in startup, technology, and innovation law, expertise in artificial intelligence, and corporate commercial legal practice. Uyilaw’s vast knowledge in tech and innovation law is borne out of a strong startup background combined with a rare understanding of contemporary technology and the startup landscape in Nigeria and the African region, coupled with international best practices.
Omoruyi “Uyilaw” Edoigiawerie is the founder of Edoigiawerie and Company LP, a leading Startup Law firm in Nigeria.

He is a Notary Public of Nigeria with extensive experience in startup, technology, and innovation law, expertise in artificial intelligence, and corporate commercial legal practice. Uyilaw’s vast knowledge in tech and innovation law is borne out of a strong startup background combined with a rare understanding of contemporary technology and the startup landscape in Nigeria and the African region, coupled with international best practices.
Omoruyi “Uyilaw” Edoigiawerie is the founder of Edoigiawerie and Company LP, a leading Startup Law firm in Nigeria.

He is a Notary Public of Nigeria with extensive experience in startup, technology, and innovation law, expertise in artificial intelligence, and corporate commercial legal practice. Uyilaw’s vast knowledge in tech and innovation law is borne out of a strong startup background combined with a rare understanding of contemporary technology and the startup landscape in Nigeria and the African region, coupled with international best practices.

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