Eyowo: Nigeria neobank’s turbulent journey with regulators and the path to recovery

Eyowo, one of Nigeria’s earliest digital banks, had big dreams of becoming a fintech giant, and it was within reach for a while. But just two months to its second anniversary, the tech start-up faced its biggest setback ever—the revocation of its banking license by the Central Bank of Nigeria (CBN).

Over the past nine months, the founders of the company, Yomi Adedeji and Omoseindemi Olubayo have kept up the arduous job to turn the tide. They spoke to some journalists recently on what happened and their arduous attempt to turn the tide.

According to Adedeji co-CEO at Eyowo, on May 22, 2023, executives at Eyowo were halfway into a Monday morning meeting, planning for the next iteration of the Nigerian-based digital bank when some side chatter took over the meeting.

Startled by the distraction, the reason soon became apparent when he checked his phone notifications. The executives had received a circular from the CBN citing that it had revoked the licences of Eyowo and 46 other companies.

The apex monetary regulator followed with a list of another 132 Microfinance Banks, Finance Companies, and Mortgage Banks, whose licences were also revoked. Initially, the team found it a bit confusing because there were two lists from the CBN—only one had Eyowo listed.

“Some people were saying maybe we weren’t part of it, but some media publications of the story of the CBN revoking the licence of Eyowo and others, there was no turning back.

“Once the media got wind of the news, the story spread like wildfire, causing confusion and panic in the tech ecosystem,” Adedeji said.

There were many unanswered questions as the announcement came without any forewarning. According to the CBN circular, the reason for this decision was that the entities affected “remained inactive, insolvent, failed to render returns, closed shop, or ceased to carry on the type of banking business for which they were licensed for more than six months,” but many financial institutions affected denied this.

“The reason CBN gave was that we were insolvent and non-operational. But it’s impossible for us to have been insolvent if we were still facilitating payments and loans for about 250,000 users and had always filled out our monthly report to the central bank,” Adedeji stated.

Adedeji and Olubayo set out with Softcom, a self-funded information technology solution company they co-founded in 2007 during the telecom industry’s nascent stages.

“Then Nigeria had approximately nine million internet users. We were just a group of tech enthusiasts who came together to build products to simplify access to goods and services,” Adedeji said.

Subsequently, they developed an online payment gateway to address issues customers had with making payments on ReloadNg and online generally. This service catered for about 11,000 customers who struggled with paying and using their cards online.

As the company grew, it morphed into a software development organisation which designed and built tech products for many enterprise companies such as MTN, Coca-Cola, NLNG, GlaxoSmithKline, BOI and OSGF.

“We played in about five industries with one in every top three market leaders being our customers. We rarely got briefs, mostly problem statements,” Olubayo said.

These early ventures and enterprise engagements, according to the founders, laid the groundwork for Eyowo’s birth in 2019, thus shifting Softcom’s focus in 2020 from client-side business to building consumer-facing products like Kwiksell (a sales and inventory management software), Useform (an online survey tool), and Usepass (an identity and access control system).

According to Adedeji, this shift involved productising the services Softcom had rendered over the first 12 years of its existence. “Over the next two years, we decommissioned 19 clients as we built out and focused on these new products,” he explained.

The co-CEO noted that the transition was bumpy as Softcom moved employees to work on these new products and had high expenses that didn’t match its dwindling revenue. He said, “For example, we considered how well the enterprise services team would fit into a product-centric startup environment. We were also reluctant to just lay off some people who had worked with us for almost a decade, especially during Covid. Eventually, we still had to lay off and supported everyone affected in various ways we could.”

“Before starting Eyowo, we had saved money for about three years of operation. But as things took longer and roadmaps moved from three weeks to three months, these scope creeps meant missed targets and the need for a longer runway,” Adedeji added.

According to him, Eyowo began with the promise that payments could be disbursed using phone numbers because there were more active mobile connections than bank accounts in Nigeria.

“A beta test that validated this idea was when the Federal Government used it to disburse cash incentives to two million Nigerians through the TraderMoni programme in 2018. The success of this programme led us to consider expanding Eyowo’s functionality,” he enthused.

As the team built out the product and connected the experiences, it became clear that they needed more licenses for regulatory compliance. In 2019, they acquired Bethesda Microfinance Bank to hold customers’ deposits. Afterwards, they acquired the Payment Solution Service Provider (PSSP) license and a Payment Terminal Service Provider (PTSP) license (approval in principle) from the CBN. By 2020, Eyowo was spun off as a stand-alone entity from Softcom.

“We acquired these licenses to ensure that customers didn’t have to hop through different product experiences due to the limitations of individual licenses,” Olubayo said.

To put things in context, the PSSP license gave Eyowo the ability to process payments without holding money. With the MFB license, they could now hold customer funds, give interest, and provide additional financial services such as lending.

The company became a fully-fledged digital bank in 2021 and focused on acquiring more users and building out its features until the CBN’s hammer came down on it in 2023.

Olubayo averred that the license revocation was surprising because Eyowo’s team had undergone a CBN compliance audit in March 2023. The audit results did not suggest any imminent regulatory action against Eyowo.

“Almost every audit feedback is categorised around – team, structure, systems, risk framework, fraud prevention – at varying levels. So there’s always room for improvement. The way it works is you have to make sure the feedback is implemented and issues are fixed before the next visit,” he explained.

At the end of the audit, the CBN made a few recommendations bordering on capitalisation, financial ratios to be maintained, and better Know Your Customer (KYC) compliance, which was noteworthy because the company combined licenses and the KYC requirements differ for each license.

A culmination of this visit and the product roadmap led the company to announce on May 19, 2023, that it would no longer allow users to register on the app until July 1, 2023. This was to enable it to serve its existing customers better and resolve delayed and failed transfer issues that had been happening for a few weeks.

“We were already thinking about how to stop competing solely based on where value is stored and give people a sense of how money can work for them intelligently,” Olubayo stated.

Following the bank’s license revocation, Eyowo’s promise of “making life better for everyone,” saw customers who had their funds trapped in the bank become agitated, as they were unsure how or when they could get them out.

One of such customers, simply identified as Chikaso, lamented in an X (formerly Twitter) space conversation with the Eyowo team in August 2023, “I just really need to know when this is going to be fixed and when I can access my money because I’m about to be homeless.”

“I put my rent savings in there and need this fixed in a week or two. If not, I don’t know where I’m going to be sleeping,” Chikaso added. Over the next six months, the team at Eyowo rally around to secure a banking partnership to assuage customer concerns and revert the revocation of their banking license.

To help customers like Chikaso with dire personal or medical needs, the team pooled together N300 million from family and friends in June 2023, and within nine hours of making the funds available, it was exhausted.

According to Patricia Andeshi, a businesswoman with a pending rent payment, she was given the N100,000 needed to complete her rent. There was also multiple one-off assistance given to other users who reached out in dire need. One of the beneficiaries who spoke under anonymity said he received N500,000 out of his savings with the bank in November 2023.

The Pathway To Return
About 180 entities had their licenses revoked, and some of them sued the CBN. But Eyowo took a different route by submitting a 52-page appeal in June 2023, which explained the different compliance requirements the neobank had fulfilled and why the circular didn’t apply to them.

During its waiting period, Eyowo undertook recapitalisation and operational changes, which included a workforce reduction of around 11 percent as the company faced financial difficulties, including struggling to pay employee salaries.

On October 27, 2023, the bank got its approval-in-principle license back, but as one of the requirements, it had to change its name to Entrepreneur MFB. The name change according to Adedeji and Olubayo was necessary because a gazetted circular couldn’t be overturned.

The Eyowo brand and product are poised to continue operating as the revoked license pertained specifically to its Microfinance Bank operations. The return of the licence was a cause for celebration but it didn’t mean they could return to business as usual.

“This was just the first administrative step. We still needed to receive the full licence after the issuance of an approval-in-principle, connect to NIBSS Instant Payment (NIP) and other banks,” Adedeji said.

To restore confidence in customers alike, the digital bank sent messages to its customers at the beginning of this month (March 2024), letting them know they could access their funds after nine months of being trapped with the bank.

Like a soothing balm, the message delighted and surprised many. “For them to have returned the money even after almost a year, it shows that they truly kept to their words, Adedeji declared.

Many of Eyowo’s banking partners wanted to receive a formal confirmation from the CBN before they did anything. To complicate matters, some financial institutions instituted a system freeze towards the end of the year due to the high volume of transactions. This freeze prevented them from integrating new services to avoid any system malfunction.

As the team tried to get the CBN to reach out to the different financial institutions, a new CBN leadership team was announced in November, causing further delays.

“In addition to not hearing back for a few weeks, the new leadership team had aired their desire to change the fintech regulatory framework, causing us to wonder if we were safe. We were in a limbo. It took another two months of follow-up leading up to the new year before there was some clarity,” Adedeji stated.

Lessons, Support And The Journey Ahead
Speaking on the lessons, support from the ecosystem and the journey ahead; Adedeji and Olubayo said every relationship is tested in trials; this experience has greatly taught us great lessons.

The duo expressed their profound gratitude for the support they got and understanding of those who couldn’t help. “Our partner bank, Providus Bank, was supportive in enabling access for our customers. The regulators were also swift in protecting customer deposits and resolving the license issue. Some of our friends and partners also supported us with capital,” Adedeji enthused.

For Olubayo, those who couldn’t help might have acted out of fear due to the seemingly impossibility of the situation. He stated that in the history of Nigeria, it’s extremely rare for a government decision to be rescinded after it has been officially published.

“Perhaps people weren’t wrong to have thought that there was no way out for us. It’s also easy to think that someone is in a position to help you, but you can’t tell what they’re also going through,” he said.

As the bank is set to return to business soon, and reduce the chances of this not happening again, the team is looking to improve its back-office activities for better operations and compliance.

“We’re going to share a lot more because many times the issue is that the regulator doesn’t know what you’re doing. The regulators have to do what is in the best interest of the public and the market. But as the market operating environment improves these issues won’t happen,” Adedeji said

He explained that the company is also focused on improving the digital bank and helping customers achieve better financial outcomes irrespective of where their funds are stored.

“We want to provide individuals and businesses with the intelligence to achieve financial freedom irrespective of where their money is stored,” he added.

Daniel Adeyemi is a award-winning tech journalist and the managing editor of bendada.com, a leading African focused tech publication.