New License Categorisations for the Nigerian Payments System
On December 10 2020 the Central Bank of Nigeria (CBN) sent a circular dated December 9 2020 to all Payment Service Providers, Banks and Other Financial Institutions on the new License Categorisations for the Nigerian Payment System (the “Circular”). With increased innovation in the Nigerian payments space, the Circular provides clarity for new and existing market participants given significant changes in the payments sub-sector.
In this intel, we have highlighted the provisions of the Circular for your information.
The new Circular introduces a framework whereby payments system licensing is streamlined into 4 (four) broad categories. The categories are:
w) Switching and Processing
x) Mobile Money Operations (MMOs)
y) Payments Solution Services (PSSs)
z) Regulatory Sandbox
The Circular further provides that, amongst the licenses granted in the above categories, only MMOs are permitted to hold customers’ funds. Companies with licenses in the other categories above are not permitted.
Where companies under the PSS category can hold any or a combination of a Payments Solutions Service Provider (PSSP) License, Payment Terminal Service Provider (PTSP) License or a Super Agent License, companies seeking to combine activities in the Switching and Processing and the MMO category, on the other hand, must operate under a holding company structure (with a license granted by the CBN to operate as a Payment Service Holding Company) with subsidiary entities clearly delineated to prevent commingling.
Furthermore, if a licensed payment service provider in any of the above listed categories seeks to get additional licenses from the CBN, such entity must obtain a no-objection letter or notice from the Payments System Management Department of the CBN. Also, if a licensed payment company is seeking collaboration with another payment company, banks or other financial institutions the prior approval of the CBN must be obtained before such collaboration takes effect.
The Circular also provides that the object clause of the Memorandum and Articles of Association (MEMART) of companies must be limited to permissible activities under the licensing authorisations. It then made provisions for the minimum share capital for Payment Service Providers in the license categories.
Permissible Activities and Minimum Capital Requirement
The Circular went further to highlight the permissible activities for companies listed in the above categories. It also goes further to provide for a minimum capital requirement. It is instructive to note that the CBN through this Circular significantly reduced the minimum capital requirement from the earlier position as contained in the exposure draft on the licensing regime for payment service providers issued in 2018.
Regulatory Sandbox: The permissible activities for companies under the regulatory sandbox category will be determined by the regulatory sandbox. Looking at the CBN Guidelines on Regulatory Sandbox Operations, the regulatory sandbox is set up essentially to promote innovation and deepen financial inclusion. The CBN therefore will be responsible for the review of the products and solutions of eligible applicants which includes licensed institutions, innovators, fintechs and researchers during its implementation. The Circular does not provide a minimum capital requirement for regulatory sandbox operations.
Payment Solution Services (PSSs): Companies in the PSSs category are permitted to operate as Super-Agents, PTSPs and PSSPs. The minimum capital requirement is set at N250 million.
Super-Agent: The permissible activities for companies with a Super-Agent license is as provided in the CBN Framework for the Licensing of Super Agents in Nigeria. These activities amongst others include agent recruitment management and other activities stated in the Regulatory Framework for Licensing Super Agents in Nigeria. The minimum capital requirement is set at N50 million.
Payment Terminal Service Provider (PTSP): The minimum capital requirement for PTSP is set at N100 million. The permissible activities include POS Terminal deployment and services, POS Terminal ownership, PTAD, merchant or agent training and support.
Payment Solutions Service Provider (PSSP): Companies in the PSSP category are permitted to operate as payment processing gateways and portals, payment solution or application development, merchant service collection and aggregation. The minimum capital requirement is set at N100 million.
Mobile Money Operation: For MMOs the permissible includes e-money issuing, wallet creation and management, pool collection and management. They are also allowed to carry out all the activities in the Super-Agent category. The minimum capital requirement is N2 billion.
Switching and Processing: For switching and processing companies the permissible activities are switching, card processing, transaction clearing and settlement agent services and non-bank acquiring services. They are also allowed to carry out activities as permissible under Super-Agents, PTSP and PSSP. The minimum capital requirement is N2 billion.
The Nigerian Fintech system is evolving at a fast rate being one of the most competitive in Africa and attracting global attention and investment. The CBN as regulator must play its role to provide clarity for the players in the space and also provide direction on what is permissible.
The issuance of the Circular is in line with the CBN’s commitment to promote an efficient and credible payments system and is, indeed, a welcome development