Late August this year, one of Nigeria’s leading telecom companies, 9mobile, announced it has acquired the first ever payment service bank license from the country’s central bank, alongside Hope PSB and Moneymaster PSB. The payment service bank license will, among other things, enable it to launch a range of products, including mobile money services, among others. Barely four months after that event, the Central Bank of Nigeria (CBN) is back with yet another set of rules, this time relegating every fintech company still basking in the euphoria of possessing a “do-all” license to their respective playing fields.
“The Central Bank of Nigeria, in line with its commitment to promote a strong and credible payment system has approved new license categorisations for the payments systems,” a circular released by the CBN reads, in part.
What Do The New Rules State?
The new rules are nothing short of sending all fintech startups currently operating broadly using the Payment Service License into their respective territories, and then streamlining them according to what they can do and cannot do. Accordingly, four new groups have emerged, namely: switching and processing payment service providers; payment service providers involved in mobile money (MMOs); payment service providers involved in payment solutions (PSSs) ; and payment service providers under the regulatory sandbox.
In Simple Terms, What May These New Groups Do And Not Do?
The implication of this new grouping is that one group may be forbidden from doing what other groups can do. To that effect, if you are a fintech startup under any of the groups, here is what you need to know:
- Out of all the groups, only holders of a mobile money license can hold customer funds with them. Others cannot hold customer funds. In other words, mobile money services, at least to some extent, have the same status of a bank.
- Where your startup wants to do both switching and mobile money operations at the same time, (like Interswitch doing mobile money together), your startup will need to set up a holding company, and make the companies engaged in switching and mobile money operations, separate subsidiaries (arms) of the holding company.
- Companies which are payment solution service providers can hold a combination of payment service provider license, a payment terminal service provider or a super-agent at the same time.
- The rules also state that before any startup within the group above can partner with any bank in Nigeria as regards the startup’s products and services, it must further get the approval of Nigeria’s central bank.
| Type of License | Example Of A Fintech Company In Nigeria With This Type Of License | What Can Your Fintech Startup Do With This License? | What Is The Minimum Amount Required To Obtain The License? |
|---|---|---|---|
| Payment Solutions Services (PSSs) | Activities related to Super-agents, payments terminal service providers, payment solutions service providers | ₦250 Million ($528K) | |
| Super-agent | Innovectives; Flutterwave. | Recruit and manage agent networks, among other activities provided for in the Regulatory Framework for Licensing Super Agents in Nigeria | ₦50 million ($132K) |
| Payment Terminal Service Provider (PTSP) | 4ITEX Intergrated Systems | Deploys POS terminals; Own POS terminals; train merchants and agents | ₦100 million ($264K) |
| Payment Solutions Service Provider (PSSP) | Paystack; Flutterwave | Offers gateway or portals for processing payments; Offers general payment solutions or develop payment applications software; or offers merchant services, aggregation or collection of payments | ₦100 million ($264K) |
| Mobile Money Operation | MTN MoMo; 9PSB | Issues e-money; create and manage wallet, as well as manage pool accounts. | ₦2 billion ($5.3m) |
| Switching and Processing | Interswitch | Switching, Card processing, transaction clearing and settlement. Agent services, non-banking acquiring services, etc | ₦2 billion ($5.3m) |
| Regulatory Sandbox | The Regulatory Sandbox Category is aimed at encouraging innovation and deepening financial inclusion. The CBN says it will review the products and solutions of applicants once the implementation of the Sandbox regime begins. | Not applicable |
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Read also: Nigerian Telco 9Mobile Turns To Banking With The Country’s First Ever Payment Service License
The Implications Of The Above Tabulated Categories
According to CBN’s new rules:
- A fintech startup in Nigeria can obtain a singular license called a Payment Solution Services License at ₦250 million, and this will allow the startup to do agency banking (Super Agent License); own POS terminals (Payment Terminal Service License) or own a payment processing portal ( Payment Solutions Service License). However, if the fintech startup does not have enough funds (₦250m) to go for the singular license that combines the three separate services, it can go for any of the three licenses (Super-Agent; PTSS; PSSs) separately.
- Again, since a licensed mobile money fintech startup in Nigeria can hold customer funds , it is treated as a bank. Thus, where a startup wants to combine a mobile money banking license with any other type of licenses, it must set up a “non-operating” holding company. The holding company holds these other licenses, including a mobile money license under a subsidiary structure.
- It is also possible for a startup under a holding company structure to acquire all types of licenses at the same time, provided that it maintains the minimum authorized capital thresholds for each of the licenses and obtains a no objection letter from the CBN’s Payments System Management Department created in 2018.
- For startups without funds, the Regulatory Sandbox Category seems a sure bet, but CBN is yet to come clear on what criteria it will use to license fintech startups in this category.
- It is worthy of note nevertheless that fintech startups in Nigeria have relied mostly on microfinance licenses than on any of these new groups. However, the new categorization rules are more particularly true for startups focused on mobile money services, switching, card processing and agency banking.
- The deadline for complying with this new categorisation is 30th June, 2021.
To know more about the procedure for the new license categories, download CBN’s latest application guidance here (.pdf)
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer