On Monday, May 24, 2021, the Central Bank of Nigeria (CBN) announced new licensing requirements for Payment Service Providers (PSPs) in Nigeria.
The new requirements apply to companies registered with the Corporate Affairs Commission (CAC) and wish to apply for new licences or renew old ones.
These requirements relate to licences for Switching and Processing, Mobile Money Operators (MMOs), Payment Solution Services (PSSs), Super Agent, Payment Solution Service Providers (PSSPs), and Payment Terminal Service Providers (PTSPs).
There is a flat application fee of ₦100,000 for all categories, and if an application is successful, ₦1m is to be paid into CBN’s Licensing fee for Payment Products account. This excludes other additional financial requirements for each category.
Switching companies like Interswitch that facilitate communication between different payment service providers are expected to have ₦2 billion in shareholders’ funds and deposit an escrow of ₦2 billion into CBN before getting the Switching and Processing licence.
The same requirements also apply to the MMO licence for mobile apps like Paga and OPay used to send and receive money.
Companies applying for a PTSP or PSSP licence are expected to have ₦100 million in shareholders’ funds and deposit an escrow of ₦100 million into CBN.
PTSPs like CitiServe deploy and maintain payment terminals for banks, while PSSP like Paystack and Flutterwave accept electronic payments.
For a Super Agent licence required to provide an agent network for deploying payment services, companies like the Nigerian Postal Service (NIPOST) must have ₦50 million in shareholders’ funds and deposit an escrow of the same amount.
A company looking to get a PSS licence, which encompasses all earlier mentioned licences, is expected to have ₦250 million in shareholders funds and deposit an escrow of the same amount.
For all categories, shareholders’ funds must be unimpaired by losses, escrow deposits made in full, and payments made in the name of the company applying for the licence -- not an individual or related company.
According to the CBN, the escrow deposits are refundable and will be invested in treasury bills.
Recall that in December 2020, CBN made changes to its licence categorisation, dividing up payment system licences into four broad categories: Switching and Processing, MMOs, PSSs, and Regulatory Sandboxes.
Thus, the previous PSP licence with its tier systems no longer applies.
Comparing the old with the new
In comparison with CBN’s previous requirements, there are very few differences. These new requirements act as a further explanation in line with the apex bank’s decision to create new categories.
It introduces the following:
- Escrow deposits are to be invested in treasury bills.
- All payments must be made in the applying company’s name.
- An Information Technology policy detailing ten different policies relating to cybersecurity, data privacy, and physical security.
- Other documentary requirements peculiar to each category.
In addition to these new requirements, the document does not state how much it would cost to renew a licence, a licence’s validity, or how long the CBN should hold escrow deposits.
It is also important to note that in comparison with the old PSP tier system -- super licence, standard licence, and basic licence -- there are reductions in the required minimum Shareholders’ Fund (SHF) and application fees.
- Switching and Processing, PSSPs, PTSPs, and Super Agent (super licence) -- no longer apply: ₦3 billion reduction in minimum SHF, ₦1,900,000 reduction in application fees.
- MMOs, Non-Bank Merchant Acquiring, and Super Agent (standard licence) -- no longer apply: ₦1 billion reduction in minimum SHF, ₦900,000 reduction in application fees.
- PSSPs, PTSPs, and Super Agent (basic licence) -- no longer apply: no change in minimum SHF, no change in application fees.
What does this mean for fintechs?
Fintechs wishing to get into the PSP space have to meet all the requirements stated in the document. While these requirements are not new and even seem favourable, they might pose challenges for cash strapped startups.
However, the requirements set by the CBN are there for a reason. The PSP space is a capital-intensive industry, and these requirements will prevent unscrupulous persons from handling large sums of money.
For fintechs already in the PSP space, further guidelines are needed regarding the specific amount to be paid in renewal fees. This is doubly interesting because the CBN’s deadline for compliance is the end of June 2021.
Why is the apex bank just releasing these guidelines? Did it communicate these requirements with the PSPs? Why take the PSPs by surprise?