The Nigerian Payment System Licenses Explained
In today’s digital world, seamless and secure payment systems are the backbone of any thriving economy. A payment system acts as a complex network that facilitates money transfers between individuals and businesses. It encompasses various elements, including banks, electronic payment networks, mobile wallets, and Point-of-Sale (POS) terminals.
In Nigeria, having a well-regulated payment system is crucial for several reasons. It fosters financial inclusion by bringing more people into the formal financial sector. It also promotes economic growth by enabling efficient and secure business transactions. Most importantly, a potent payment system safeguards consumers by ensuring the legitimacy and security of their financial activities.
The Central Bank of Nigeria (CBN) is the sole authority responsible for issuing licenses and regulating the Nigerian Payment System (NPS). The CBN establishes guidelines and oversees the activities of all participants within the system, ensuring its smooth and secure operation.
This ensures that all participants operate according to established standards, protecting consumers and maintaining the stability of the financial system.
In the post, we’ll delve deeper into the various payment system licenses offered in Nigeria, explaining the activities permitted under each category.
What are the categories of Nigerian Payment System Licenses?
With the rise of new technologies and financial products, the CBN has established several payment system licenses. These licenses categorize different types of payment service providers based on their specific functions. This categorization ensures clarity and transparency, while also promoting healthy competition within the financial landscape.
All Nigerian payment system licenses, including those for Switching and Processing, Mobile Money Operations, Payment Terminal Services, and Payment Solution Services, require a mandatory registration with the Corporate Affairs Commission (CAC).
Here’s a breakdown of the key licenses for aspiring card payment players:
A. Switching and Processing License
The Switching and Processing License in Nigeria is the gold standard for payment technology companies. This license grants extensive capabilities, making it highly sought after within the fintech industry. Companies with this license act as the central hub for electronic transactions in Nigeria. They handle critical tasks like:
- Routing Payments: Directing payments between different banks and financial institutions.
- Card Processing: Authorizing and processing card transactions, ensuring security.
- Settlement Facilitation: Guaranteeing the smooth and accurate transfer of funds between parties.
- Non-Bank Acquiring: Enabling merchants outside the traditional banking system to accept electronic payments.
The Central Bank of Nigeria (CBN) recognizes the immense responsibility entrusted to switching companies. This is reflected in the substantial minimum share capital requirement for obtaining this license (N 2,000,000,000 -Shareholders’ funds unimpaired by losses). This high barrier to entry ensures only well-resourced and qualified entities can operate in this crucial role.
The CBN recently streamlined the licensing landscape. Switching companies can now operate under the scope of licenses previously held by Super-Agents, Payment Terminal Service Providers (PTSPs), and Payment Solutions Service Providers (PSSPs). This consolidation simplifies operations and grants them a broader range of functionalities.
B. Mobile Money Operators (MNOs) License
Mobile money allows users to transform their mobile phones into financial tools. MMOs, licensed by the Central Bank of Nigeria (CBN), are the architects behind this transformation. They develop and deploy innovative financial services accessible directly through mobile phones and mobile network operators.
The responsibility entrusted to MMOs is reflected in the substantial minimum share capital requirement. Obtaining an MMO License requires N2 billion Naira (N2,000,000,000).
MMOs wield a range of capabilities beyond simply facilitating mobile money transfers. They are authorized to:
- Issue Electronic Money (e-money): Create digital currency directly linked to traditional fiat money, enabling convenient mobile transactions.
- Create and Manage Wallets: Provide secure digital storage for e-money on users’ mobile phones.
- Manage Pool Accounts: Oversee the central pool of funds backing e-money issued by the MMO.
- Super Agent Activities: Offer basic financial services in remote areas, similar to Super Agent License holders.
C. Payment Solution Service (PSS) License
The Payment Solution Services (PSS) License stands out as a comprehensive option, granting access to a wider range of activities compared to its sub-categories. PSS providers act as the crucial bridge within the financial services ecosystem. They offer end-to-end electronic payment solutions, including infrastructure, systems, and services.
PSS License encompasses the permissible activities:
- Super Agent Activities: Recruiting, managing, and overseeing agents who provide basic financial services in remote areas.
- PTSP Activities: Deploying and servicing Point-of-Sale (POS) terminals, potentially even developing their own POS systems, and training merchants or agents on their usage.
- PSSP Activities: Developing and deploying payment processing gateways and portals, creating payment solutions or applications, and offering merchant aggregation and collection services.
The Central Bank of Nigeria (CBN) requires a minimum share capital of N250,000,000 (two hundred and fifty million Naira) for a PSS License. For companies seeking a comprehensive approach to payment solutions, the PSS License offers a strategic advantage.
D. Payment Terminal Service Provider (PTSP) License
The Payment Terminal Service Provider (PTSP) License empowers businesses to become the backbone of in-person transactions. This license allows businesses to deploy Point-of-Sale (POS) terminals. These terminals act as the physical bridge between customers’ cards, merchants’ businesses, and the broader financial network. By enabling secure and convenient card-based transactions, PTSPs play a crucial role in driving cashless payments across Nigeria.
The Central Bank of Nigeria (CBN) regulates the issuance of PTSP licenses, ensuring strict adherence to security measures and financial stability. The Capital Requirement by the CBN is a minimum of N100 million in shareholders’ funds unimpaired by losses. The PTSP license is granted for a specific period determined by the CBN, with the possibility of renewal based on satisfactory performance.
E. Payment Solutions Service Provider (PSSP) License
The Payment Solutions Service Provider (PSSP) License stands out as a broad category, empowering companies to offer a wider spectrum of services compared to the PTSP License. It equips companies to provide a more comprehensive suite of payment solutions than just in-person transactions via POS terminals. It encompasses activities like:
- Payment Processing Gateways and Portals: Building secure online platforms that facilitate electronic payments between customers and merchants.
- Payment Solution/Application Development: Creating innovative payment solutions and applications to streamline the financial experience.
- Merchant Services Aggregation and Collections: Offering bundled services for merchants, including payment collection tools and consolidated reporting.
The PSSP category is further segmented into sub-licenses, allowing companies to specialize in specific areas. Examples include Payment Aggregator licenses for managing multiple payment channels and Payment Gateway licenses for processing online transactions. Each sub-license has its own set of requirements and fees, allowing companies to choose the option that best aligns with their business goals. The requirements for obtaining a PSSP License are similar to the requirements for a PTSP License.
Conclusion
Understanding these licenses empowers businesses to choose the optimal path for their fintech journey, while individuals gain access to a wider range of secure and convenient payment options. As the CBN continues to refine and adapt its regulatory framework, the future of Nigerian payments promises to be even more innovative and inclusive. This comprehensive overview of the various licenses equips you with the knowledge to navigate this exciting landscape and capitalize on the opportunities it presents.