The Nigerian fintech in the aftermath of the banking new regulations
What will become of Nigerian fintech in the aftermath of the banking regulator's new regulations?
The Central Bank of Nigeria (CBN) announced new licensing requirements for Payment Service Providers (PSPs) in Nigeria on Monday, May 24, 2021.
The new requirements apply to businesses registered with the Corporate Affairs Commission (CAC) that wish to apply for new or renew existing licenses.
These requirements apply to Switching and Processing licenses, Mobile Money Operator (MMO) licenses, Payment Solution Services (PSS) licenses, Super Agent licenses, Payment Solution Service Providers (PSSPs), and Payment Terminal Service Providers (PTSPs).
There is a one-time application fee of 100,000 for all categories, and if an application is approved, one million dollars must be deposited in CBN's Licensing fee for Payment Products account. This does not include any additional financial requirements associated with each category.
Switching companies, such as Interswitch, that facilitate communication between various payment service providers, are required to have a minimum of $2 billion in shareholder funds and a $2 billion escrow deposit with CBN prior to obtaining the Switching and Processing licence.
The same requirements apply to the MMO license for money-transfer apps such as Paga and OPay.
Companies applying for a PTSP or PSSP licence are required to have a minimum of $100 million in shareholder funds and a $100 million escrow deposit with CBN.
Payment service providers (PTSPs) such as CitiServe deploy and maintain payment terminals for banks, whereas payment service providers (PSSPs) such as Paystack and Flutterwave accept electronic payments.
To obtain a Super Agent license, which is required to operate an agent network for the purpose of deploying payment services, companies such as the Nigerian Postal Service (NIPOST) must have at least $50 million in shareholders funds and a matching escrow deposit.
A company seeking a PSS licence, which encompasses all previously mentioned licenses, is expected to have at least $250 million in shareholders funds and a corresponding escrow deposit.
For all categories, shareholders' funds must be free of losses, escrow deposits must be made in full, and payments must be made in the name of the company applying for the licence, not an individual or related company.
The CBN has stated that the escrow deposits are fully refundable and will be invested in Treasury bills.
Recall that in December 2020, the CBN revised its classification of payment system licenses, dividing them into four broad categories: switching and processing, MMOs, payment system services, and regulatory sandboxes.
As a result, the previous PSP licence with its tier system is invalid.
Contrast the old and the new
There are very few distinctions from CBN's previous requirements. These new requirements provide additional context for the apex bank's decision to create new categories.
It begins by introducing the following:
Escrow funds are to be invested in government bills.
All payments must be made in the name of the applicant company.
An information technology policy outlining ten distinct policies for cybersecurity, data privacy, and physical security.
Additional documentary requirements that are unique to each category.
Apart from these new requirements, the document makes no mention of the cost of renewing a licence, the duration of a licence's validity, or the length of time the CBN should hold escrow deposits.
It's also worth noting that, in comparison to the previous PSP tier system — super licence, standard licence, and basic licence — the required minimum Shareholders' Fund (SHF) and application fees have been reduced.
Switching and Processing, PSSPs, PTSPs, and Super Agent (super licence) — no longer apply: 3 billion in minimum SHF reduction, 1,900,000 in application fee reduction.
MMOs, Non-Bank Merchant Acquiring, and Super Agent (standard licence) — no longer applicable: a reduction of $1 billion in the minimum SHF and a reduction of $900,000 in application fees.
PSSPs, PTSPs, and Super Agents (basic license) — these terms no longer apply: There will be no change to the minimum SHF or application fees.
What does this imply for fintech companies?
Fintechs interested in entering the PSP space must adhere to all of the document's requirements. While these requirements are not novel and appear to be beneficial, they may present difficulties for cash-strapped startups.
However, the CBN's requirements are in place for a reason. Because the PSP industry is capital-intensive, these requirements will deter unscrupulous individuals from handling large sums of money.
Further guidance is required for fintechs already operating in the PSP space regarding the specific amount to be paid in renewal fees. This is doubly intriguing given the CBN's compliance deadline of the end of June 2021.
Why did the apex bank wait so long to issue these guidelines? Is it aware of these requirements and has it communicated them to the PSPs? Why would you want to surprise the PSPs?
