In one of my previous articles (Fintech Licenses Available in Nigeria), I briefly talked about a unique Fintech category known as Payment Service Banks (or PSBs) being one of the newer entrants into the Nigerian banking and financial sector. The concept of PSB is still relatively new and there is still little knowledge about this potentially very lucrative Fintech business.
What this article basically aims to do is to address the following topics:-
– What are payment service banks.
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– The regulatory framework governing payment service banks in Nigeria.
– Licensing requirements for payment service banks.
– A clear understanding of what PSOs are allowed to do and what they are prohibited from doing.
What exactly is a Payment Service Bank?
A payment services bank is essentially a company licensed to apply technology and agency banking (please consult your attorney in more detail on the concept of agency banking, another fintech category in its own right) to provide financial services focused on the mobilization of deposits and the activation of monetary transfers. to “unbanked” customers in rural areas or other parts of the country where they exist.
What is the Regulatory Frame governing Payment Service Banks in Nigeria?
Payment Service Banks in Nigeria are licensed and regulated by the Central Bank of Nigeria (CBN) through the Banks and Other Financial Institutions Act (BOFIA) and specifically the CBN Guidelines for Payment Service Banks in Nigeria 2020 (or ‘The Guidelines’)
What exactly are the permit and not allowed Activities for Payment Service Banks as declared in the Guidelines?
The following activities are permitted for PSBs under CBN guidelines:-
– Provision of banking services centered on savings, accepting deposits covered by the system of insurance of deposits and monetary withdrawals.
– Deployment of ATMs and point-of-sale (POS) devices.
– Make payments and remittances through various channels in Nigeria, including inbound cross-border personal remittances.
– Sale of currencies/Forex made from inbound cross-border personal transfers to approved forex traders.
– Issuing debit and prepaid cards in its name.
– The functioning of electronic wallets.
– The provision of financial advisory services.
– Invest in FGN & CBN securities.
However, the following activities are deemed unauthorized for PSOs by the Central Bank of Nigeria:-
– Provision of loan, advance and guarantee services.
– Accept Forex deposits.
– Trading on the Forex market, except as prescribed by the Guidelines.
– Insurance company.
– Engage in any other transaction not prescribed as permitted by the Guidelines.
– Accept any closed-system electronic value (such as airtime) as payments or deposits.
– Establish any subsidiary, except as prescribed in the CBN Regulations on the Scope of Banking and Auxiliary Matters.
Who box promote Where to apply at Position at the top a Payment Service Bank?
The following can promote (see my previous article “How to Get Investment Funding in Nigeria” for the definition of a promoter) a payment services bank as outlined in the CBN guidelines:-
– Banking agents (authorized agents).
– Telecommunications companies through a subsidiary.
– Downstream oil marketing companies.
– Fintech companies.
– Postal Service Providers and Courier Companies (Check out my previous article “How to Start a Licensed Courier/Logistics Company in Nigeria”).
– Mobile Money operators.
– Change company.
– Financial technology companies (Fintech).
– Financial holding companies.
– Any other entity on the merits of its application subject to the approval of the Central Bank of Nigeria.
What is the procedure for obtaining a Payment Service Bank Licence in Nigeria?
Obtaining a PSB license in Nigeria is done in 2 steps:-
a). The Approval in Principle (AIP) stage.
b). The final licensing stage.
The Approval in principle Arrange.
To obtain an AIP, you must submit through your solicitor a formal application for a PSB license to the Governor of the Central Bank of Nigeria through the Director of the Department of Financial Policy and Regulation (FPRD) with a proposal containing the business case, vision, strategy, corporate governance framework/policy, risk management and financial viability statement attached.
This proposition must be supported by –
a). a non-refundable application fee of N500,000 in a bank draft payable to the Central Bank of Nigeria;
b). proof of the capital contributions made by each shareholder;
vs). proof of name reservation with the Corporate Affairs Commission (CAC);
D). a feasibility report/detailed business plan;
e). a draft copy of the memorandum and MEMART statutes of the company;
F). a written undertaking duly signed by the promoters that the bank will be sufficiently capitalized for the volume and nature of its activities at all times and that the CBN will have the power to supervise and regulate its operations;
g). a shareholders’ agreement providing for the sale and transfer of shares as well as authorizations, modifications, waivers and reimbursements of expenses;
h). a technical services agreement;
I). a declaration of intent to invest in the Bank by each investor.
When the Bank is approached for promotion by corporate investors, the following will be required:
– a certificate of incorporation and certified copies (CTC) of the other constitutive documents of the corporate investors;
– a copy of the resolution of the board of directors of corporate investors confirming its decision to invest in the shares of the proposed bank;
– the names and addresses (business and residential) of the owners and directors of the corporate investors as well as their related companies, if any;
– audited financial statements and company reports and tax clearance certificates for the last 3 years (this may not apply to newly established companies);
Upon receipt and review of the above requirements, CBN will send a notification to the applicant communicating its decision, followed by the granting of the AIP.
It should be noted that applicants for a PSB license are not permitted to register a PSB with the Commerce Commission, except upon presentation of an AIP obtained from the CAC.
Final Licence To agree Arrange
A final license application by your attorney must be made within 6 months of granting an AIP to CBN with:-
– a non-refundable license fee of N2 million in bank draft payable to the Central Bank of Nigeria;
– a certified true copy (CTC) of the certificate of incorporation of the PSB;
– a certified copy of the PSBs MEMART (Memorandum & Statutes) and its CAC Form1.1;
– proof of the location of the PSB headquarters (including information on whether the building is owned or leased) for take-off;
– a timetable for the evolution of the board of directors and the shareholding of the PSB after the allocation of the RIA;
– evidence of the ability to meet the technical requirements and modern infrastructure facilities such as office equipment, computers and telecommunications capabilities necessary to carry out PSB operations and meet all of its regulatory compliance requirements;
– copies of job offer and acceptance letters concerning its management team;
– the detailed curriculum vitae of its management staff;
– completed suitability and propriety questionnaires and sworn statements of net worth signed by PSB management staff;
– information on the BVN and tax clearance certificates for each PSB management staff;
– a comprehensive plan on the start of bank operations with milestones and timelines for the deployment of crucial payment channels;
– board and staff training programs;
– other inspections such as capital contribution audits;
– physical inspections of the PSB office structure and meeting with its Board and Management Team whose resumes had previously been submitted to the Central Bank of Nigeria alone with the presentation of the original copies of the documents submitted for the purposes of the granting of the final license.
How long Is this take for a AIP/Approval in Principle application at be treaty?
Processing an AIP request takes 90 days.
What is the obligatory minimum to share Capital city for Payment Service Banks?
The declared minimum share capital for payment service banks is N5 billion.
What are some of the more notable operation terms for Payment Service Banks below the CBN Guidelines?
Some of the most notable operational requirements of the CBN guidelines for PSBs include:-
– The general requirement that PSBs must be strictly technology-driven and must comply with best practices and regulatory requirements for data storage, security, and integrity.
– The name of a payment services bank should not include any words linking it to its parent company, for example MTN Nigeria and its subsidiary PSB, MoMo or Airtel Nigeria and its subsidiary PSB, Smartcash PSB.
– PSBs are free to operate through agent banks in accordance with the CBN Guidelines for the Regulation of Relationships with Bank Agencies and Agent Banks in Nigeria.
– PSBs can deploy agent networks with prior CBN approval (this is where smaller fintech companies can step in).
– PSBs should rely on electronic platforms to reach their customers.
– PSBs are required to establish coordination centers in groups of outlets to supervise and control the activities of the various financial services contact points and banking agents, as well as to set up consumer assistance offices (physical and online) in its main office and its coordination centres.
Conclusion :- Payment services banks have become one of the most innovative disruptions in the Nigerian Fintech space, driving unprecedented levels of financial inclusion, low operating costs and astonishing profits for some of the early investors in this sector. The consequent regulatory requirements that govern PSBs, which cannot be captured in this article, are a major reason why future participants in this Fintech sub-sector need to consult more trained professionals to be properly guided in the future.