Background
The federal high court enjoys exclusive jurisdiction on any settlement account related dispute in Nigeria’s digital finance.
Our views are consistent with the features of a settlement account specified in R.9.0 (c) (iv) of the CBN’s Guidelines on Mobile Money Services in Nigeria 2021 (the “Framework”).
This commentary follows a 2017 article by Olaniwun Ajayi LP on settlement accounts in digital finance.
The firm did not resolve the jurisdictional issues in the operation of settlement accounts in Nigeria’s digital financial services.
Olaniwun Ajayi LP posed the question of the court that has powers to hear cases arising from settlement accounts in Nigeria’s mobile money services.
Since the article’s date, we now know that the federal high court enjoys exclusive jurisdiction on all claims respecting the operation of a settlement account in Nigeria.
Our Osita Enwe had examined the custodial arrangement in non-bank led mobile money operators’ settlement accounts in Nigeria on ResearchGate.
A settlement account is a crucial feature of a non-bank led model in mobile money operations in Nigeria.
Our commentary is an honest attempt to resolve Olaniwun Ajayi LP’s questions on the court that has jurisdiction over claims that arises from settlement accounts under Nigerian laws.
What is a Settlement Account?
Settlement accounts are nominee bank accounts of an exceptional nature operated by mobile money operators for the benefit of the agent-bankers.
Agent-bankers are the POS agents who are recognized by the CBN under the Agency Banking Framework 2013.
A settlement account is distinct from the MMOs’ bank accounts for other business activities.
Assume that a customer of Access Bank (the “customer”) who wants to withdraw money from her access bank account had approached a PayCentre Africa agent (the “Agent”) on the Street of Ogrute, Enugu-Ezike.
The Agent will debit and pay the customer after authenticating her ATM card details.
A straightforward transaction. What happened at the back-end of PayCentre’s agency banking platform looks complex to a casual observer.
Option 1: PayCentre has a settlement account with access bank. PayCentre’s POS (point-of-sale) or mPOS (mobile POS) device is linked to the settlement account. All transactions on PayCentre are funded from the settlement account through the Agent’s wallet.
PayCentre debits the customer’s access bank account together with the charges. Access bank will refund PayCentre on a T+1 (transaction date plus one day) basis. PayCentre’s account with access bank is a settlement account.
A settlement account is a nominee account because the Agent is not a signatory.
PayCentre or E-Settlement signed the settlement account opening documents as a nominee of the Agent and all the other PayCentre agents.
PayCentre shares the transaction charge among the access bank, the Agent and itself – we assume that PayCentre owns the POS device (terminal) and all other infrastructure.
Option 2: The customer’s transaction is an inter-scheme settlement. The inter-bank settlement includes option 1 but differs from it as well. PayCentre has an account with NIBSS (Nigerian inter-bank settlement system) and a settlement account with Diana bank.
The customer’s cash-out transaction will be between PayCentre, access bank, Diana bank, and NIBSS – all inter-bank transactions must pass through NIBSS. The parties share the transaction charges.
Distinctive Features of a Settlement Account
The Framework stipulates that an MMO shall appoint and notify CBN of their settlement banks.
An MMO must settle all transactions into the settlement accounts in Deposit Money Banks.
According to the Framework, a settlement account must have the following features:
- Shall not be interest-bearing;
- No right of set-off;
- Debit transactions into the account shall only be for settlement-related transactions;
- No bank charge of any form shall apply to the account
The Framework requires an MMO not to use a settlement account as collateral for negotiating loans.
We recently negotiated a settlement account opening agreement where a mainstream bank proposed a COT (commission on turnover) charge for the settlement account.
The Court that has the Jurisdiction
It seems evident that a federal high court enjoys the powers and competence to hear any claims arising from settlement accounts in Nigeria.
The Constitution of the federal republic of Nigeria (as amended) gives the federal high court the exclusive powers to hear all banking-related disputes except for ordinary customer-banker transactions (proviso to s.251(d) of the Constitution).
Settlement accounts are highly specialized banking transactions because of the conditions stated above. Even the onboarding process for settlement accounts is different from the ordinary banker-customer account.
We know that banks impose transaction charges on settlement accounts contrary to the explicit provisions of the Framework that forbids any form of charges on the settlement account.
MMOs may successfully challenge the DMBs who impose transaction charges on a settlement account before a court of law. We will be happy to see this contented and won, because it expounds our jurisprudence.
These transaction charges, cumulatively, are enormous. What is the reason for forbidding transaction charges on a settlement account? We submit that it would amount to double payment by the customer.
The customer already pays transaction charges from the card issuer, and any transaction charge on a settlement account is an indirect or rather direct debit on the customer’s account.
Additional features of a settlement account remove a settlement account outside the realm of ordinary banker-customer relationship. The framework requires that:
- balance on the settlement account shall always be equal to the total outstanding (un-spent) balance of all holders of the e-money;
- MMO must reconcile daily the balances in their pool accounts and make weekly returns to the Director, Payments System Management Department of the CBN;
- all customer transactions shall be traceable, auditable and can be validated.;
- send remittance inflow messages at least through SMS.
The last item above is consistent with the transaction alert services in an ordinary banker-customer relationship.
It is not in doubt that the federal high court has exclusive jurisdiction in any settlement account-related dispute in Nigeria.
NB: At the time Olaniwun Ajayi LP authored the article above, settlement accounts in Nigeria’s FinTech sector had no precise regulatory framework. Respectfully, the paper demonstrates the firm’s insight and thought leadership.
