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Anatomy of Nigerian Fintech Laws

Our guide to starting agency-banking (POS) operations in Nigeria, Africa’s choicest retail hub – based on population – helps you fashion adaptive strategy for agency banking (POS) operations in Nigeria.

The business model for your agency banking (POS) operation should support your market entry strategy. This is not a piece of legal advice but insights from a field perspective.

A decade ago, in 2013, the Central Bank of Nigeria (CBN) formally regulated agency banking in Nigeria when it issued the Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria (the “Agency Banking Regulations”).

Agency banking attempts to democratize banking services and is now a significant alternative to walk-in or across-the-counter banking channels in Nigeria’s urban and rural areas.

Traditionally, agency banking allowed bank customers to withdraw money (cash out) from a POS (point-of-sale) agent, perform inter-bank and intra-bank fund transfers, and cash deposits.

When Fintech (financial technology) services providers entered the agency banking and mobile money services, agency banking became a full retail banking and financial services channel.

These developments ensured that banker’s customers and financial consumers could open bank accounts or wallets, get insurance, pay for utilities and buy airtime, and pay government bills and taxes from a POS agent at any street corner.

In 2021, “Nigeria recorded over 3.7 billion real-time payments, earning the sixth spot among countries with the biggest real-time payments markets.” We assume that the agency banking channel gained a significant quota.

We believe the CBN’s Guidelines for Open Banking in Nigeria will democratize data aggregation and analysis in the financial services sector and ensure data-drive regulation. We commented on financial consumers’ consent to open banking in Nigeria here.

Stakeholders in Agency banking (POS) operators in Nigeria
On one hand, agency banking (POS) operators are entities that are allowed to deliver agency banking services in Nigeria. That is, to own the agency banking application and recruit agents.

These stakeholders include:
• Deposit Money Banks (DMBs) such as commercial and microfinance banks.
• MMOs (mobile money operators), see the licencing requirement for a mobile money operator’s (MMO) here.
• PSPs (payment Service Banks), see the licencing requirement for a payment service banks (PSPs) here.

On the other hand, Payment Terminal Service Providers and Switching and processing entities deploy and own POS (point-of-sale) terminals or devices. You may use the link to access the licencing requirements for a PTSP and Switching and Processing.

These are paper-based categorizations because it operates differently in practice – that dichotomy between regulation and practice. As fintech lawyers and transaction advisors, we understand the differences and we know it is suitable for Nigeria’s mobile money services and agency banking sector.

Engaging super-agents and aggregators help your agents’ acquisition. Remember it is a shared agent. There is no exclusive agent relationship in this sector.

Players in the Agency Banking (POS) Business in Nigeria
DMBs, MMOs, PSPs, and PSS (Payment Service Providers) licence holders are leading and shaping agency banking (POS) operations in Nigeria (the “POS or Agency Banking Operators”).

A PSS may hold one or more of the following PTSP, PSSP (Payment Service Solutions Providers), or Super-Agency licence.

These Agency Banking (POS) operators make specific arrangements with the PTSP licence holders to finance, own, and deploy POS terminals or devices in Nigeria.

You may have noticed that Fintech are scaling up as MFBs (microfinance banks). It enables them to operate seamlessly using the MFB licence or combining it with one or more licences.

The CBN’s commitment to promoting agency banking and deepening its financial inclusion agenda weakens – in a favourable sense – its regulatory resolve and strict implementation of its regulations for the good of the mobile money system in Nigeria.

Business Models in Agency Banking (POS) Operations
The primary business model in agency banking (POS) operations in Nigeria is to licen checklist and obtain an MMO licence – we know that CBN is slow to issue MMO licences with the huge capital outlay.

Alternatives to obtaining an MMO licence include Licence Leverage, White Labelling or MFB (Microfinance Bank licence.

Licence Leverage is an arrangement with a holder of a relevant licence that enables an intending agency banking (POS) operator to begin a business with a shared or rented licence.

Licence Leverage enables you engage into strategic partnerships with a DMB for your collateralized settlement account for transactions and chargebacks. – You will learn all you need to know about Settlement Accounts in Nigeria here and here.

Your Settlement Bank is your doorway to enables you to NIBSS’ (Nigerian Inter-Bank Settlement Scheme) integration. That is, integrating your POS application with NIBSS, other Switches, PTSP and Super-Agent.

Super-Agents are CBN-regulated entities that recruit and manage agents under the SANEF (Share Agent Network Expansion Facilities) scheme.

Why buy if you can lease? White labelling in agency banking (POS) operation is the sector’s equivalent of leasing. White labelling in agency banking means renting an existing agency banking application that is branded in your own name.

These are relational transactions and are based on relationships. As fintech lawyers and advisors, we have guided clients through these fruitful and cost-effective paths.

If you have tight start-up capital, Licence Leverage and White labelling are your closest kins. It minimizes your skunk costs, even if you scale or suffer failures.

Your prospective strategic partners for White labelling should have a sound data protection system, uptime and service availability, and a fair relationship with the PTSP, Settlement Banks, Switches and NIBSS.

Not every agency banking or POS operator is integrated with NIBSS. So, look out for those who have NIBSS integration and good standing with the CBN.

The minimum uptime and service availability in Nigeria’s payment industry is 97%. An awakening financial consumer consciousness could lead to damages for downtime and service unavailability.

The CBN proposes to revise the Regulatory Framework for Agency Banking in Nigeria. Here is a link to the exposure draft of the Agency Banking Regulations. We expect a precise alignment between the market demands and regulatory oversights in any revised Agency Banking Regulations.

Now is the best time to enter the agency banking (POS) market. Your business model may include acquiring an existing agency banking (POS) operator or a Microfinance Bank.

You may apply for the relevant licence from the CBN or adopt Licence Leverage and White labelling pending when you are ready to develop your own agency banking (POS) application.

Finally, owning payment infrastructure is itself a business model. You need not go down to the tranches unless you want to.

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