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Anatomy of Nigerian Fintech Laws

Progressively we are commenting on pre-conditions for a Switching and Processing licence in our licencing regime series for payment system in Nigeria. The previous article examined the mobile money operators’ licences here.


Switching and payment processing are an integral part of the payment system in Nigeria and a crucial tool in CBN’s (Central bank of Nigeria) financial inclusion agenda.

Expectedly, Nigeria may attain financial inclusion in 2030 even as the Digital Economy Development Department of the NITDA (Nigerian Information Technology Development Agency), NGEA (Nigerian Government Enterprise Architecture) and the CBN struggle to position Nigeria in the global digital space.

Accordingly, the CBN recategorized operators in the Nigeria payment system in the 2020 New Licence Categorizations to promote financial stability in the Nigerian Payment System.

Before the New Licence Categorizations for the Nigerian Payment System regime, switching and processing operators included mobile money services.

CBN partitioned players in the payment system when it introduced the licence categorization. The Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria 2021 (the “PSHC Guidelines”) provide a regulatory framework for unbundling payment system operations in Nigeria.

Under the CBN’s Approved New Licence Categorizations Requirements (consolidated) 2021, Switching and Processing are stand-alone services from mobile money services, banking, and other fintech operations with limited exceptions.

Switching and Processing Services

A payment switching and processing company is allowed to provide:

  • Switching
  • Card processing
  • Transaction clearing and settlement agent services
  • Non-bank acquiring services
  • activities or services of a super-agent, PTSP (payment terminal service providers), and PSSP (payment system service providers).

Licencing Requirements for Switching and Processing  

An applicant for the CBN’s switching and processing licence (the “switching and processing operator”) must register with the corporate affairs commission.

The switching and processing operator’s memorandum and articles of association will include switching and processing and other permitted services in its business object.

A two billion Naira unimpaired shareholders’ funds is a material requirement. The switching and processing operator must deposit a refundable two billion Naira lump sum into CBN’s (interest-yielding) escrow account.

A switching and processing operator may apply for a switching and processing licence to the CBN’s Director, Payments System Management Department, after paying the one hundred thousand Naira application fee.

The following documents and proof of escrowed payment accompany the application:

  • Incorporation documents
  • Three years of tax clearance
  • Share structures, number of employees, and an organogram
  • Functional physical and digital addresses
  • Board composition (Chairman, CEO/MD, and at least one (1) Independent Non-Executive Director and other Directors) and further personal details of each board member and top management team.
    • Business plan, five years financial projections
  • features of the switching and processing scheme and Security architecture of the switching and processing
  • Proposed schedule of charges and profit-sharing arrangement
  • Process flow for switching and processing flows transaction
  • Terminal deployment and connectivity strategy
  • POS support strategy (on-site and offsite) and plan to ensure failures are remotely detected and fixed within 72 hours
  • Transaction fees and other charges that the customers pay
  • System for ensuring 99.9% uptime for terminals
  • Training and merchant relationship management strategy
  • Customer care and issue resolution strategy
  • Partnerships & alliances and value propositions
  • Prior related transactional experience
  • Information Technology policy of the company, such as:
  • privacy policy
  • data protection policy
  • backup and restore a policy
  • network security policy
  • encryption policy
  • confidential data policy
  • password policy
  • third-party connection policy
  • incidence response policy
  • physical security policy
  • enterprise risk management framework and dispute resolution framework
  • contingency and disaster recovery plan
  • Executed agreements:
  • technical partners
  • participating banks
  • merchants and telcos
  • project deployment methodology
  • shared agent network policy and Service Level Agreements (SLAs)
  • risk management, internal control, operational procedures, and related policies
  • KYC and AML/CFT compliance procedures
  • fraud detection plan and standard of care
  • consumer protection policy and procedure
  • board approval
  • where applicable, the following certifications:
  • PCI-DSS (payment card industry data security standard) certification
  • payment application data security standard (PA-DSS) certification or compliance with CBN standards for solution development
  • payment terminal service aggregator (PTSA) of payment terminal application certification

An AIP (approval-in-principle) is alive for six months, and a commercial licence costs one million Naira.

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