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Anatomy of Nigerian Fintech Laws

Merchant acquirer, Merchant, acquirer, non-bank acquiring, and merchant bank, all sound alike, but fintech lawyers know the difference – each is a different term. In 2021, the Central Bank of Nigeria (the “CBN”) issued the regulatory framework for non-banking acquiring in Nigeria.

Concise Summary

The regulatory framework for non-banking acquiring in Nigeria (“regulatory framework for non-banking acquiring”) fulfilled the CBN’s desire in the Guidelines on Operations of Electronic Payment Channels in Nigeria 2020 to allow non-bank acquirers services in the payments system.

The CBN derives its powers to issue the regulatory framework from s.69 (1) of the Banks and Other Financial Institutions Act (BOFIA) 2020.

Objectives of the regulatory framework for non-banking acquiring are to:

  • Establish Non-Bank Acquiring as a regulated service in Nigeria;
  • Identify the participants and provide minimum standards and requirements for the operations of Non-Bank Acquiring in Nigeria.

Participants in the Non-Bank (Merchant) Acquiring

Participants in the non-bank acquiring services in Nigeria are:

  • Non-Bank Acquirer – The regulatory framework for non-banking acquiring failed to define a non-bank acquirer. A non-bank (Merchant) acquirer[1] is a CBN-regulated switching and payment processor with agreements with Card Schemes to accept payment.
  • Merchants are payment service providers and may include vendors of goods and services who transact up to a certain amount. Fintech lawyers know that deposit money banks (bank acquirers) insist that vendors who transact up to named volumes must onboard with the DMBs.
  • Settlement Bank/Sponsor Bank – the CBN’s Regulatory Framework for Mobile Money Services in Nigeria 2021 and the Guidelines on Electronic Payment Channels mandate Merchant to settle their customers’ transactions from a settlement account.
  • Merchant’s Deposit Money Bank – payment aggregators that include PSP (payment service providers) must open a pool account with a deposit money bank.
  • The CBN forbids PSPs to keep customers’ funds. Usually, PSP’s settlement banks keep customers’ funds.
  • Card Schemes – include EMV (Euromoney, Visa, and Mastercard).
  • Payment Schemes – include Nigeria Central Switch (NCS), a department in NIBSS (Nigerian Inter-Bank Settlement System)

Roles of the Non-Bank (Merchant) Acquirer

A Non-bank Acquirer must have adequate policies to manage risk in the Merchant acquiring services. Its merchant agreements should meet the respective card scheme’s minimum requirements for data protection.

Agreements with merchants must specify the acquirer’s, Merchant’s and other participants’ roles and responsibilities.

A Non-Bank Acquirer controls the Merchant’s approvals in line with documented policies and procedures and ensures the Merchants access all Payment Scheme’s acceptance privileges.

The Payment Schemes acceptance privileges in the respective Payment Scheme Rules. A non-Bank Acquirer will not directly access or hold merchants’ funds, whether from/for settlement, reversals, or other reasons.

The Approval Regime

To provide non-Bank acquiring services in Nigeria, the switching and processing service provider or any other CBN-approved entity must have the following documentation:

  • Evidence of engagement with a card scheme
  • Due Diligence and Merchant Onboarding Process
  • Merchant Risk Monitoring Framework
  • Sponsorship letter from one (1) Settlement Bank
  • Draft merchant agreement
  • Details of its settlement arrangements
  • Service Level Agreement (SLA) with Settlement Bank
  • Business Continuity Plan

Consumer protection is central to non-bank acquiring. Disputed transactions under the regulatory framework for non-banking acquiring is subject to the CBN’s Consumer Protection Framework. Or arbitration if unresolved.

[1] R.5.0(1) of the Guidelines on Operations of Electronic Payment Channels in Nigeria 2020

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