HOW TO SET UP A PAYMENT SERVICE BANK IN NIGERIA

What is a Payment Service Bank?

Payment Service Banks in Nigeria are channels by which telecommunication and technology solutions companies are licensed by the Central Bank of Nigeria to participate in the fintech payment ecosystem with primary focus on the rural areas and unbanked locations, targeting financially excluded persons, with less than 25% financial service touch points in such rural areas. Payment Service Banks in Nigeria are fashioned after the Indian’s Payment Bank model. The licence is open to mobile network companies, mobile money operators, retail companies and banking agents subject to meeting the applicable regulatory requirements.

Payment Service Banks are technology-based banks with limited financial services targeted at on-boarding the excluded or unbanked population in some hard-to-reach areas of the country. Payment Service Banks are expected to leverage on technology to provide various permissible financial services that would be easily accessed by the unbanked population and those who are in hard-to- reach areas of the country.

In order to provide for a set of regulations to streamlining the operations of Payment Service Banks, ensuring transparency in their operations as well as ensuring adequate customer protection, the Central Bank of Nigeria introduced the Guidelines for the Licensing and Regulation of Payment Service Banks (PSBs) in 2018 (revised 2020 and July 2021) (“Guidelines”). By the Guidelines, Payment Service Banks are permitted to participate in the payment and settlement system and have access to the inter-bank and the CBN collateralized repo window for its temporary liquidity management and must execute the Global Standing Instruction (“GSI”) Mandate Agreement with the Nigeria Inter-Bank Settlement System (“NIBSS”) in line with the provisions of the Guidelines on Global Standing Instruction (2020) or any other extant regulations. See HOW TO SET UP A FINTECH COMPANY IN NIGERIA

Below are key questions raised to address many important details of the process for setting up a Payment Service Bank in Nigeria:

What are the Permissible and Non-Permissible Activities of a Payment Service Bank?

Permissible Activities: Payment Service Banks are allowed to carry out the following activities:

i.   Acceptance of deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme;

ii. Carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria;

iii. Sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers;

iv. Without prejudice to (i) and (ii) above, a Payment Service Bank must comply with provisions of the extant Foreign Exchange Regulations of the Central Bank of Nigeria;

v. Issuance of debit and pre-paid cards on its name and Enter into direct partnership with card scheme operators. Please note that such cards shall not be eligible for foreign currency transactions;

vi. Operate electronic wallet services for its customers;

vii. Deploy Automated Teller Machines (ATMs) in some rural areas;

viii. Deploy Point of Sale (PoS) devices;

ix. Be at liberty to operate through banking agents (in line with the CBN’s Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria);

x. Roll out agent networks with the prior approval of the CBN;

xi. Use other channels including electronic platforms to reach-out to its customers;

xii. Establish coordinating centres in clusters of outlets to superintend and control the activities of the various financial service touch points and banking agents;

xiii. Render financial advisory services;

xiv. Invest in Federal Government of Nigeria and Central Bank of Nigeria securities; and

xv. Carry out such other activities as may be prescribed by the Central Bank of Nigeria from time to time.

Non-Permissible Activities: Payment Service Banks shall not carry out the following prohibited activities:

i.   Grant any form of loans, advances and guarantees (directly or indirectly). They may lend to their employees in line with their employee loan policy, subject to the approval of their Board;

ii. Accept foreign currency deposits;

iii. Deal in the foreign exchange market except as prescribed in the Payment Service Bank Guidelines;

iv. Insurance underwriting;

v. Undertake any other transaction which is not prescribed by this Guidelines;

vi. Accept any closed scheme electronic value (e.g. airtime) as a form deposit or payment;

vii. Establish any subsidiary except as prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters, No 3, 2010.

Who can apply for Payment Service Bank licence or own a Payment Service Bank in Nigeria?

Anyone seeking the Payment Service Bank licence must be registered with the Corporate Affairs Commission and licensed by the Central Bank of Nigeria. The following entities are eligible to apply for the Payment Service Bank licence:

i.  Banking Agents;

ii. Telecommunications companies (Telcos), through subsidiaries;

iii. Retail chains (supermarkets, downstream petroleum marketing companies);

iv. Postal services providers and courier companies;

v. Mobile Money Operators (“MMOs”). Please note that any MMO that desires to convert to a Payment Service Bank shall comply with the requirements of the Guidelines);

vi. Switching Companies;

vii. Financial technology companies (Fintech);

viii. Financial Holding Companies; and

ix. Any other entity on the merit of its application subject to the approval of the CBN.

Please note: where a promoter of a Payment Service Bank is a regulated entity, it shall be required to obtain approval or a ‘no objection letter’ from its primary regulator and submit same at the licensing application stage to the Central Bank of Nigeria.

What are the applicable Costs for setting up a Payment Service Bank in Nigeria?

Generally, costs of setting up a company in Nigeria are calculated based on the mandatory share capital for such company and the applicable fees prescribed by the sectorial regulator for such businesses. The applicable costs for incorporation of a Payment Service Bank and processing its operational licence in Nigeria (excluding professional fees) are estimated as follows:

Please note that the promoters of a Payment Service Bank would be required to show proof that they have up to N5,000,000,000 (Five Billion Naira) which shall be verified by the Central Bank of Nigeria to confirm the promoters’ financial capacity to undertake the permissible activities of a Payment Service Bank. The Promoters of a Payment Service Bank may be required to deposit the sum of N5 Billion with the Central Bank of Nigeria which may be held by the apex bank throughout the licensing process and the said sum may be invested by the Central Bank of Nigeria. Upon the grant of licence or otherwise, the Central Bank of Nigeria shall refund the sum deposited to the applicant, together with the investment income, if any, after deducting administrative expenses and tax on the income.

What are the Incorporation Requirements for a Payment Service Bank?

In Nigeria, a Payment Service Bank cannot be incorporated by the Corporate Affairs Commission unless its promoters have first obtained a provisional approval (called Approval in Principle) from the Central Bank of Nigeria.

The following are particulars required for incorporation of a Payment Service Bank as a private company limited by shares (also known as LLC):

i. Name of the Company: Two preferred names for the proposed company must be presented to the CAC for Name Availability Search and Reservation (via https://pre.cac.gov.ng/name-reservation/new-application). A name approved by the CAC is usually reserved for sixty (60) days to enable the promoters enough time to complete registration (even though a company registration in Nigeria can now be completed on the same day of application).

See STEP BY STEP PROCESS OF COMPANY REGISTRATION IN NIGERIA.

Please note that a Payment Service Bank shall use the words “Payment Service Bank” or “PSB” in its name to differentiate it from other banks. However, the name of a Payment Service Bank shall not include any word that links it to its parent company or promoter.

ii. Share Capital: A private company limited by shares (LTD.) seeking to register as a Payment Service Bank is required to have a minimum issued share capital of N5,000,000,000 (Five Billion Naira). As mentioned above, a company’s issued share capital is the basis for calculating Government Fees which comprise registration cost (payable to CAC) and stamp duty (payable to Federal Inland Revenue Service (“FIRS”)).

iii. Registered Address: Every company registered with CAC is required to have its registered address in Nigeria. A proposed Payment Service Bank can use a virtual office in Nigeria as its registered address for the first 90 to 120 days whilst pursuing the Approval-in-Principle from the Central Bank of Nigeria. At Koriat & Co., we usually offer our offices as registered address for our clients who do not have any office to meet this requirement and for mailing address. It is, however, required for a Payment Service Bank to have its own functional office before or when applying for the Final Licence. This is because the Payment Service Bank’s office and facilities will be inspected by the officials of Central Bank of Nigeria before granting Final Licence.

iv. Company’s Email and Telephone Number: The CAC requires an email and phone number to designated for the proposed company for future correspondence. Usually, the email and phone number of one of the promoters may be used for the incorporation but the Central Bank of Nigeria would require the company to have its own domain name and a dedicated phone line for the Payment Service Bank.

v. Particulars of shareholders, directors and company secretary: The names, address, occupation, date of birth, distribution of shares amongst the shareholders, a government-issued means of identity, as well as electronic signature of shareholders, directors and company secretary are required for incorporating a company.

vi. Approval-In-Principle from the Central Bank of Nigeria: Promoters of a Payment Service Bank are required to first obtain an Approval-in-Principle from the Central Bank of Nigeria before completing incorporation of the Payment Service Bank by the Corporate Affairs Commission. The procedure for obtaining the Approval-in-Principle is discussed below.

What are the licensing requirements and procedure for Payment Service Bank?

A Payment Service Bank is required to be licensed by the Central Bank of Nigeria before it can do business in Nigeria. The promoters of the Payment Service Bank shall be required to submit a formal application and make formal presentation of their business proposal for the grant of a licence to do business. The application shall be addressed to the Director, Payments System Management Department.

The Licensing process for Payment Service Bank is in two phases: the Approval-in-Principle stage and the Final Licence stage.

(A) Requirements & Procedure for The Approval-In-Principle Stage

The application to the Director, Payments System Management Department shall be accompanied with the following:

1. A non-refundable application fee of N500,000.00 (Five Hundred Thousand Naira only) in a bank draft, payable to the Central Bank of Nigeria or such other amount that the Central Bank of Nigeria may specify from time to time;

2. Evidence of minimum capital deposit of N5,000,000,000 (Five Billion Naira) with the Central Bank of Nigeria as defined in Section 6.6 of the Guidelines, to be verified by the Central Bank of Nigeria;

3. Evidence of capital contribution made by each shareholder;

4. Evidence of Name Reservation with the Corporate Affairs Commission;

5. Detailed business plan or feasibility report which shall, at a minimum, include:

i. Objectives of the Payment Service Bank;

ii. Justification for applying for the licence;

iii. Proposed ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and their percentage shareholdings;

iv. Detailed biodata, resume/curriculum vitae of proposed shareholders/investors;

v. Indication of sources of funding of the proposed equity contribution for each investor; Please note that where the source of funding the equity contribution is a loan, such shall be a long-term facility of at least 7-year tenor and shall not be taken from the Nigerian banking system;

vi. Corporate Governance (i.e. Board and Committee) Charters of the proposed Payment Service Bank stating the roles and responsibilities of the board and its sub-committees, among other things;

vii. Criteria for selecting board membership;

viii. Board composition, biodata and detailed resumes of the proposed directors and board composition. Please note that the total number of the directors shall be between five (5) and seven (7) (but not more than 13 directors in all), including at least two (2) Non-Executive Directors who shall be independent directors;

ix. Completed Fitness and Propriety Questionnaire and Sworn Declaration of Net worth executed by the proposed directors and significant shareholders;

x. Tax Clearance Certificate (TCC) and Bank Verification Numbers (BVNs) of proposed directors and significant shareholders of the of Payment Service Bank;

xii. Organizational structure, showing functional units, responsibilities, reporting relationships and grade of heads of departments/units;

xii. List of proposed top management staff (AGM and above) and their detailed resumes, stating qualification (including photocopies of academic and professional credentials), experience, and records of accomplishments, etc.;

xiii. A schedule of services to be rendered by the Payment Service Bank;

xiv. Sales, distribution and marketing strategy of the Payment Service Bank showing geographic coverage;

xv. Five-year financial projection on the operations of the proposed Payment Service Bank indicating expected growth, profitability, and details of the assumptions that form the basis of the financial projection;

xv. Details of Information Technology (IT) facilities/infrastructure proposed to be deployed; and

6. For corporate investors, promoters shall forward the following additional documents:

(a)  Certificate of Incorporation and certified true copies of other incorporation documents;

(b)  Board resolution supporting the company’s decision to invest in the equity shares of the proposed bank;

(c)  Names and addresses (business and residential) of owners, directors and their related companies, if any; and

(d)  Audited financial statements & reports of the company and Tax Clearance Certificate for the immediate past 3 years.

7. Draft copy of the company’s Memorandum and Articles of Association (“MEMART”). At a minimum, the MEMART shall contain the following information:

i. Proposed name of the Payment Service Bank;

ii. Object clause which shall be limited to the permitted activities of its licence;

iii. Subscribers to the MEMART;

iv. Procedure for amendment;

v. Procedure for share transfer or disposal; and

vi. Appointment of directors.

8. A written and duly executed undertaking by the promoters that the Payment Service Bank will be adequately capitalized for the volume and character of its business at all times, and that the Central Bank of Nigeria shall have the power and authority to supervise and regulate its operations;

9. For regulated foreign institutional investors, the Central Bank of Nigeria shall require a no-objection letter from the regulatory body in the home country of the corporate investor.

10. Shareholders’ agreement providing for disposal/transfer of shares as well as authorisation, amendments, waivers, reimbursement of expenses, etc.

11. Statement of intent to invest in the Payment Service Bank to be made by each investor;

12. Technical Services Agreement, where applicable.

13. Detailed Manuals and Policies, particularly:

a. Manual of Operations;

b. Asset/Liability Management Policy (ALM Policy) that highlights the bank’s permissible assets and liabilities, sets the standards for managing its interest rate, duration risk and liquidity risk, and delineates the composition, duties, and operational procedures for the bank’s Asset/Liability Management Committee;

c. Financial Management Policy that highlights the Payment Service Bank’s financial management policies and procedures, and system of internal controls. The Policy should include, at a minimum:

i. Accounting policies and principles;

ii. Roles and responsibilities of the senior management officials responsible for financial management;

iii. Treasury operations, including funds management, vouchers, payroll and procurement;

iv. Financial record keeping and reporting; and

v. Auditing and periodic testing of internal controls.

d. Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Policy;

e. Enterprise-Wide Risk Management Framework;

f. Code of Ethics and Business Conduct that specifies high standards for honesty, integrity, and impartiality for the bank’s employees, officers, and directors and provides guidance on avoiding conflicts of interest, self-dealing, and other types of impropriety as specified in the Banks and Other Financial Institutions Act 2020 or by the Central Bank of Nigeria. Please note that every director and officer of the bank shall be required to sign the Code of Ethics and Business Conduct; and,

f. Any other document/information that the Central Bank of Nigeria may require from time to time.

The licensing procedure is simple. Following the receipt of the Application with complete and satisfactory supporting documents listed above, the Central Bank of Nigeria may interview the promoters, proposed directors and senior management personnel in the course of processing the application for the Approval in Principle. The Central Bank of Nigeria will review the documents submitted to satisfy itself on the representations made or information and documents furnished by the promoters.

If satisfied with the application, the Central Bank of Nigeria will communicate its decision to the Applicant within 90 days by granting an Approval in Principle to register a Payment Service Bank. (See Paragraph 6.1 of the Guidelines). Please note that an Approval in Principle is not an authority for the promoters to commence operations or perform any of the permissible activities of Payment Service Bank except only those activities stated in the Approval in Principle Letter.

Promoters of a Payment Service Bank shall not incorporate it as a company until an Approval-in-Principle has been obtained from the Central Bank of Nigeria, a copy of which shall then be presented to the Corporate Affairs Commission for the purpose incorporating the Payment Service Bank.

(B) Requirements & Procedure for The Final Licence Stage

Not later than six (6) months after obtaining the Approval-in-Principle, the promoters of a proposed Payment Service Bank shall apply to the Central Bank of Nigeria for the grant of a final licence.

The application for Final Licence to the Director, Payments System Management Department shall be accompanied with the following:

1. Non-refundable licensing fee of N2,000,000 (Two Million Naira only), in bank draft payable to the Central Bank of Nigeria;

2. Certified True Copy (CTC) of Certificate of Incorporation of the Payment Service Bank;

3. Certified True Copy (CTC) of Memorandum and Articles of Association of the Payment Service Bank;

4. Certified True Copy (CTC) of CAC 1.1 or Status of Registration Application by CAC;

5. Evidence of location of Head Office (rented or owned) for the take-off of the business;

• Schedule of changes, if any, in the Board and Shareholding after the grant of Approval-in-Principle;

7. Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, to perform the bank’s operations and meet the CBN and other regulatory requirements;

8. Copies of letters of offer and acceptance of employment in respect of the management team;

9. Detailed resumes of top management staff;

10. Completed Fitness and Propriety Questionnaire and Sworn Declaration of net worth executed by top management staff;

11. Bank Verification Number (BVN) and Tax Clearance Certificate of each top management staff;

12. Comprehensive plan on the commencement of the bank’s operations with milestones and timelines for roll-out of key payment channels; and

13. Board and staff training programme.

Will there be Physical Inspection of the Applicant’s Office by the Central Bank of Nigeria before granting licence to Payment Service Bank?

Yes. As a requirement to the grant of final licence, the CBN shall conduct an inspection of the premises and facilities of the proposed bank to, amongst others:

a. Check the physical structure of the office building and infrastructure provided for take-off of the Payment Service Bank;

b. Sight the original copies of the documents submitted in support of the application for license;

c. Meet with the Board and Management team whose resumes had earlier been submitted to the CBN;

d. Verify the capital contributions of the promoters; and

e. Verify the integration of its infrastructure with the National Payments System.

 If satisfied with the promoters’ status of compliance with the above requirements for the application for Final Licence as well as the organizational, security, infrastructural, risk and management and internal control arrangements, the Central Bank of Nigeria may grant a Final Licence to operate Payment Service Bank. (See Paragraph 6.3 of the Guidelines).

Where a Final Licence is granted subject to conditions subsequent, the directors of the Payment Service Bank shall, within such prescribed period, comply with those conditions to the satisfaction of the Central Bank of Nigeria, as the latter may deem appropriate in the circumstance(s).

Are there special requirements for board structure and composition for a Payment Service Bank in Nigeria?

Paragraph 4.1 of the Supervisory Framework for Payment Service Banks 2021 provides detailed requirements for appointing directors of a Payment Service Bank and they are as follows:

(a)  The Procedure for appointment to the Board shall be formal, transparent and documented in the Board Charter.

(b)  Members of the Board of Directors shall be appointed by the shareholders of the Payment Service Bank and approved by the CBN.

(c)  The size of the Board of any Payment Service Bank shall be limited to a minimum of five (5) and a maximum of thirteen (13).

(d)  The Board of a Payment Service Bank shall have at least one (1) Non-Executive Director as Independent Director. For publicly listed Payment Service Banks, the provisions of the Companies and Allied Matters Act 2020 shall apply.

(e)  The Board shall reflect diversity in its composition. Both genders shall be adequately represented on the Board.

(f)  Members of the Board shall be qualified persons of proven integrity and shall be knowledgeable in business, financial matters and/or information technology.

(g)  At least two (2) non-executive directors shall be required to have banking or related financial industry experience.

(h)  Not more than two members of an extended family shall be on the Board of a Payment Service Bank, its subsidiary or Financial Holding Company (HoldCo) at the same time. Furthermore, only one extended family member can occupy the position of either MD/CEO, Chairman or ED at any point in time. The expression “extended family” includes director’s spouse, parents, children, siblings, cousins, uncles, aunts, nephews, nieces, in-laws and any other construed relationship as to be determined by the Central Bank of Nigeria.

(i)  Prospective directors on the Board of a Payment Service Bank are required to disclose board memberships on boards of other organizations, and current directors shall notify the Board of prospective appointments on boards of other organizations. The Payment Service Bank shall obtain CBN’s approval in both instances.

(j)  A director (except an Independent Non-Executive Director) of a Payment Service Bank may be appointed a Non-Executive Director only within a Holding Company or a Group structure which the Payment Service Bank is a member, provided the aggregate number of directors from the Payment Service Bank at any point in time shall not exceed 30% of the membership of the Board of the holding company and vice versa.

 (k) A director on the Board of a Payment Service Bank shall only be presented for reappointment at the last Annual General Meeting before the expiration of the tenure of such a director.

Are there any special requirements for appointment of board leadership and key management staff of Payment Service Bank?

Yes. There are special considerations for appointing the leadership of the board and management of Payment Service Bank in Nigeria. They are as follows:

1. Chairman of the Board of Directors: The Chairman of the board of directors of a Payment Service Bank shall hold at least a first degree in any discipline with 15 years of post-graduate experience, including business/executive role, 5 years of board experience in financial services, electronic payments and ICT Industry as well as membership of Institute of Directors or any other relevant and recognized professional institute.

Please note that the position of an Executive Vice Chairman shall not be recognized in the board structure of any Payment Service Bank.

2. Managing Director: The Managing Director of a Payment Service Bank in Nigeria must have a minimum of first degree or its equivalent in any discipline plus a higher degree or professional qualification in any business-related discipline or IT related disciplines. The candidate for a Managing Director position must have a minimum of twenty (20) years post-graduate experience, out of which at least fifteen (15) years shall be in the banking industry and electronic payments service and financial inclusion related jobs, and at least 5 years as a senior management staff. The expected experience should span agent network development and expansion, customer service, business development and compliance.

3. Deputy Managing Director: The Deputy Managing Director/Executive Directors shall have a minimum of first degree or its equivalent in any discipline plus a higher degree or professional qualification in any business/IT related discipline. The candidate for the role of Deputy Managing Director shall have a minimum of eighteen (18) years post-graduate experience, out of which at least 12 must have been in banking, electronic payments and financial inclusion related jobs, and at least 2 as General Manager. Evidence of experience in diverse areas such as agent network development, customer service, banking operations and compliance shall be provided for the candidate.

A Deputy Managing Director/Executive Director of a Payment Service Bank must have served for a minimum of two (2) years in the said bank for him/her to be qualified for appointment as a Managing Director.

3. Non-Executive Director (Other Than The Chairman): A Non-Executive Director shall possess a first degree or its equivalent in any discipline, membership of Institute of Directors or any other relevant and recognized institute, a minimum of 15 years’ post-graduate experience; proven skills and competencies in their fields; knowledge of the operations of banks/electronic payments business and relevant laws and regulations guiding the financial services industry; and ability to interpret financial statements and make meaningful contributions to board deliberations;

Please note, however, that a candidate with limited academic and professional qualification or experience may be approved by the Central Bank of Nigeria for the role of a Non-Executive Director in deserving circumstances. In considering nominees with limited academic/professional qualifications and industry experience, the Central Bank of Nigeria usually consider the following:

i. Direct involvement of the nominee in an established business enterprise with total assets of not less than N300million.

ii. The quality of courses and seminars attended in the last five (5) years prior to his nomination.

iii. The size, scope and complexity of the institution;

iv. The relevant experience and qualifications of other Board members;

v. The existence and number of Independent Directors on the Board;

vi. An assurance that the proposed director(s) would be exposed to accelerated training over a short period of time; and

vii. Assignment of responsibilities commensurate with their experiences.

4. Independent Non-Executive Director: An Independent Non-Executive Director must have a minimum academic qualification of first degree or its equivalent with not less than 15 years of relevant working experience, sound knowledge of the operations of listed companies, the relevant laws and regulations guiding the industry and membership of Institute of Directors or any other relevant and recognized professional institute and a proven skills and competencies in their fields.

All the requirements Non-Executive Directors shall apply to the appointment of an Independent Non-Executive Directors.

Please note that an Independent Non-Executive Director shall not:

i. beyond his services on the Board of a Payment Service Bank, provide financial, legal and/or consulting services to the institution or its subsidiaries/affiliates or had done so in the preceding 5 years;

ii. be a current or former employee who had served in the Payment Service Bank in the past and none of his immediate family members should be an employee or former staff of the Payment Service Bank at the senior management level in the preceding 5 years

iii. be part of management, executive committee or board of trustees of an entity, charity or otherwise, supported by the Payment Service Bank;

iv. serve on the Board of a subsidiary or affiliate of the Payment Service Bank.

5. Chairman of Board Audit & Risk Management Committee (BARMAC): A Chairman of Board of Audit & Risk Management Committee (BARMAC) must have a minimum academic qualification of first degree or its equivalent with not less than 15 years of post-graduate experience out of which must be at least 5 years board experience in Financial Services/Electronic Payments Industry.

For continued retention in the role, in addition to performance on the position, the Chairman, BARMC shall provide evidence of at least forty (40) hours of Mandatory Continuous Professional Training (MCPT) on Leadership, Strategic Management, Corporate Governance as well as specific areas of the board.

6. Chairman of Remuneration Committee (REMCO): The Chairman of Remuneration Committee of a Payment Service Bank must have a minimum academic qualification of first degree or its equivalent with not less than 15 years of post-graduate experience, out of which must be not less than 5 years board experience in Financial Services Industry.

7. Chairman of Nomination Committee: The Chairman of the Nomination Committee of a Payment Service Bank must have a minimum academic qualification of first degree or its equivalent with not less than 15 years of post-graduate experience within the Financial Services Electronic Payments Industry.

8. Executive Director, Risk: The Executive Director, Risk must have a minimum academic qualification of first degree or its equivalent with not less than 18 years of post-graduate experience (out of which must be at least 13 years of banking industry with not less than two (2) years as a general manager. Evidence of experience in diverse areas such as agent network development, customer service, banking operations and compliance shall be provided by the candidate.

9. Executive Compliance Officer: The Executive Compliance Officer of Payment Service Bank must have a minimum academic qualification of first degree or its equivalent with not less than 18 years of post-graduate experience (out of which must be at least 13 years of banking industry with not less than two (2) years as a general manager. Evidence of experience in diverse areas such as agent network development, customer service, banking operations and compliance shall be required of the candidate.

10. Chief Financial Officer: The Chief Financial Officer of Payment Service Bank must have a first degree or equivalent in any discipline and professional certification such as ACCA, ACA, ANAN, CFA, etc. with minimum of 10 years of post-qualification experience in Finance & Performance Management role within the Financial Services Industry out of which at least 5 years must have been at a senior management level.

11. Head, Internal Audit: The Head of Internal Audit of a Payment Service Bank must have a first degree or equivalent in any discipline and professional certification such as ACCA, ACA, ANAN, CFA, etc. with minimum of 10 years of experience in Financial Management/Accounting role, out of which at least 5 years must have been at a senior position within the audit function.

12. Chief Risk Officer: The Chief Risk Officer of a Payment Service Bank must have a first degree or equivalent in any discipline and a professional certification will be an added advantage. He or she must also possess a minimum of 15 years post qualification experience in risk management or related area within the Financial Services or Information Technology Industry, of which at least 7 years must have been spent in the Banking Sector and 5 years must have been at senior management level.

13. Chief Compliance Officer: The Chief Compliance Officer of a Payment Service Bank shall possess a first degree or its equivalent in any discipline and membership of International Compliance Association will be an added advantage. He or she must possess a minimum of 15 years of post-graduation qualification experience in Risk/Control functions within the Financial Services and Electronic Payments Industry.

For continued retention in the role, in addition to general performance on the job, the CCO shall provide evidence of at least forty (40) hours of Mandatory Continuous Professional Training (MCPT) in Financial Reporting, Cyber security, Regulatory management and AML/CFT related programs.

14. Chief Treasurer: The Chief Treasurer of a Payment Service Bank must have a first degree or its equivalent in any discipline and relevant professional certification e.g. ACI or Treasury Dealership Certificate and a Minimum of 15 years post-graduation experience out of which 8 years must have been spent in treasury related function.

15. Money Laundering Reporting Officer: A Money Laundering Reporting Officer must have a first degree and relevant certification in Anti-Money Laundering/Combating Financial Terrorism and at least 10 years post qualification experience.

16. Chief Information Security Officer (“CISO”): A Chief Information Security Officer must have a university degree and relevant IT security/Audit certification and at least 10 years post qualification experience with 5 years in senior Management position and not less than 5 years in IT security/Audit certification role.

Are there any special requirements or conditions for a Payment Service Bank to meet before commencement of operations?

Yes. A Payment Service Bank shall, through a letter, inform the Central Bank of Nigeria of its readiness to commence banking operations and such information shall be accompanied by one copy each of the following:

i. Shareholders’ Register;

ii. Share certificate issued to each investor;

iii. Opening statement of affairs signed by at least two (2) directors and auditors;

iv. Enterprise Risk Management Framework (ERMF);

v. Internal control policy;

vi. Minutes of pre-commencement board meeting; and

vii. Evidence of integration of the bank’s infrastructure with the National Payments System.

Please note that a Payment Service Bank shall maintain adequate accounting system and keep records that capture information which reflect the financial condition of the bank.

What should investors know about declaration or payment of dividends by Payment Service Bank?

Declaration and payment of dividends by Payment Service Banks are regulated by the CBN Guidelines. A Payment Service Bank shall not declare or pay dividend on its shares until it has:

i. Completely written-off all its preliminary and pre-operational expenses;

ii. Made adequate provisions to the satisfaction of the CBN for actual and contingent losses;

iii. Satisfied the minimum Capital Adequacy Ratio requirement as stipulated in Section 9.3 of the Regulation which states that the capital adequacy ratio of a Payment Service Bank shall be measured as the percentage of its shareholders’ funds unimpaired by losses to its total risk weighted assets. The minimum Capital Adequacy Ratio (Qualifying Capital/Total Risk Weighted Assets) for a Payment Service Bank shall be 10% or as may be prescribed by the CBN from time to time.

iv. Met all matured obligations;

v. Comply with all relevant CBN regulations on dividend payments; and

vi. Obtained the approval of the CBN in respect thereof.

Are there specific guiding principles for conducting the business of a Payment Service Bank in Nigeria?

Yes. The following conditions shall guide business conduct between Payment Service Banks, their parent companies and other related entities (where applicable):

i. A parent company or any other related entity of a Payment Service Bank, which renders services to its Payment Service Bank shall extend similar services to other entities that so desire on the same terms and conditions. In other words, all intra-group transactions shall be at arms-length.

ii. A parent company or any other related entity of a Payment Service Bank is prohibited from offering any preferential treatment, which negates fair competition, to its subsidiary. Please note that preferential treatment by a parent company or any other related entity shall, among others, include:

a. Precluding its subsidiary’s competitor from using its infrastructure or services;

b. Offering lower quality of service to its subsidiary’s competitors;

c. Offering such infrastructure or services at differential pricing; or

d. Precluding any specific infrastructure or service as may be prescribed by the CBN from time to time.

iii. The parent/associate/related entities of a Payment Service Bank shall not engage in discriminatory and/or differential pricing in products/services offered to other Payment Service Bank and/or CBN licensed institutions.  

iv. Failure of a parent company or any other related entity to abide by these fair competition clauses may lead to revocation of license of the Payment Service Bank.

v.  All services between the parent company and subsidiary shall be guided by service level agreements and/or shared services agreements which shall be submitted for Central Bank of Nigeria approval prior to implementation.

vi. A Payment Service Bank shall establish coordinating centres in clusters of outlets to superintend and control the activities of the various financial service touch points and banking agents;

vii. A Payment Service Bank shall be technology-driven and shall conform to best practices on data storage; security and integrity; and

viii. A Payment Service Bank shall set up consumer help desks (physical and online) at its main office and coordinating centres.

Are there Know-Your-Customer (KYC) Requirements for Payment Service Bank?

All Payment Service Banks shall comply with relevant provisions of the Money Laundering (Prohibition) Act, 2011 (as amended), Terrorism Prevention Act, 2011 (as amended), CBN AML/CFT Regulations for Banks and Other Financial Institutions 2013, other extant laws and regulations on KYC issued by the CBN. See Paragraph 11 of the Guidelines.

Also, all Payment Service Banks shall adopt risk-based approach in the conduct of KYC and ensure that every customer complies with the KYC requirements. All accounts shall be subjected to continuous suspicious transactions monitoring and any suspicious transaction shall be reported to the appropriate agency. See Paragraph 11.1 of the Guidelines.

Payment Service Banks shall maintain robust, effective and efficient AML/CFT software solutions to monitor thresholds as may be prescribed by the Central Bank of Nigeria from time to time. They must also designate officers to monitor compliance. See Paragraph 11.2 of the Guidelines.

For the purpose of KYC, customers under the Tier 1 account category shall require name and phone number as identification requirements. Tiers 2 and 3 account category customers shall be required to comply with the requirements of Tiered KYC. See Paragraph 11.3-4 of the Guidelines.

Are there Data Infrastructure and Cyber Security Standards for Payment Service Bank to comply with?

Yes. A Payment Service Bank shall comply with the provisions of the Nigerian Financial Services Industry IT Standard Blueprint and the Risk Based Cyber Security Framework as well as all other regulations the Central Bank of Nigeria may issue regarding ICT infrastructure for payment banks.

Also, in line with the Nigerian Financial Services Industry IT Standard Blueprint, a Payment Service Bank shall maintain level 3 maturity where IT Standards are defined, documented, Integrated into organizational practices via policy and procedures, Communicated through training and ensure that automation and tools are not used in a limited and fragmented way.

A PSB shall also comply with the following standards:

Source: Central Bank of Nigeria

What are the grounds for revocation of Payment Service Bank Licence?

By Paragraph 15 of the Guidelines, the licence of a Payment Service Bank may be revoked by the Central Bank of Nigeria subject to any of the following conditions:

i. Failure to comply with any of the provisions of the Payment Service Bank Guidelines or other circulars and Guidelines issued by the Central Bank of Nigeria from time to time.

ii. Failure to comply with the provisions of the Banks and Other Financial Institutions Act 2020 or any other relevant law.

iii. Voluntary liquidation by a Payment Service Bank with prior written approval of the Central Bank of Nigeria.

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We are a commercial law firm in Nigeria with network of lawyers and consultants in Ghana, Kenya and Rwanda. We assist clients on business registrations and licensing across multiple jurisdictions.

The above article is not legal advice and does not automatically make our readers our clients unless they specifically instruct us to act or represent them in any way.

Please contact Koriat & Co. through admin@koriatlaw.com or 09067842241 if you require additional information about or assistance on incorporation and processing of a Fintech licence.