What is a Payments Service Holding Company in Nigeria?
A Payments Service Holding Company is a type of corporate structure that is required by Nigerian law for a group company that is desirous of holding more than one payment system licence within the Nigeria payments ecosystem. This corporate structure is required by law for group entities that qualify under the regulatory framework for payments system. The principal object clause of a Payments Service Holding Company must be for the purposes of making and managing equity investment in two or more companies, being its subsidiaries, which must be Payments Service Providers across the regulated payments licence categories in Nigeria.
The relevant regulated payment categories that may require to setup a Payments Service Holding Company are two or more of the following businesses:
- Mobile Money Operations;
- Switching and Processing;
- Payment Solution Services; and
- Any other activity as may be approved by the Central Bank of Nigeria.
This mandatory structural arrangement (known as Payments Service Holding Company) is intended to prevent commingling of business activities amongst related business entities, facilitate management of risks and enable the Central Bank of Nigeria to exercise adequate regulatory oversight on all the companies operating within a Group.
What is the main business of a Payments Service Holding Company in Nigeria?
By the Guidelines for Licensing and Regulation of Payments Service Holding Companies in Nigeria 2021 (released on 3rd August 2021) (“2021 Guidelines”), a Payments Service Holding Company shall be a non-operating entity, existing solely to carry out investment in approved subsidiaries (such as financial and technological subsidiaries that facilitate and/or enhance innovative digital financial services) without engaging in the day-to-day management and operations of the subsidiaries. (See Paragraph 5.1 of the 2021 Guidelines).
What are the Permissible and Non-Permissible Activities of a Payments Service Holding Company in Nigeria?
A Payments Service Holding Company can provide broad policy direction, shared services and/or enter into technical or management service contract with any of its subsidiaries, with the prior written approval of the Central Bank of Nigeria. Below are the Permissible Activities in respect of which a Payments Service Holding Company can do the foregoing with any or all of its subsidiaries:
i. Human Resources services;
ii. Risk Management services;
iii. Internal Control services;
iv. Compliance services;
v. Information and Communication Technology;
vi. Legal services;
vii. Facilities (office accommodation including electricity, security, cleaning services in that accommodation); and,
viii. Any other services as may be approved by the Central Bank of Nigeria from time to time.
Please note that shared services between a Payments Service Holding Company and a subsidiary payments service company (and all intra-group transfers of non-current assets) shall be provided (or carried out) in a transparent manner and at arm’s length. All transactions in respect of such services shall require the consent of the board of directors of the subsidiary. (See Paragraphs 5.3 and 6.4 of the 2021 Guidelines).
However, a Payments Service Holding Company is prohibited from undertaking the following Non-Permissible Activities:
i. Establishment, divestment and closure of subsidiaries, without the prior written approval of the Central Bank of Nigeria.
ii. Deriving or receiving income from sources other than as listed herein:
(a) Dividend income from its subsidiaries/associates;
(b) Income from shared services, where applicable;
(c) Interest earned from idle funds invested in government securities or placement with licensed financial institutions;
(d) Patents, royalties and copyrights;
(e) Profit on divestment from subsidiaries/associates; and,
(f) Any other source as may be approved by the Central Bank of Nigeria.
Is there a required minimum paid-up share capital for a Payments Service Holding Company?
Yes. The minimum paid-up share capital of a Payments Service Holding Company depends on the extent of its investment in its subsidiaries. A Payments Service Holding Company is required to have a minimum paid-up capital which must exceed the sum of the minimum regulatory capital/total equity of all its subsidiaries, as may be prescribed from time to time by the Central Bank of Nigeria (where the Payments Service Holding Company owns 100% shares of the subsidiaries).
Where the Payments Service Holding Company owns less than 100% of the shares of its subsidiaries, the minimum paid-up capital of the Payments Service Holding Company must be higher than the summation of its proportionate shareholding in the subsidiaries. It is worthy to mention that the Central Bank of Nigeria will not permit a Payments Service Holding Company to use excess capital in one subsidiary to make up a shortfall in another subsidiary. (See Paragraph 7.1 of the 2021 Guidelines).
Please note that the respective paid-up share capital of the relevant entities that are regarded as subsidiaries of and must be maintained by a Payments Service Holding Company are as follows:
i. Mobile Money Operators (MMO) (N2 Billion Paid-up Share Capital),
ii. Switching and Processing Company (N2 Billion Paid-up Share Capital), and
iii. Payment Solution Service Licence (PSS) (N250 Million Paid-up Share Capital), which is a group licence for services that are permissible under the Payment Terminal Service Provider (PTSP) Licence (N100 Million Paid-up Share Capital), and the Payment Solution Service Provider (PSSP) Licence (N100 Million Paid-up Share Capital).
A Payments Service Holding Company shall ensure that its subsidiaries comply with the minimum capital requirements for each licence category in the group. (See Paragraph 7.1 of the 2021 Guidelines).
What are the points to note about the Structure of a Payments Service Holding Company?
A Payments Service Holding Company must be a corporate body, registered with the Corporate Affairs Commission (“CAC”), and licensed, supervised and regulated by the Central Bank of Nigeria. It must have a board of five (5) to ten (10) directors with at least one (1) director who has considerable experience in payment system services.
For any Payments Service Holding Company structure to emerge, there shall be at the minimum, two subsidiaries, which include a Mobile Money Operator company and a Switching company. (See Paragraph 2.3.2 of the 2021 Guidelines).
A Payments Service Holding Company may acquire controlling interest in any permissible financial and/or technological company, subject to prior approval of the Central Bank of Nigeria, where the controlling interest represents a minimum of 51% of authorized share capital of the entity.
What are the relevant considerations for appointing directors of a Payments Service Holding Company?
As already mentioned, a Payments Service Holding Company shall have a board size of between five (5) and ten (10) directors unless otherwise prescribed by applicable Corporate Governance Guidelines set by the Central Bank of Nigeria. (See Paragraph 2.3.1 of the 2021 Guidelines). The board of directors of a Payments Service Holding Company shall include, at least, an individual with requisite experience in the business(es) of the subsidiary payments service companies within the Group.
The appointment to the board and management positions shall be in line with the requirements of Assessment Criteria for Approved Persons’ Regime For Financial Institutions, or any other applicable regulation, issued by the Central Bank of Nigeria from time to time. Also, the regulations on the disqualification of board and management, applicable to Other Financial Institutions (OFIs), shall apply to Payments Service Holding Company.
In line with the Corporate Governance Guidelines of the Central Bank of Nigeria, relevant provisions of the Company and Allied Matters Act (CAMA) 2020 and the Financial Reporting Council of Nigeria’s Code of Corporate Governance, no Payments Service Holding Company shall appoint:
i. As director, any person, who at the relevant time is a director of any of its subsidiaries, except with the prior written approval of the Central Bank of Nigeria.
ii. Where such an appointment is approved, the aggregate number of directors from the subsidiaries and associates, at any point in time, shall not exceed 30 per cent of the membership of the Board of Directors of the Payments Service Holding Company.
iii. A person who has served as a director (executive or non-executive) for the maximum allowable period as stipulated by the Central Bank of Nigeria, in any subsidiary, or an associate of such a subsidiary until after a minimum period of three (3) years after the expiration of the tenure of such director, and vice versa.
iv. No director of the Payments Service Holding Company shall be a director of the subsidiary, except with the written approval of the Central Bank of Nigeria.
v. Where such an appointment is approved, the number of directors from the Payments Service Holding Company, at any point in time, shall not exceed 30 per cent of the membership of each of the subsidiaries. (See Paragraph 6.3 of the 2021 Guidelines).
Please note that in constituting the Board of Directors of a Payments Service Holding Company in Nigeria, consideration must be given to core competencies in the areas of operation of the subsidiaries.
Can a Payments Service Holding Company Change to a Mono-line Payments Service Provider?
Yes. Changing a Payments Service Holding Company to a mono-line payments service provider may be voluntary or involuntary. The Central Bank of Nigeria may, by order, direct a Payments Service Holding Company to divest from a subsidiary where, in the opinion of the Central Bank of Nigeria, the Payments Service Holding Company is being run in a manner that is detrimental to the subsidiary and/or stability of the financial system. (See Paragraph 2.4. of the 2021 Guidelines).
Also, a Payments Service Holding Company can voluntarily elect to change to a mono-line payments service provider by divesting its interest from a subsidiary company provided that the Payments Service Holding Company seeks the prior approval of the Central Bank of Nigeria before such divestment. (See Paragraph 2.3.4 of the 2021 Guidelines).
In making such application for approval divest, a Payments Service Holding Company shall submit along with its request for approval, the following documents:
a. Annual audited financial statements of the immediate past three years under the arrangement/structure it seeks to discontinue;
b. Divestment plan from subsidiaries; and
c. Any other requirements as may be determined by the Central Bank of Nigeria from time to time.
Is there a Licence for a Payments Service Holding Company in Nigeria? If yes, what are the Requirements and Procedure for Such Licence?
Yes. A Payments Service Holding Company is required to be licensed by the Central Bank of Nigeria. The promoters of the Payments Service Holding Company shall be required to submit a formal application for the grant of a licence. The application shall be addressed to the Director, Payments System Management Department.
Also, a Financial Holding Company, with a payment service provider as a subsidiary, that had been licensed prior to the issuance of the 2021 Guidelines, needs not apply for a Payments Service Holding Company licence.
The Licensing process for Payments Service Holding Company is in two phases: the Approval-in-Principle stage and the Final Licence stage.
The Approval-In-Principle Stage
The application shall be accompanied with the following:
1. A non-refundable application fee of N1,000,000.00 (One Million Naira only) or such other amount that the Central Bank of Nigeria may specify from time to time payable to the Central Bank of Nigeria;
2. Evidence of meeting the prescribed minimum paid-up capital as defined in Section 7.1 of the 2021 Guidelines;
3. Detailed business plan or feasibility report which shall, at a minimum, include:
i. Objectives of the Payments Service Holding Company and those of the subsidiaries it intends to establish/acquire;
ii. Justification for applying for the payments service holding company;
iii. Ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and their percentage shareholdings;
iv. Biodata, resume/curriculum vitae of proposed investors;
v. Indication of sources of funding of the proposed equity contribution for each investor;
vi. Where the source of funding the equity contribution is a loan, it shall be a long- term facility of, at least, a 7-year tenor, and shall not be obtained from the Nigerian banking system or foreign subsidiaries of Nigerian banks;
vii. Corporate Governance Charter of the Payments Service Holding Company stating the roles and responsibilities of the board and its sub-committees, among other things;
viii. Criteria for selecting board membership;
ix. Biodata and detailed resumes of directors and Board composition;
x. List of identified top/senior management staff, biodata and detailed resumes stating qualifications, experiences, records of accomplishment, etc.;
xi. National Government-issued Identity documents (International Passport, etc.) biodata and Bank Verification Numbers (BVNs) of proposed Board and Management staff of the company;
xii. The Tax Identification Number (TIN) of the company and its Tax clearance certificate where applicable;
xiii. A schedule of services that will be shared in the group;
xiv. Five-year financial projection on the operations of the Payments Service Holding Company indicating expected growth and profitability, and details of the assumptions that form the basis of the financial projection;
xv. Details of Information Technology (IT) infrastructure proposed to be deployed; and
xvi. Information on and pictorial representation of the corporate group structure with shareholding percentage by the Payments Service Holding Company in each of the subsidiaries and their principal businesses and registered Head offices.
4. A written and duly executed undertaking by the promoters that the Payments Service Holding Company shall be adequately capitalized for the volume and character of its business at all times, and that the Payments Service Holding Company shall be under the supervisory authority of the Central Bank of Nigeria, as an Other Financial Institution (“OFI”).
5. For regulated foreign institutional investors, the Central Bank of Nigeria shall require a no- objection letter from the regulatory body in the home country.
6. Shareholders’ agreement providing for disposal/transfer of shares as well as authorisation, amendments, waivers, reimbursement of expenses, etc.
7. Statement of intent to invest in the Payments Service Holding Company to be made by each investor in the Payments Service Holding Company.
8. Technical Services Agreement, where applicable.
9. 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 Payments Service Holding Company;
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.
10. Where the promoters of the Payments Service Holding Company are corporate investors, the Central Bank of Nigeria shall require them to forward the following additional documents:
a. Certificate of Incorporation;
b. Board resolution supporting the company’s decision to invest in the equity shares of the proposed Payments Service Holding Company;
c. Names, biometrics, Bank Verification Numbers and addresses (business and residential) of owners, directors and their related companies, if any;
d. Audited financial statements and reports of the company, including Tax Clearance Certificate for the immediate past 3 years;
e. Certified True Copies of the company’s CAC forms showing the details of allotment and particulars of directors; and,
f. Any other document/information that the Central Bank of Nigeria may require from time to time.
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 may also inspect the books and records of a proposed Payments Service Holding Company to satisfy itself about the representations made or information furnished by the promoters.
If satisfied with the application of the promoter(s), the Central Bank of Nigeria may grant an Approval in Principle (“AIP”). (See Paragraph 3.1 of the 2021 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 Payments Service Holding Company except the activities stated in the Approval in Principle Letter.
Promoters of a proposed Payments Service Holding Company shall not incorporate the company until an Approval-in-Principle has been obtained from the Central Bank of Nigeria, a copy of which shall be presented to the Corporate Affairs Commission for that purpose.
The Final Licence Stage
Not later than six (6) months after obtaining the AIP, the promoters of a proposed Payments Service Holding Company shall apply to the Central Bank of Nigeria for the grant of a final licence.
The application for Final Licence shall be accompanied with the following:
1. Non-refundable licensing fee of N5,000,000.00 (Five Million Naira only), or such other amount that the Central Bank of Nigeria may specify from time to time, payable to the Central Bank of Nigeria by electronic transfer;
2. Evidence of promotion or investment of a payment service company;
3. Evidence of payment of capital contribution by each shareholder. Please note that the fitness and propriety of the promoters shall be ascertained through security screening and status enquiry;
4. Evidence of location of Head Office (rented or owned) for the take-off of the Payments Service Holding Company;
5. Schedule of changes, if any, in the Board, Management, IT infrastructure and significant shareholding since the grant of AIP;
6. Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, etc. to perform Payments Service Holding Company operations and meet the guidelines of the Central Bank of Nigeria and other regulatory requirements;
7. Organisational structure, showing functional units, responsibilities, reporting relationships and grade (status) of heads of departments/units; and
8. Board and staff training programme.
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 Payments Service Holding Company. (See Paragraph 3.2 of the 2021 Guidelines).
Where a Final Licence is granted subject to conditions subsequent, the promoters of a Payments Service Holding Company 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). Any Payments Service Holding Company that fails to comply with such conditions shall be deemed to be in contravention of the 2021 Guidelines and the directives of the Central Bank of Nigeria.
What is the lifespan of the Licence of a Payments Service Holding Company?
The Final Licence to operate a Payments Service Holding Company is granted for an indefinite period of time or such period as the Central Bank of Nigeria deems necessary and shall not be transferable.
Is there any Steps a Licensed Payments Service Holding Company in Nigeria need to take before or after commencement of operations?
Before commencement of its permissible activities, the Payments Service Holding Company shall inform the Central Bank of Nigeria of its readiness to commence activities and such information shall be accompanied with one copy of each of the following:
i. Shareholders’ Register;
ii. Share certificate issued to each investor;
iii. Enterprise Risk Management Framework (ERMF);
iv. Internal Control Policy;
v. Minutes of pre-commencement board meeting;
vi. Opening statement of affairs signed by directors and auditors; and
vii. Date of Commencement of Activities
Upon commencement of operations, a Payments Service Holding Company shall –
i. Comply with the extant laws, relevant guidelines and regulations issued by the Central Bank of Nigeria;
ii. Maintain adequate accounting system and keep records that capture all information which reflect the financial condition of the Payments Service Holding Company; and
iii. Ensure that it and all its subsidiaries are adequately capitalised at all times.
iv. Comply with the provisions of applicable Corporate Governance Guidelines of the Central Bank of Nigeria and demonstrate evidence of existence of competent and independent board, with requisite capacity to provide oversight on internal controls and risk management practices.
v. Comply with the provisions of the Securities and Exchange Commission (SEC) Corporate Governance Guidelines for publicly quoted companies and listed entities in Nigeria, where applicable.
vi. Include its audited financial statements among the contents of its website.
(See Paragraph 4.0 of the 2021 Guidelines).
Are there any periodic returns a Payments Service Holding Company is required to file in Nigeria?
Yes. A Payments Service Holding Company is required to render returns to the Payments System Management Department of the Central Bank of Nigeria on a quarterly basis, or in frequency and format, prescribed by the Central Bank of Nigeria from time to time.
The quarterly or other periodic returns shall include information on:
i. Compliance with corporate governance guidelines;
ii. Whistle blowing;
iii. Assets and liabilities of the Payments Service Holding Company and its subsidiaries;
iv. Risk management;
v. Internal control; and
vi. Intra-group transactions.
Is there any limit on the Contingent Liabilities of a Payments Service Holding Company in Nigeria?
Yes. A Payments Service Holding Company’s total exposure on contingent liabilities on behalf of its subsidiaries shall not exceed 20% of the payments service holding company’s shareholders’ funds unimpaired by losses.
What are the relevant considerations for acquisition of subsidiaries or Investment in Non-Current Assets by a Payments Service Holding Company in Nigeria?
In determining the acquisition of subsidiaries, the Central Bank of Nigeria shall be satisfied that a Payments Service Holding Company has adequate capital resources by way of free funds to carry out the acquisition. Also, a Payments Service Holding Company shall ensure that it has adequate free funds to support any acquisition of non-current assets (property, plant and equipment, IT infrastructure/ platforms, etc.)
Free funds mean shareholders’ funds less investment in non-current assets, equities in other financial institutions and unaudited losses.
In all cases, the consideration for the acquisition of subsidiaries shall be on cash basis only or any other arrangement proposed by the Payments Service Holding Company and approved by the Central Bank of Nigeria.
Is there any restriction on payment of Dividends by a Payments Service Holding Company in Nigeria?
Yes. A Payments Service Holding Company shall not pay dividends on its shares except:
i. All its operational, preliminary and organisational expenses, losses incurred and other capitalised expenses, not represented by tangible assets (excluding goodwill), have been completely written off.
ii. Adequate provisions have been made to the satisfaction of the Central Bank of Nigeria for actual and contingent losses.
iii. It has complied with any capital requirements as stipulated in Section 7.1 of these Guidelines.
Are there any limits on the Business with or Control of a Payments Service Holding Company over the Internal Management of its Subsidiaries?
Yes. A Payments Service Holding Company shall not:
i. Arrogate to itself any of the powers or functions of the Board of Directors, or internal management responsibilities and obligations, of any of its subsidiaries or associates of any such subsidiary;
ii. Interfere in the day-to-day activities of the subsidiaries;
iii. Be involved in the administration and approval process of its subsidiaries, if applicable;
iv. Require its subsidiaries or any of its agents to take directives or act on the instructions of the Payments Service Holding Company in its internal decision-making process, without prejudice to the definition of control as defined in the 2021 Guidelines.
v. Have any of its officers or employees, while in the employment of the Payments Service Holding Company, work for any subsidiary, except employees engaged in shared services arrangements;
vi. Engage the services of any employee of any of its subsidiaries;
vii. Purchase/dispose assets from/to its subsidiaries, without the prior written approval of the Central Bank of Nigeria.
viii. Engage in any transaction or maintain any business relationship with any of its subsidiaries, except such transaction or business is at arm’s length;
ix. Borrow from the Nigerian banking system for the purpose of capitalizing itself or any of its subsidiaries.
What are other points to note on Ownership and Control of a Payments Service Holding Company and its Subsidiaries?
It is important to note that a prior approval of the Central Bank of Nigeria is required for any shareholding to acquire up to 5% shares and above, or any change in ownership which results in change in control of the Payments Service Holding Company. Where such shares are acquired through the secondary market, the Payments Service Holding Company shall apply for approval from the Central Bank of Nigeria within seven (7) days of the acquisition. (See Paragraph 4.1(a) of the 2021 Guidelines).
Please note also that subsidiaries of a Payments Service Holding Company are prohibited from acquiring shares in the Payments Service Holding Company. The subsidiaries of a Payments Service Holding Company are also prohibited from acquiring shares of other subsidiaries of their parent Payments Service Holding Company.
For the purpose of the foregoing restrictions, “subsidiaries” include those of intermediate companies.
What events can lead to the loss of licence or status of a Payments Service Holding Company in Nigeria?
Where a Payments Service Holding Company loses control of any of the two payments services subsidiaries – switching and processing company or mobile money operator (within the group) for a period exceeding six (6) consecutive months, the Payments Service Holding Company shall cease to be a Payments Service Holding Company and will be required to return its licence to the Central Bank of Nigeria for cancellation.
Also, where a Payments Service Holding Company with only two subsidiaries, loses its controlling interest in either of the subsidiaries, for a period exceeding six (6) consecutive months, the Payments Service Holding Company shall cease to be a Payments Service Holding Company and will be required to return its licence to the Central Bank of Nigeria for cancellation.
Please note that where a Payments Service Holding Company loses controlling interest in either two or one subsidiary, as stated above, and subsequent to the cancellation of its licence, the Payments Service Holding Company shall divest wholly and completely from the relevant subsidiary within a period of six (6) months or any other period as may be determined by the Central Bank of Nigeria, to enable the subsidiary continue operations as an independent entity.
Lastly, where a Payments Service Holding Company loses controlling interest in a subsidiary under 4.1 (d) or (e) of the 2021 Guidelines, and the subsidiaries include a Switching and Processing company, and Mobile Money operator, the former and the latter shall continue to operate independent of one another.
For the purpose of the above, “control” is as defined by IFRS 10, i.e.:
i. Power over the investee, where the investor has existing rights that gives it the ability to direct activities that significantly affect the investee’s returns;
ii. Exposure, or rights to variable returns from involvement in the investee; and
iii. The current ability to use power over the investee to affect the amount of the investor’s returns.
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About KORIAT & CO.
We are a commercial law firm in Nigeria with network of lawyers and consultants in Ghana, Kenya and Rwanda. 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.
We assist local and foreign clients to process company registration and business licences in Nigeria, Ghana, Kenya and Rwanda.
Please contact Koriat & Co. through admin@koriatlaw.com or 09067842241 if you require additional information about or assistance in making the application for a payments service licence.
