HOW TO SET UP A PAYMENTS TERMINAL SERVICES PROVIDER (PTSP) COMPANY IN NIGERIA

Introduction

Payments Terminal Service Provider (“PTSP”) companies are some of the major drivers of the Nigerian payments sub-sector. According to a 2022 report by Insider Intelligence, Nigeria (with record 3.7 billion transactions) ranked 6th amongst top 10 countries in the world (and the 1st in Africa) with the biggest real-time payment market by transactions, above the United Kingdom (3.4 billion) and the United States (1.8 billion). As of January 2023, according to the Nigeria Inter-Bank Settlement Systems (“NIBSS”), the total digital payment transactions in Nigeria rose to N38.7 trillions (about US$84 billion), making Nigeria one of the leading countries in Africa with the highest digital payment transaction value. As consultants, the number of requests and enquiries we have received to set up payments services companies assure us that the world is looking at the Nigerian payments space for investment.

Digital payment transactions in Nigeria are accelerated by a number of factors such as the global pandemic experience, technology infrastructural developments and the commitment of the Federal Government of Nigeria to cashless economy and financial inclusion. The Nigerian payment system trajectory has been visibly commendable though not without some teething problems, which are attributable mainly to policy miscalculations. Electronic payments got a huge boost in Nigeria in 2022 as a result of the Cash Withdrawal Limit policy introduced by the Central Bank of Nigeria (“CBN”), which forced the entire country’s population to embrace digital payment platforms for their daily transactions, though created a lot of stress and panic nationwide until the policy was suspended by the Supreme Court in March 2023. 

With the recent investments of the two US tech giants in Nigeria, the Google’s Equiano submarine cable and Elon Musk’s Starlink, amongst others, Nigerians are expected to soon experience an enhanced broadband penetration in rural areas where the telecommunication companies could not cover. As a result of the above, real-time payment transactions are projected to rise to 8.8 billion annually by 2026 (moving to 4th position), with potential to unlock US$6 billion of additional GDP. The relative political stability (Nigeria has transitioned between democratically elected governments since 1999), technological infrastructure development and friendly regulatory environment, Nigeria remains a destination for payment system business amongst African countries.

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What are the permissible business activities that a PTSP licensee can do in Nigeria?

A PTSP licence is one of the sub-categories of payments system licence in Nigeria announced by the CBN via its Circular Ref No. PSM/CIR/GEN/CIR/01/22 dated 9th December 2020. The PTSP licence is a sub-licence under the Payment Solution Services (“PSSs”) category which can be obtained either alone or together with the other licences under the PSSs.  

Please note that a PTSP licence permits its holder to engage in point of sale (“PoS”) terminal deployment and services, PoS terminal ownership, PTAD, merchant/agent training and support. Please note also that merchants can also own PoS terminals in Nigeria, but the deployment and support for such PoS terminals shall be through a licensed PTSP company.

As of 2022, there were about 36 licensed PTSP companies in Nigeria. This figure implies that there is still a huge gap for potential investors to fill in the payments system sub-sector of the country.

What are the other related payment system licences and what business activities do they cover?

Apart from the PTSP licence, the other licences under the PSSs category are the Payment Solutions Service Provider (“PSSP”) and the Super Agent licences. The PSSP license permits its holder to engage in payment processing gateway and portals, payment solution/application development, merchant services aggregation and collections; whilst the Super Agent licence permits its holder to undertake agency banking business, agent recruitment and other activities as specified in the Regulatory Framework for Agent Banking in Nigeria.

READ MORE ABOUT ABOUT PSSP LICENCE AND SUPER AGENTS LICENCE BELOW:

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It is important to mention that a PSS licensee (or any holder of a sub-licence under the PSS category, like PTSP licence or PSSP or Super Agent) is not permitted to create electronic wallets, hold customer’s funds in savings wallets or to issue e-money or provide any wallet-related services. If a payments system company intends to do any of the foregoing, then it is required to apply for and obtain a Mobile Money Operations (MMO) licence from the CBN.

Please note that an MMO company must be registered with the Corporate Affairs Commission (“CAC”) with a paid up share capital of N2billion (as against the N100 Million paid up share capital which is applicable to a PTSP company or PSSP).

PLEASE READ MORE ABOUT MMO LICENCE FROM BELOW:

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A company may hold any of PSSP, PTSP and Super Agents licence by applying for each of them separately or a combination of all the licences by applying for the PSS licence.

Please note that where a licensed payment service provider is seeking any other CBN license, the said payments company is required to first obtain a No-Objection Approval from the CBN through the PSMD before submitting application for the new licence.

Please note also that collaborations between licensed payments companies, banks and other financial institutions or technology companies in respect of any payments system products and services are subject to CBN’s prior approval before the commencement of joint business under such collaboration arrangement.

What is the procedure for incorporation and obtaining the PTSP licence in Nigeria?

Just like every other CBN-regulated business, the promoters of a PTSP company are required to first obtain a provisional approval from the CBN before incorporating a PTSP company or converting an existing business to a PTSP business. For an already incorporated company, if registered for a different kind of business, the promoters may need to regularize the company’s records, where necessary, by filing the relevant post-incorporation changes in respect of the business description of the company to reflect only permissible activities of a PTSP, the board appointment to ensure the number of directors is up to the required minimum, the increase of share capital to bring it up to N100 Million and so on as applicable.

Where a new PTSP company is to be incorporated, the promoters of the company may not be able to complete the company’s incorporation with the CAC unless they have first obtained the CBN’s Approval-In-Principle (“AIP“). Usually, the promoters will first apply to the Corporate Affairs Commission (“CAC”) for the company’s name availability check and screening in order to confirm if the proposed name is available for use or has been previously registered. Once the CAC approves the company’s name, then the promoters can proceed to apply to the CBN for the AIP mentioned earlier.

Please note that, in practice, payment for the company’s incorporation may be made to avoid expiration of the reserved name even though the approval for incorporation will be pending until the promoters present the AIP from the CBN.

The application letter for the AIP (for PTSP licence) is to be addressed to Director, Payments System Management Department (“PSMD”), Central Bank of Nigeria and accompanied with the following:

1. Incorporation Documents: The following incorporation documents, which are to be certified by the CAC must accompany the Application:

i. Certificate of incorporation;

ii. Memorandum and Articles of Association (“MEMART”). Please note that the object clause in the MEMART must be limited to the permissible activities of a PTSP company as set out in the CBN Guidelines;

iii. Status Report of the Company from the CAC showing allotment of shares and that the paid-up share capital of the company is up to N100,000,000 (One Hundred Million Naira) as well as the particulars of the Directors, the Shareholders and Persons with Significant Control (“PSC”) of the company.

Please note that the above incorporation documents are not required for a new company applicant except a draft MEMART.

However, if the applicant company has been registered with a different object clause or lesser share capital than =N=100m, it is important to pass the necessary resolutions and file all the necessary post-incorporation changes in the company’s records, for example to change or limit the object clause of the company to “payment processing gateway and portals, payment solution/application development, merchant services aggregation and collections” or to file annual returns of the company or to increase the share capital to =N=100m as the case may be. The foregoing may entail a filing cost of about =N=1,500,000 (One Million, Five Hundred Thousand Naira) payable as registration fee to the CAC and stamp duty to the Federal Inland Revenue Service (“FIRS”), depending on the state of the company.

Please note that in practice, all the necessary post-incorporation changes must be completed (except the amendment of the MEMART) before making application for the PTSP License to the CBN. The proposed amendment to the MEMART must first be approved by the CBN before it can be filed with the CAC otherwise the CBN may query the application based on failure to seek prior approval for such filing.

2. Financial Related Documents: The following documents must be presented with the Application:

i. Audited financial statement of the applicant company;

ii. Statement of paid up capital and plan for future increase;

iii. Proof of payment of the shareholders’ (Escrow) fund of N100,000,000 (One Hundred Million Naira), in one lump sum and in the company’s name, into CBN PSP Share Capital Deposit Account No. 1000014009 by CBN Real Time Gross Settlement (“RTGS”). Please note that the N100,000,000 is refundable and may be invested pending approval/grant of final license. Both the fund and interest (if any) will be refunded upon the grant of the licence, after deduction of administration fee from the interest; and

iv. Proof of payment in the name of the applicant of non-refundable Application Fee of N100,000 (One Hundred Thousand Naira) to CBN via the Licensing Fees for Payment Products Account No. NGN140230089/ABJ by RTGS.

Please note that after the grant of the AIP, the applicant company will be required to pay the Licensing Fee of N1,000,000 (One Million Naira) before the issuance of the final license.

3. Business Related Documents: The other business related documents that must accompany the Application include:

i. The Company’s profile detailing whether it is private or public limited liability company; the current business operations, products and services; Holding or Parent Company (if any); details of ownership and name(s) of person(s) with significant control (if any) or any significant changes in ownership in the last two (2) years; total number of staff; organogram; functional address including email address(es) and phone number(s); and proof of, at least, one (1) Non-Executive Director on the company’s board, which must be composed of at least five (5) directors.

ii. Proposed Business Plan and Feasibility Study Report detailing the nature of business, features of the scheme, security features to be put in place, three (3) years’ financial projections; details of transactions and applicable charges that will be borne by users/customers; profit-sharing agreement between or amongst the partners; and diagrammatic illustration of transaction flows.

iii. Information Technology Policy of the Company which must include the following:
a. Privacy Policy
b. Information Ownership/Disclosure/Loss Policy
c. Backup and Restore Policy
d. Network Security Policy
e. Encryption Policy
f. Confidential Data Policy
g. Password Policy
h. Third Party Connection Policy
i. Incidence Response Policy
j. Physical Security Policy

iv. Escrow Agreement (if applicable).

v. Enterprise Risk Management Framework.

vi. Dispute Resolution Framework/Service Level Agreement.

vii. Contingency and Disaster Recovery Plan (Business Continuity Programme).

viii. Reference letter from bank.

ix. Draft Agreements (if any) with (a) Technical Partners, (b) Participating banks, and (c) Any other party or partner.

x. Tax Identification Number (TIN) and the Tax Clearance Certificate (TCC) for the last three (3) years of the applicant company.

xi. PCIDSS Certification (if applicable).

xii. PADSS Certification or Compliance with CBN IT Standards for Solution Development (if applicable).

4. Personal Details of Directors and Top Management Team: The Directors (including Non-Executive Directors) and Top Management must provide their respective Bank Verification Number (BVN), signed curriculum vitae and photocopy of their means of identity (preferably the data page of their International Passports).

What are the applicable costs for incorporating and licensing a PTSP company in Nigeria?

Below is a table of estimated costs for incorporation and licensing of a PTSP company in Nigeria:

The above costs may vary if the promoters are seeking to apply for the licence through an existing company though it is better, from our experience, to incorporate a new company for any CBN licence to avoid any of the common difficulties associated with business, tax and other histories of the company.

What are the timelines for completion of the process and any other information that investors should know?

All the required documents and payments for the PTSP licence must be made at the time of application, though the license fee of N1,000,000 may be deferred till after the grant of the AIP. Upon submission of application, the applicant company will be scheduled for interview and presentation to a CBN team, usually done virtually.

Please note that the CBN does not reject application for a business licence. If there is any deficiency in the submitted requirements, the CBN will most likely ask the applicant to correct the deficiency or submit any outstanding document or requirement rather than reject the application.

After a successful review of the submitted requirements and interview of the applicant’s team, the directors and senior management staff of the company may be subjected to some security checks and screening by the Department of State Security (“DSS”) for confirmation that these principal officers of the company are without any blemish and proper persons to be licensed by the CBN. Thereafter, an AIP, i.e. a Provisional Licence for PTSP business may be issued by the CBN.

The timeline for the grant of the AIP is usually dependent on some factors, namely: the completeness and compliance of the applicant’s documents with the CBN guidelines, the promptness in responding to CBN’s queries (if any) and how soon the Committee of Governors (COG), the approval authority which acts for the CBN Governor, is able to meet and attend to PSMD’s request for the AIP.

From our experience, the AIP is usually granted between 3 to 6 months.

The AIP does not entitle the applicant company to immediately commence business operation but permits the company to test run, connect the company’s payments system platform to necessary organisations or stakeholders, put in place all necessary security features and verify the functional challenges of the payments terminals.

When the applicant company is ready to go live, the CBN team will return to the applicant’s office to conduct a pre-licence audit at the applicant’s business address, assess the readiness of the applicant and to recommend any adjustment or changes, where necessary. If the CBN team is satisfied with the outcome of the visit and the applicant pays the license fee of N1,000,000, the CBN may issue the Final License and approve commencement of full operations.

The timeline for the issuance of the Final License is usually 3 to 6 months from the date of notification of applicant’s intention to go live, subject, of course, to the other factors mentioned above.

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About KORIAT & CO.

We are a commercial law firm with head office in Lagos, Nigeria. We assist clients from different nationalities in company registration and processing of business licence in Nigeria, Ghana, Kenya, Rwanda and Uganda. We also provide company secretarial services and general legal support for registered businesses.

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 (also WhatsApp) if you require additional information about or assistance in registering or getting a fintech licence in either payment or lending sectors.

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