HOW TO SET UP A PAYMENTS SOLUTION SERVICE PROVIDER (PSSP) COMPANY IN NIGERIA

Section A: Preliminary Points on PSSP Licence in Nigeria

As digital payment transactions continue to rise in Nigeria, interested investors  need to know what licence is suitable for their business model and the requirements for getting regulatory approval to enter the Africa’s most populous country and arguably the biggest market. According to the Nigeria Inter-Bank Settlement Systems (“NIBSS”), the total of payment transactions consummated over digital platforms has risen to N38.7 Trillion as at January 2023. The astronomical rise in electronic payments was boosted by the 2022 Cash Withdrawal Limit policy of the Central Bank of Nigeria (“CBN”) which forced the entire population to embrace digital payment platforms for their daily transactions, which created a lot of stress until it was suspended by the Supreme Court. 

Which regulator is responsible for payment system companies in Nigeria?

The CBN has regulatory power for licensing and supervision of all payments system companies in Nigeria through its Payments System Management Department (“PSMD”). As part of its mandate to promote sound financial system in Nigeria, the CBN has issued regulatory framework and operational guidelines for payments system business in the country. 

What permissible business activities can a PSSP licensee do in Nigeria?

A Payments Solution Service Provider (“PSSP”) 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 PSSP licence falls under the Payment Solution Services (“PSSs”) category; and it permits holder to engage in payment processing gateway and portals, payment solution/application development, merchant services aggregation and collections.  As of 2022, there are about 75 PSSP companies have been licensed in Nigeria which 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 PSSP licence, the other licences under the PSSs category are the Payment Terminal Service Provider (“PTSP”) and the Super Agents licences. The PTSP license permits Point of Sale (“PoS”) Terminal deployment and services, PoS Terminal ownership, PTAD, Merchant/agent training and support whilst the Super Agent licence permits agent recruitment and other activities as specified in the Regulatory Framework for Licensing Super Agents in Nigeria.

READ MORE ABOUT SUPER AGENTS LICENCE BELOW:

AGENCY BANKING LICENCE: REQUIREMENTS, COSTS & TIMELINE FOR PROCESSING

Please note that PSSP licensee is not permitted to hold customer’s funds or to engage in e-money issuing, wallet services. If a payments system company intends to do any of the foregoing, then it is required to apply for a Mobile Money Operations (MMO) licence from the CBN and must have been registered with the Corporate Affairs Commission (“CAC”) with paid up share capital of N2billion (as against the N100 Million paid up share capital which is applicable to a PSSP company).

PLEASE READ MORE ABOUT MMO LICENCE FROM BELOW:

HOW TO SET UP MOBILE MONEY OPERATOR (MMO) COMPANY IN NIGERIA

A company may hold any of PSSP, PTSP and Super Agents licence or a combination of all the licences.

Please note that a licensed service provider is holding or seeking any other CBN issued licenses is required to obtain a no-objection from the CBN through the PSMD before submitting application. Also, collaborations between licensed payments companies, banks and other financial institutions in respect of any payments system products and services are subject to CBN’s prior approval.

Section B: The Incorporation and Licensing of PSSP Company in Nigeria

What is the procedure for incorporation and licensing of a PSSP company in Nigeria?

The preliminary steps to take before proceeding to submission of application for licence will depend on whether the applicants have an already registered company or will be seeking to incorporate a new company to float the PSSP business. For an already incorporated company, which most times would have been registered for a different kind of business, there may be a need for some house-keeping issues, where necessary, like filing changes in the object clause of the company to reflect only permissible activities of a PSSP, board appointment to ensure the number of directors is up to the required minimum, increase of share capital to N100 Million and so on.

Where a new company is to be incorporated, the promoters of any CBN-regulated 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“). So, in practice, the promoters will first apply to the CAC for the company’s name availability check and screening in order to confirm if the proposed name has not been previously registered. Once the CAC approves the company’s name, then they can proceed to apply to the CBN for the AIP mentioned earlier.

The application letter for the AIP (PSSP 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 documents, which are to be certified by the CAC:

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, namely: “operating payment processing gateway and portals, payment solution/application development, merchant services aggregation and collections in Nigeria”;

iii. Status Report showing allotment of shares and that the paid-up share capital of the company is N100,000,000 (One Hundred Million Naira) as well as the particulars of the Shareholders and the Directors of the company.

Please note that the above are not required for a new company applicant.

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 shareholders’ resolution and file necessary CAC forms to change and limit the object clause to payment processing gateway and portals, payment solution/application development, merchant services aggregation and collections” or 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”).The necessary changes must be effected before making application for the PSSP License to the CBN.

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

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 (in one lump sum and in the company’s name) into CBN PSP Share Capital Deposit Account No. 1000014009. 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 to CBN via RTGS No. NGN140230089/ABJ.

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

3. Business Related Documents: The other documents 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 International Passport).

What are the applicable costs for incorporation and licensing of a PSSP company in Nigeria?

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

Section C: Timelines for Completion and Other Sundry Matters

All the required documents and payments 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. If there is any deficiency in the submitted requirements, the CBN will ask the applicant to correct the deficiency or submit any outstanding document. Thereafter, the directors and senior management staff may be subjected to screening by the Department of State Security (“DSS”) for confirmation that these principal officers of the company are without any blemish. Thereafter, an AIP, i.e. a Provisional Licence for PSSP 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 acting 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 commence business operation but 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 solution platform.

When the applicant company is ready to go live, the CBN team will return to the applicant’s office to conduct a pre-license 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.

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 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 and Rwanda. 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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