A Guide to the Payment Service Provider Licence in Nigeria

Nigeria, often referred to as the "Giant of Africa," has experienced an unprecedented surge in its Financial Technology (fintech) sector over the past decade. Home to over 430 fintech companies, Nigeria leads the continent’s fintech market, accounting for 28% of all African fintech firms. While many factors have contributed to this growth, a key enabler has been Nigeria’s progressively evolving regulatory environment, spearheaded by the Central Bank of Nigeria (CBN).

As the fintech ecosystem expands, the CBN has introduced various licensing categories tailored to specific sectors within the space. One of the most important for digital payment companies is the Payment Service Provider (PSP) licence. In today’s newsletter, we examine what the PSP licence entails, the types of businesses that require it, and the steps involved in securing one to operate legally within Nigeria’s payments landscape.

What Type of Companies Require the PSP Licence?

The PSP licence is required for companies that offer electronic-based payment solutions. This includes services such as payment processing, internet banking platforms, mobile money operations, and digital wallets. Companies that facilitate the movement of funds electronically, whether through web-based gateways, mobile apps, or POS infrastructure, must obtain this licence from the CBN.

What is the Regulatory Framework for Payment Service Providers?

The CBN, as the apex regulatory body overseeing financial institutions in Nigeria, is responsible for supervising the activities of PSPs. To ensure standardisation and compliance within the sector, the CBN has issued comprehensive regulatory guidelines that govern the licensing and operations of PSPs. These are primarily outlined in the CBN Guidelines on Operations of Electronic Payment Channels in Nigeria, along with other relevant circulars and frameworks specific to different categories of PSPs.

What Are the Types of Payment Service Provider Licences?

The CBN categorizes PSPs into various licence types based on the nature of services they offer. Below are the main types:

• Payment Solution Service Providers (PSSPs) : These are companies that provide payment gateway services and technology infrastructure for online and electronic payments. Examples include Flutterwave and Paystack.
• Switching and Processing Services: Providers in this category route and process transaction data between banks, financial institutions, and merchants. They enable interoperability and real-time settlements. A notable example is Interswitch.
• Mobile Money Operators (MMOs): These offer mobile wallet services, allowing users to store and transfer funds, pay bills, and make purchases using mobile phones. Examples include Paga and OPay.
• Payment Terminal Service Providers (PTSPs): PTSPs are licensed to deploy and manage Point-of-Sale (POS) terminals and related support infrastructure for merchants.
• Payment Solution Services (PSS): This is a composite licence that allows a company to operate across multiple segments (e.g., PSSP, PTSP, and Super Agent services) under one umbrella, subject to meeting capital and technical requirements.

What are the Requirements for Obtaining the PSP Licence in Nigeria?

The following are the requirements of obtaining the PSP license in Nigeria

• Legal Structure and Corporate Governance: First, the company must be duly incorporated in Nigeria in line with the Companies and Allied Matters Act (CAMA) through the Corporate Affairs Commission (CAC). It must also comply with the shareholding structure prescribed by the CBN and demonstrate adherence to sound corporate governance practices. This includes establishing a clear board structure, risk management framework, and internal controls. Furthermore, the company’s directors, shareholders, and key management personnel must meet the CBN’s “fit and proper” criteria.
• Financial Requirement: The financial requirements vary depending on the category of PSP licence being sought. To demonstrate financial capacity and commitment, companies are required to deposit the stipulated shareholders’ funds with the CBN during the application process. This deposit is refundable once the licence is approved. The minimum capital requirements for each licence category are defined by the CBN and should be carefully reviewed before an application is submitted. For a Switching and Processing or Mobile Money Operator licence, the required capital is ₦2,000,000,000, with an application fee of ₦100,000 and a licensing fee of ₦1,000,000. A Payment Solution Services licence requires a capital of ₦250,000,000, while Payment Terminal Service Provider and Payment Solution Service Provider licences each require ₦100,000,000 in capital. All licence types generally attract an application fee of ₦100,000, with licensing fees of ₦1,000,000.

• Documentary Requirements: As part of the application process for a PSP licence, the CBN requires the applicant to submit several key documents. These documents include:
  
  • Certificate of Incorporation of the company
  • Memorandum and Articles of Association
  • Tax Clearance Certificate for the past three (3) years (if applicable) and the company’s Taxpayer Identification Number (TIN)
  • CAC Form 7A (Particulars of Directors)
  • CAC Form 2A (Return of Allotment of Shares)
  • Company profile outlining current business operations, products, and services
  • Structure of the holding or parent company (if applicable)
  • Details of ownership and shareholding
  • Corporate organogram
  • Comprehensive business plan
  • Information Technology (IT) policy
  • Risk management framework, among other relevant documents and industry certifications as may be required by the CBN

What is the Application Process for a PSP Licence?

• Pre-Application Engagement: Engage a legal practitioner or regulatory consultant to determine the appropriate type of PSP licence for your business model and ensure that all requirements are clearly understood.
• Preparation and Submission of Application: Compile all required documents, and submit along with the evidence of payment of application fees and other accompanying documents to the Director, Payments System Management Department, CBN.
• Payment of Shareholders’ Funds: Pay the prescribed shareholders’ funds into the designated account immediately after submitting the application.
• Regulatory Review and Due Diligence: The CBN will review the application and submitted documents, conduct background checks, and perform due diligence on the company’s directors, shareholders, and key management personnel. The CBN may also conduct physical inspection of the applicant’s premises.
• Issuance of Licence: If the CBN is satisfied with the review and all requirements are met, it will grant the appropriate PSP licence to the applicant.

Conclusion

The PSP licence plays a crucial role in Nigeria’s rapidly growing fintech ecosystem by ensuring that digital payment services operate within a secure and regulated framework. For fintech companies aiming to thrive in Nigeria’s market, obtaining the appropriate PSP licence is not just a regulatory requirement but a foundation for building trust with customers, partners, and regulators alike. As the Central Bank of Nigeria continues to refine its regulatory guidelines, staying informed and compliant remains essential for fintech players seeking long-term success in the Nigerian payments space.