Licenses Required For Fintech Operation In Nigeria

Fintech companies in Nigeria have been at the forefront of Africa’s tech revolution with Fintechs dominating fundraising in 2021. Interestingly, they accounted for about $3 billion, of which about 50% was raised by Nigerian Fintech startups. Presently, there are over 200 Fintech companies in Nigeria with Fintech adoption being the highest in Lagos and among middle-class and affluent customers. Examples of Nigerian fintech companies include the likes of Interswitch, Piggyvest, Kudabank, Carbon, Remita, Flutterwave, and Chipper Cash. Hence, it is important to have an idea of the regulatory framework for Fintech operations in Nigeria as more Fintech companies emerge.

In this bid, this piece examines the regulatory landscape of Fintech operations in Nigeria, the different arms of Fintech operations, the licenses required as well as the documents required to obtain such licenses.

Brief Overview of the Concept of Fintech

For context, the word “Fintech” was derived from the combination of ‘financial’ and ‘technology’. It refers to the use of technology to provide financial services to improve the conventional methods of rendering these services. Historically, the conventional banking method included people having to visit a bank or financial company to apply for a mortgage, small business loan, or simply transfer funds from one bank to another. However, with the evolution of Fintech, it is now possible to carry out these transactions without physically going to the bank.

Initially, when Fintech debuted in the 21st Century, it applied mainly to financial tech solutions to the back-end systems of financial institutions. Interestingly, in recent times, it has evolved to being used commercially for consumer-oriented financial services.

Generally, It is important to note that Fintech is broad and includes tech solutions for the development and use of cryptocurrencies such as Bitcoin and Ethereum. However, Nigerian law does not recognize digital currency as legal tender. Hence, it is not surprising that the Central Bank of Nigeria (CBN) has restricted banks and other regulated financial institutions from dealing in virtual currency processing. Consequently, Fintech in Nigeria does not cover cryptocurrency transactions.

Classification of Fintech Operations

The Fintech асtivitiеѕ permitted in Nigeria are limited to Lеnding, Pауmеntѕ, and Aѕѕеt Management.

Lending: 

Fintech lenders provide tech solutions to loan-related problems such as ѕtringеnt соllаtеrаl requirements, high-interest rates, slow payment processing times, and personalized experiences based on each borrower or mortgage seeker’s needs. However, to operate in Nigeria, lenders are required to register either as a bank or Other Financial Institution (“OFI”) with the CBN under the Banks and Other Financial Institutions Act 2020.  Consequently, Fintech lending асtivitiеѕ in Nigeria аrе heavily regulated and require licensing bу еithеr thе Central Bank of Nigeria – CBN (fоr banks аnd оthеr finаnсiаl institutions lenders) or thе Miniѕtrу оf Hоmе Affаirѕ оf thе each state ѕtаtеѕ (nоn-finаnсiаl institution lenders).  Usually, these lenders optimize the use of machine learning and data science for credit analysis and approval.

Payments: 

Fintechs focused on payment solutions are the most popular and have had the most growth so far. They are regulated by the Central Bank of Nigeria and are governed by the same regulations as other non-digital financial institutions providing financial services. Some of these regulations include thе CBN Guidelines on Operations of Elесtrоniс Payment Chаnnеlѕ in Nigeria, the CBN Guidеlinеѕ оn Intеrnаtiоnаl Money Trаnѕfеr Sеrviсеѕ in Nigеriа аnd other rеgulаtiоns like circulars released by the CBN from time to time. 

Aѕѕеt Management: 

There are also Fintech companies that manage bonds, stocks, and real estate. They also provide financial management services like retirement planning, real estate planning, and investment management.  In recent times, asset management in Nigeria has had a notable impact, especially among the middle class who desire to invest in their future.

The relevant regulation for all types of asset management businesses and insurance is the Nigerian Insurance Act, and Investments and Securities Act.  The asset management industry is regulated by the Securities and Exchange Commission and the National Insurance Commission ( NAICOM).  Hence, all asset management companies are required to register with the Securities and Exchange Commission to operate. 

Regulatory Requirements

It is important to note that the Central Bank of Nigeria (CBN) is the major regulator of Fintech companies in Nigeria. It derived its regulatory powers from the Banks and Other Financial Institutions Act, 2020 (BOFIA). 

Other regulators include; the National Deposit Insurance Corporation under the NDIC Act, 2006; the Nigerian Communication Commission under the Nigerian communication Act, 2003; the Securities and Exchange Commission (SEC) under the Investment and Securities Act, 2007; National Insurance Commission; and the Corporate Affairs Commission (CAC) by the Companies and Allied Matters Act 2020.

A Fintech operating as a Payment Service Provider and Financial Holding Company must not carry on business except it holds a valid license. When applying to the CBN, the Fintech must accompany its application with:

• A feasibility report for the company, including the financial projections for not less than five years;
• a copy of the memorandum and articles of association of the company;
• other documents and information which the CBN may specify; and
• a CBN prescribed non-refundable application fee.

If the license is granted, the CBN will notify the company and the application fee would be paid. The exact amount of the license fee and the application fee is not stipulated in the Act. However, for a Money Lending Fintech, they must take out a “Money Lenders License” annually, which expires every year. To process this license, the company would need to first apply at the magistrate court with a letter on the company’s letterhead to the Chief Magistrate with a list of other documents attached and the company seal.  These documents include but are not limited to; 

• A cover letter with the company seal affixed to it.
• Evidence of maintaining an office by the company.
• Certified True Copy of all incorporation documents.
• Certificate of Incorporation of the Company.
• Tax Clearance Certificate for the applicant.
• Where a newly registered business, proof that the business is a registered taxpayer.
• Three-year tax clearance for not less than two directors of the company.
• Police Clearance Certificate for two directors of the company.
• Reference Letter from a business bank.

The Central Bank of Nigeria announced new licensing requirements on May 24, 2021, relating to Mobile Money Operators, Payment Solution Services, Super Agents, Payment Solution Service Providers, and Payment Terminal Service Providers. The regulation introduced a general application fee of ₦100,000 (One Hundred Thousand Naira) for all categories of Fintech licenses and successful applications will attract a fee of ₦1,000,000 (One Million Naira) to be paid to the CBN which is separate from other additional financial requirements of each category.

Fintech Licensing Regime in Nigeria

There are various licenses needed by Fintech companies to operate in the country. The particular license required is dependent on the particular function and services to be provided by the Fintech company. These licenses would be briefly discussed in subsequent paragraphs.

1. Switching and Processing Licence

A switching and processing license authorizes a company to conduct activities like switching; card processing, transaction clearing, act as settlement agents, including all activities permitted for Payment Solution Services. 

Documents required to obtain the license include: 

• Corporate documents like certificate of incorporation, memorandum & articles of association.
• 3 years Tax Clearance Certificate and Taxpayers Identification Number (TIN) of the company.
• Form CAC 2A (Return on Allotment of Shares).
• Form CAC 7A ( Particulars of Directors).
• Details of ownership and holding company structure.
• Company details and profile; detailing the current type of business operation, products, and services.
• Bank Verification Number (BVN), Curriculum Vitae (CV), and means of identification (ID) for the directors and top management.
• Company policies and framework.
• Business plan and product deployment methodology.
• Signed agreements with sub-agents, financial institutions, and business parties.
• Evidence of payment card security certification and other relevant payment terminal certification.
• Information Technology policy of the company; including privacy policy, backup and restore policy, encryption policy, confidential data policy, among others.

The fees to obtain this license includes an application fee of ₦100,000 (One Hundred Thousand Naira), a refundable sum of ₦2,000,000,000 (Two Billion Naira) payable to the CBN, and a licensing fee of ₦1,000,000 (One Million Naira) which is a prerequisite to issuing the final license.

2. Mobile Money Operator Licence (MMO)

This license permits E-money issuing, mobile wallet creation, management, pool account management, including all activities permitted for a Super-Agent. The fee structure to obtain this license is the same as the switching and processing license. 

Documents required to obtain the license include:

• Corporate documents such as certificate of incorporation, memorandum & articles of association.
• Form CAC 2A (Return on Allotment of Shares).
• Form CAC 7A ( Particulars of Directors).
• TCC for three years and TIN of the company.
• The company’s profile detailing the current type of business operation, products, and services.
• Details of ownership and holding company structure (if applicable).
• Company details and profile.
• BVN, CV, and means of the ID of the directors and top management including one independent non-executive director, chairman, and managing director.
• Business plan.
• Company policies and framework.
• Project deployment time.
• Signed agreements with its partners.
• Information Technology policy of the company including privacy policy, backup and restore policy, encryption policy, confidential data policy, among others.

The application fee is a non-refundable fee of ₦100,000 (One Hundred thousand Naira), which is payable to the CBN via the LIcensing Fee for Payment Products Account No. NGN140230089/ABJ. Also, licensing fee of ₦1,000,000 (One Million Naira) to be paid before the issuance of the final license, if successful.

Apart from this license, according to the CBN “Regulatory Framework for Mobile Money Services in Nigeria” and “Guidelines on Mobile Money Services in Nigeria” Regulations, released on June 19, an MMO is now required to obtain a unique Scheme Code from the Nigerian Inter-Bank Settlement Scheme (NIBSS) and they must also obtain unique shortcodes from the NCC. 

3. Payment Solution Services (PSS)

This license allows all the activities permitted for Payment Solution Service Providers license, Payment Terminal Service Providers license, and Super Agents license. A company that wants to obtain this license will have to select any one or combination of those three licenses. The documents required to get the license are the same as the Switching and Processing License and the fee structure to obtain this license includes an application fee of ₦100,000 (One Hundred Thousand Naira), a refundable payment of up to ₦250,000,000 (Two Hundred and Fifty Million Naira), depending on which of the licenses the company wishes to obtain, to the CBN and a licensing fee of ₦1,000,000 (One Million Naira) to be paid before the final license is issued. 

4. Payment Terminal Service Provider (PTSP) License

A PTSP license permits POS Terminal deployment and services and POS terminal ownership activities.  The documents required to get the license are the same as the Switching and Processing Licence and the fee structure to obtain this license includes an application fee of ₦100,000 (One Hundred Thousand Naira), a refundable payment of up to ₦100,000,000 (One Hundred Million Naira), depending on which of the licenses the company wishes to obtain, to the CBN and a licensing fee of ₦1,000,000 (One Million Naira) to be paid before the final license is issued. 

5. Payment Solution Service Provider (PSSP) License

The activities permitted under this license include Payment processing gateway,  payment solution development, and merchant service aggregation and collection. The documents required to get the license are the same as the Switching and Processing License including a signed agreement with the company’s partners and the fee structure to obtain this license is the same as a Payment Terminal Service Provider Licence.

6. Super-Agent Licence

This processing license permits companies to conduct certain banking activities such as cash deposit and withdrawal, bill payments, local fund transfer, balance inquiry, etc. the documents required to get the license include:

• TCC for the preceding three years (if applicable) and a TIN of the company.
• Corporate documents.
• Details of ownership and holding company structure if applicable.
• Company details, profile, and business plan.
• BVN, CV, and a means of identification of the directors and top management including one independent non-executive director, chairman, and managing director.
• Minimum of 50 agents.
• Reference letter from a financial institution and signed agreement with the sub-agents, financial institution, and business partners.
• Must have existed for over 12 months.
• Requisite policies and framework.
• Payment Terminal Service Aggregator of Payment Terminal Application Certification.

The fee structure to obtain this license is a non-refundable application fee of ₦100,000 (One Hundred Thousand Naira), payment of the refundable sum of ₦50,000,000 (Fifty Million Naira) in escrow to the CBN, and a licensing fee of ₦1,000,000 (One Million Naira) to be paid before the issuance of the final license.

These are interesting times and given the dynamic nature of innovation, Nigeria remains a fertile ground for the growth of Fintech. Thus, all stakeholders must be reminded that they all have a role to play in making the ecosystem more prosperous. Irrespective of the increased activity in the fintech sector in Nigeria over the past few years, there is significant potential for further growth. Additionally, regulators are encouraged to continue to assist by creating a well-organized, flexible regulatory regime that holds Fintech companies accountable while promoting innovation and healthy competition. Business owners are encouraged to ensure that they comply with the respective regulatory requirements governing their category of business operations.