Who are these guys? (Knowing the different fintech licenses in Nigeria)
Fintech Licenses
“Who are these guys?”
Some years ago, I asked myself this question when I got introduced to the payments space.
I wasn’t very sure how to differentiate the different license categorizations in the financial technology space.
This article aims to explain these license categorisations and their permissible activities.
Hopefully, we can all learn something.
The Nigerian fintech sector has made major strides in its innovative products and services, intending to address customers’ needs, drive financial inclusion, and bank the unbanked.
It would be interesting to learn more about the companies at the forefront of this financial innovation.
What license does PalmPay have and is it different from the license Sparkle MFB has? What are their permissible activities?
Let’s learn.
The Central Bank of Nigeria being the main regulatory body of the finance space in Nigeria has stipulated the different categorisations in the payments space.
On 10th December 2020, the Central Bank of Nigeria (CBN) issued a circular on “New License Categorisations for the Nigerian Payments System” (NPS Circular).
At the end of this article, it would be easier to tell the difference between what a Switching Company does and what an MMO does.
Switching and Processing Companies
In the payment space, there are a lot of players —banks, fintechs, merchants and customers.
Electronic payment involves a lot of complex processes that require data to be communicated back and forth between these different parties.
Switching and processing companies act as intermediaries to processing payments between these entities.
In a typical electronic payment transaction, these are some of the parties involved-
The Customer’s card
The Issuing bank
The Card scheme
The Merchant's Bank
Let us imagine this, when you swipe your card or enter your card details online, the switching company takes the transaction request and sends it to your bank to check if you have enough funds. If the bank approves, the switching company sends the approval back to the merchant, allowing the purchase to proceed seamlessly.
Switching companies act as intermediaries, they route and process payments between various entities, including banks, merchants, and consumers. Some switching companies in Nigeria are Interswitch, Remita, E-tranzact, Hydrogen Limited.
It is a huge responsibility to be a Switching and Processing company— they typically ensure the seamless transfer of funds within the financial system.
The minimum share capital requirement for obtaining this license is Two Billion, Niara, N 2,000,000,000 -Shareholders’ funds unimpaired by losses).
These are some permissible activities of Switching and Processing Companies—
Routing Payments: Directing payments between different banks and financial institutions.
Card Processing: Authorizing and processing card transactions, thus ensuring security.
Settlement Facilitation: Guaranteeing the smooth and accurate transfer of funds between parties.
Non-Bank Acquiring: Enabling merchants outside the traditional banking system to accept electronic payments.
Read about the details of the requirements to incorporate a switching and processing company, here.
Mobile Money Operators (MMOs)
Mobile Money Operators are fintechs licensed by the CBN to enable customers save , receive, spend money from the convenience of their mobile phone—this money is stored in what is usually called a wallet.
With a Mobile Money Operator app on your phone, you can pay bills, and purchase items, and it overall saves you the time and energy that would be spent going to a bank. Additionally, there is a relatively low transaction cost in using their services. This is what makes them pretty attractive.
Some of the Mobile Money Operators in Nigeria, are — Palmpay, and Opay: Paga Mobile, MTN’s Momo, First Banks’ Firstmonie and Kudi Mobile.
The minimum share capital requirement in obtaining an MMO License is N2 billion Naira (N2,000,000,000).
MMOs wield a range of capabilities beyond simply facilitating mobile money transfers. They are authorized to:
They provide digital storage for e-money usage, by creating and managing wallets.
They facilitate convenient mobile transactions by issuing electronic money, linked to traditional fiat money.
They are also permitted to offer Super-Agent Services which include providing customer support and promoting financial inclusion.
Payment Solution Service Providers (PSSP)
Payment solution service providers are fintech companies that act as fund collectors on behalf of their customers. They operate as processing gateways and portals.
It's important to note that a PSSP license does not provide the authorization to hold a customer’s fund or create customers and issue wallets.
Most times, PSSPs partner with Banks to collect funds. Popular examples are Paystack and Flutterwave.
Payment Terminal Services Providers (PTSPs)
Most of us are very familiar with Point of Sale (POS). A payment terminal service provider is a fintech company licensed by CBN responsible for providing POS, its support and maintenance services to customers. The companies behind the issuance of the POS you see on the streets are certainly licensed. Examples of PTSPs in Nigeria are Interswitch Limited, IntelliFin Solutions Ltd, and Fidesic Nigeria Limited
This has a minimum capital requirement of a Hundred Million Naira,(100,000,000 million Naira)
Super Agents
Super Agents are fintech companies that operate as recruiters and supervisors of agents who carry out financial services targeted at the financially excluded.
They focus primarily on agency banking. They act as intermediaries for financial institutions in providing financial services to underserved or unbanked populations.
They serve as a bridge between the banks and the customers, particularly in rural or less accessible areas, by facilitating various banking services through their network of agents. These agents typically operate in locations where banks do not have branches. Super Agents assist in opening accounts for customers, enabling them to access basic banking services.
Examples include Opay, Teamapt, and Paga. This has a minimum capital requirement of Fifty Million Naira, 50,000,000 million Naira.
Payment Solution Services (PSS)
The Payment Solutions Services (PSS) License provides a more comprehensive option, granting access to a wider range of activities compared to its sub-categories. A PSS license is enabled to carry out the activities of Super Agents, Payment Terminal Service Providers (PTSP) and Payment Solutions Service Providers (PSSPs).
Some of the operators that provide payment solution services are usually integrated into the card schemes and core banking systems.
PSS License encompasses the permissible activities:
Super Agent Activities: Recruiting, managing, and overseeing agents who provide basic financial services in remote areas.
PTSP Activities: Deploying and servicing Point-of-Sale (POS) terminals, potentially even developing their own POS systems, and training merchants or agents on their usage.
PSSP Activities: Developing and deploying payment processing gateways and portals, creating payment solutions or applications, and offering merchant aggregation and collection services.
Payment Service Banks (PSB)
Payment service banks are ‘special banks’ tasked with increasing financial inclusion in Nigeria.
PSBs are not full-fledged banks but are allowed to provide basic financial services to Nigerians who do not have access to traditional banking services.
They are licensed to target rural areas and underserved communities where access to financial institutions is limited. The minimum share capital of a PSB in Nigeria is ₦5 Billion.
These are some permissible services of payment service banks are limited to the following:
Deposit Taking: PSBs can accept deposits from individuals and small businesses.
Savings Accounts: They offer savings accounts, providing users with the ability to save money securely.
Mobile Banking: Leveraging mobile phones, PSBs offer online banking services such as fund transfers, bill payments, and airtime purchases.
Agency Banking: PSBs use agents, particularly in rural areas, to offer banking services where they don’t have physical branches.
Lending/ Credit Fintechs
Lending and credit fintechs in Nigeria are transforming the financial landscape by offering accessible, flexible, and efficient credit facilities to individuals and businesses, especially those who lack access to traditional banking loans.
These companies leverage digital platforms, data analytics, and alternative credit scoring models to provide quick and unsecured loans to their customers.
They lend short-term loans to individuals and businesses to cater to their urgent needs. Examples include Fairmoney and Renmoney.
The Licensing for these companies are- money Lender’s License for consumer and business loans and a Microfinance Bank License.
In summary, Nigeria's fintech licensing landscape offers a range of options to cater to various business models. From payment service providers to mobile money operators, the Central Bank of Nigeria and other regulatory bodies have established clear guidelines to ensure a secure and efficient financial ecosystem.
As usual, I will drop something for you.
"In many cases, you'll find the only thing preventing you from learning is your ego.
No one enjoys feeling foolish, but attempting something new requires that you climb down from your perch and struggle as a beginner”- James Clear
Thank you for this