In other to enhance financial inclusion by increasing access to deposit and payment/remittance services to small businesses, low-income households and other financially excluded entities through high-volume/ low-value transactions in a secured technology-driven environment, the CBN in 2020 issued a guideline for PSBs in Nigeria (“the GUIDELINES”) spelling out the licensing requirements, mode of operation/business rules and what is permitted and not permitted in this business space.

Furthermore, the Central Bank of Nigeria (CBN), in furtherance of its mandate to promote a sound financial system in Nigeria and the need to enhance access to financial services for low income earners and unbanked segments of the society, continues to be innovative in deepening the financial services sector. To this end, in September 2020, 9mobile PSB owned by 9Mobile NIG LTD and Moneymaster PSB owned by Globacom Nig Ltd were both issued operating license from the CBN. While Airtel’s Smartcash PSB  and MTN’s MoMo PSB, have received approval in principle in 2021 and waiting for the final approval if the CBN requirements are met.

Payment Service Bank is simply a hybrid of commercial bank that leverages on technology, mobile channels and agency banking to mobilize deposits and facilitate mobile transfers for unbanked customers in the rural areas of the society where the traditional banks do not exist. In this article we would be outlining the requirements for obtaining the operation license and other associated matters as it relates to PSBs in Nigeria, should you desire to venture into the business tomorrow.

WHO ARE REGULATORS OF PAYMENT SERVICE BANKS (PSBs) IN NIGERIA?

The Central Bank of Nigeria remains the regulatory agency when it comes to financial institutions in Nigeria and the extant regulatory frameworks for PSB are:

1. The CBN Guidelines for the Licensing and Regulation of Payment Service Banks (“the Guidelines”) issued in 2018 and revised in 2020
2. The Central Bank of Nigeria Supervisory Framework for payment service banks in Nigeria (“the framework”) issued in 2021 to supplement the existing guidelines.

WHAT ARE THE PERMISSIBLE AND NON-PERMISSIBLE ACTIVITIES UNDER THE GUIDELINES?

Permissible Activities

The guidelines permit the following activities to be carried out by Payment Service Banks in Nigeria.

i. Accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme;

ii. Carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria;

iii. Sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers;

iv. Issue debit and pre-paid cards on its name;

v. Operate electronic wallet;

vi. Render financial advisory services;

vii. Invest in FGN and CBN securities; and

viii. Carry out such other activities as may be prescribed by the CBN from time to time.

Non-Permissible Activities

Payment Service Banks are prohibited from carrying out the following activities:

i. Grant any form of loans, advances and guarantees (directly or indirectly);

ii. Accept foreign currency deposits;

iii. Deal in the foreign exchange market except for remittances;

iv. Insurance underwriting;

v. Undertake any other transaction which is not prescribed by this Guidelines;

vi. Accept any closed scheme electronic value (e.g. airtime) as a form of deposit or payment;

vii. Establish any subsidiary except as prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters, No 3, 201

HOW TO OBTAIN A PAYMENT SERVICE BANK (PSB) LICENSE IN NIGERIA

The CBN introduced PSB licenses after reviewing the 2012 National Financial Inclusion Strategy (NFIS). And the objective is to “enhance financial inclusion by increasing access to deposit products and payment/remittance services to small businesses, low-income households and other financially excluded entities through high-volume low-value transactions in a secured technology-driven environment”.

The promoters of a PSB shall be required to submit a formal application for the grant of a Payment Service Bank license addressed to the Governor of the CBN. The promoters are also required to make a formal presentation of the proposal to the Director, Financial Policy and Regulation Department (FPRD), CBN.

Application Requirements for obtaining the Payment Service Bank License

There are two stages for the application and grant of the PSB License and these are;

i. Requirements for the Grant of Approval-in-Principle.

ii. Requirements for the Grant for a Final Banking License

The proposal to the director FPRD, CBN should cover the following amongst others:

i. Business case;

ii. Vision and strategy;

iii. Governance arrangements;

iv. Risk management;

v. Compliance; and

vi. Financial viability.

 Requirements for grant of Approval-In-Principle (AIP)

a. The application shall be accompanied with the following:

i. A non-refundable application fee of N500,000 (five hundred thousand Naira only) in bank draft, payable to the Central Bank of Nigeria or such other amount as the CBN may specify from time to time;

ii. Evidence of minimum capital deposit of N5,000,000,000 (five billion naira) in line with Section 6.6 of the Regulation to be verified by the CBN;

iii. Evidence of capital contribution made by each shareholder;

iv. Evidence of name reservation with the Corporate Affairs Commission (CAC);

v. Detailed business plan or feasibility report which shall, include:

a) Objectives of the PSB;

b) Justification for the application;

c) Proposed ownership structure in a tabular form, indicating the names of potential investors, profession/business and percentage shareholdings;

d) Detailed bio-data/resume of proposed shareholders;

e) Source(s) of funding of the proposed equity contribution for each investor. Where the source of funding the equity contribution is a loan, such shall be a long-term facility of at least 7-year tenor and shall not be taken from the Nigerian banking system;

f) Board and board committee charters stating the roles and responsibilities of the board and sub committees;

g) Criteria for selecting board members;

h) Board composition and detailed resumes of proposed directors. The total number of directors shall be between 5 and 7, including at least two independent directors;

i) Completed Fitness and Propriety Questionnaire; and sworn declaration of net worth executed by the proposed directors and significant shareholders;

j) Bank Verification Number (BVN) and Tax Clearance Certificate of each proposed director and significant shareholders;

k) Organizational structure, showing functional units, responsibilities, reporting relationships and grade of heads of departments/units;

l) List of proposed top management staff (AGM and above) and their detailed resumes, stating qualification (including photocopies of academic and professional credentials), experience, and records of accomplishments, etc;

m) Schedule of services to be rendered;

n) Sales, distribution and marketing strategy showing geographic coverage;

o) Five-year financial projection of the proposed bank indicating expected growth, profitability and the underlying assumptions; and

p) Details of information technology requirements and facilities.

vi. For corporate investors, promoters shall forward the following additional documents:

1.  Certificate of Incorporation and certified true copies of other incorporation documents;
2.  Board resolution supporting the company’s decision to invest in the equity shares of the proposed bank;
3. Names and addresses (business and residential) of owners, directors and their related companies, if any; and
4. Audited financial statements & reports of the company and Tax Clearance Certificate for the immediate past 3 years.

vii. Draft copy of the company’s Memorandum and Articles of Association (MEMART). At a minimum, the MEMART shall contain the following information:

a. Proposed name of the bank

b. Object clause

c. Subscribers to the MEMART

d. Procedure for amendment

e. Procedure for share transfer/disposal

f. Appointment of directors

viii. A written and duly executed undertaking by the promoters that the bank will be adequately capitalized for the volume and character of its business at all times, and that the CBN shall have powers to supervise and regulate its operations;

ix. For regulated foreign institutional investors, an approval or a ‘no objection letter’ from the regulatory authority in the country of domicile;

x. Shareholders’ agreement providing for disposal/transfer of shares as well as authorization, amendments, waivers, reimbursement of expenses;

xi. Statement of intent to invest in the bank by each investor;

xii. Technical Services Agreement;

xiii. Detailed Manuals and Policies, particularly:

 a.  Manual of Operations;

 b.  Asset/Liability Management Policy (ALM Policy) that highlights the bank’s permissible assets and liabilities, sets the standards for managing its interest rate, duration risk and liquidity risk, and delineates the composition, duties, and operational procedures for the bank’s Asset/Liability Management Committee;

 c.  Financial Management Policy that highlights the bank’s financial management policies and procedures, and system of internal controls. The Policy should include:

i. Accounting policies and principles;

ii. Roles and responsibilities of the senior management officials responsible for financial management;

iii. Treasury operations, including funds management, vouchers, payroll and procurement;

iv. Financial record keeping and reporting; and

v. Auditing and periodic testing of internal controls.

d) Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Policy;

e) Enterprise-Wide Risk Management Framework;

f) Code of Ethics and Business Conduct that specifies high standards for honesty, integrity, and impartiality for the bank’s employees, officers, and directors and provides guidance on avoiding conflicts of interest, self-dealing, and other types of impropriety as specified in the BOFIA or by the Bank. Every director and officer of the bank shall be required to sign the Code of Ethics and Business Conduct;

xiii) Any other information that the CBN may require from time to time.

After the CBN has received an application with complete and satisfactory documentation, it shall communicate its decision to the applicant within 90 days. Where the CBN is satisfied with the application, it shall issue an Approval-in-Principle (AIP) to the applicant.

Meanwhile, even after an application has been submitted to the CBN, the proposed bank shall not incorporate/register its name with the CAC until an AIP has been obtained from the CBN in writing. The reason for this is because the CBN may refuse to grant an approval in principle especially where the documentary requirements have not been met. Also, to register with the CAC requires the applicant to submit a copy of the approval -in- principle with the commission as a pre-requisite for incorporation.

 Requirements for Grant of Final License

Upon six months of obtaining an Approval-in-Principle, the promoters of a proposed PSB shall then submit another application to the CBN for the grant of a final license

 The application shall be accompanied with the following:

i. Non-refundable licensing fee of N2,000,000.00 (Two Million Naira Only) in bank draft payable to the Central Bank of Nigeria;

ii. Certified True Copy (CTC) of Certificate of Incorporation of the bank;

iii. CTC of MEMART;

iv. CTC of Form CAC 1.1;

v. Evidence of location of Head Office (rented or owned) for the takeoff of the business;

vi. Schedule of changes, if any, in the Board and Shareholding after the grant of AIP;

vii. Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, to perform the bank’s operations and meet CBN and other regulatory requirements;

viii. Copies of letters of offer and acceptance of employment in respect of the management team;

ix. Detailed resumes of top management staff;

x. Completed Fitness and Propriety Questionnaire; and sworn declaration of net worth executed by top management staff;

xi. Bank Verification Number (BVN) and Tax Clearance Certificate of each top management staff;

xii. Comprehensive plan on the commencement of the bank’s operations with milestones and timelines for roll-out of key payment channels; and

xiii. Board and staff training programme.

Finally, as a requirement to the grant of a final license, the CBN shall conduct an inspection of the premises and facilities of the proposed bank for the following purposes;

• Check the physical structure of the office building and infrastructure provided for the take-off of the PSB;
• Sight the original copies of the documents submitted in support of the application for license;
• Meet with the Board and Management team whose resumes had earlier been submitted to the CBN;
• Verify the capital contributions of the promoters; and
• Verify the integration of its infrastructure with the National Payments System.

Below is a summary of Financial Requirements for obtaining a Payment Service Bank License

For quick and clear assessment of the financial demands, hereunder, is the summary of capital requirements for the PSB licensing.

• Minimum capital- ₦5,000,000,000.00 (Five Billion Naira).
• Non-refundable application Fee- ₦500,000.00 (Five Hundred Thousand Naira).
• Non-Refundable Licensing Fee- ₦2,000,000.00 (Two Million Naira).
• Change of name fee ₦1,000,000.00 (One Million Naira) where applicable

Note: the CBN reserves the right to vary these requirements from time to time.

CONCLUSION.

We hope you found this information useful? For further enquiries on procedures for obtaining a Payment Service Bank (PSB) license, you may reach out to us HERE.

If you would like to know more about the Central Bank of Nigeria’s license requirements for setting up a cross border remittance platform for your fintech startup, the following articles from our archives would be of help;

1. How to set up international money transfer services in Nigeria – https://lexpraxisng.com/how-to-set-up-international-money-transfer-services-in-nigeria/

2. CBN Fintech license requirements for international mobile money remittance services – https://lexpraxisng.com/cbn-fintech-license-requirements-for-international-mobile-money-remittance-services/

3. CBN Mobile Money License requirements – https://lexpraxisng.com/cbn-mobile-money-license-requirements/

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Cynthia Tishion

Cynthia is a lawyer and currently serves as Head of Corporate / Commercial Services at LEX – PRAXIS. With her passion for business and entrepreneurship, she is actively engaged in creating awareness on the legal aspect of businesses through various platforms such as writing, public speaking engagements.

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