The late 20th century has witnessed the rise of Fintech companies in Nigeria that offers financial services which were originally exclusive to traditional financial institutions. Taking bearing from the likes of Remita, Paystack, Flutterwave, PiggyVest, Kuda Bank, etc. fintech companies are primarily known for using technology to improve financial services and increase access to finance.
The Central Bank of Nigeria is the apex body responsible for regulating the formation and operation of Fintech companies in Nigeria. There are other agencies that regulate the operations of Fintech companies based on the nature of services carried out such as the Securities and Exchange Commission (SEC), Nigerian Stock Exchange (NSE), Corporate Affairs Commission (CAC), and the Nigerian Communications Commissions (NCC).
This article will be considering recent regulations and licensing requirements put in place by the Central Bank of Nigeria with specific reference to popular online financial transactions platforms operating in Nigeria in respect to Fintech companies. As well as legal considerations for setting up a fintech company as a foreigner in Nigeria.
WHY VENTURE INTO FINTECH IN NIGERIA?
In the past three years, Nigeria has witnessed increased growth in the Fintech sector in Nigeria. Particularly with reference to the increase in Fintech service providers in Nigeria. This could be attributed to the huge gaps that desperately need to be filled within the finance sector when compared with the challenges associated with the traditional banking system in Nigeria and the developed world.
Furthermore, in 2021 and 2022, African startups witnessed huge funding deals worth 4 to 4.5 billion dollars, with Nigeria taking the lead. It will interest you to know that the Fintech sector has received the largest amount of funding so far when compared to other sectors.
LICENSE CONSIDERATIONS FOR STARTING A FINTECH COMPANY IN NIGERIA
Below is a list of legal considerations for setting up popular online financial transaction platforms operating in Nigeria. With respect to this article, we will consider the following categories of financial services; Savings, Lending, Payment processing, and Investments.
LICENSE REQUIREMENT FOR STARTING A DIGITAL SAVINGS PLATFORM
Online savings platforms allow for saving money via a mobile application. Examples of these platforms are; PiggyVest, Kuda Bank, etc. If you are considering setting up an online or digital savings platform, you may take advantage of the Micro Finance Bank (MFB) License.
To obtain the license, a prospect should take note of the various categories of Micro Finance Banks as well as the various share capital requirements. For instance, the minimum shareholder fund to be paid for a Tier 2 Unit Microfinance bank is fifty million naira (N50,000,000). While the application for approval in principle is N100,000 (one hundred thousand naira) and licensing fee is two hundred and fifty thousand naira (N250,000) respectively.
Please read our article; HOW TO SET UP A MICRO FINANCE BANK IN NIGERIA FOR DETAILS
Apart from obtaining a Microfinance bank license, there are other legal and cost-effective options for setting up an online savings platform. To find out more about this, please reach out to us through the Whatsapp icon on the lower right of this page, or HERE, and we will be delighted to speak with you.
LICENSE REQUIREMENT FOR STARTING A DIGITAL LENDING PLATFORM
A digital or online lending platform engages in lending short-term loans to individuals and businesses to cater to their urgent needs. Examples of operators of these platforms are; Okash (a product of Opay), KiaKia, Fair Money, and Renmoney. There are several regulations to consider when going into online lending. For instance, a company desirous of becoming an operator may consider obtaining a money lender’s license, which governs money lending activities within a State, and a microfinance bank license which permits lending activities with certain restrictions.
To obtain a microfinance bank license, the least category of microfinance banks requires a minimum share capital requirement of N50,000,000 (fifty million naira) while the highest category requires a N5,000,000,000 (five billion naira) share capital.
Please note the minimum share capital requirement stated above would not be provided by an applicant seeking to incorporate his/her company with the Corporate Affairs Commission. However, such an amount is to be deposited with the Central Bank as part of the license application process and will be refunded after the conditions for the grant of the final license are met and satisfied.
LICENSE REQUIREMENT FOR PAYMENT SOLUTION SERVICE PROVIDERS
Becoming a payment solution service provider entails; providing payment processing gateways and portals, payment solution/application development, and merchant service aggregation. Payment processing gateways are online payment services that ensure payments are made online directly from the bank account of one customer to another, rather than the giving of physical cash in any transaction. This means is regarded by consumers as being fast and secure. Examples of such payment gateways are; Paystack, Remita, Rave by Flutterwave, Interswitch Web Pay and Vogue Pay, etc.
To be an operator, a CBN Payment Service Provider (PSP) license must be obtained. The PSP license is in categories with various license requirements. The PSP categories are as follows;
1. Payment Solution Services (PSSs) License; which consists of;
a. Super Agent License: This license category permits activities such as agent recruitment management and other activities specified in the Regulatory Framework for licensing super agents in Nigeria. The minimum share capital requirement for obtaining the Super Agent license is N50,000,000 (fifty million naira).
b. Payment Terminal Service Provider (PTSP) License: This license category permits activities such as; POS terminal deployment and services, POS terminal ownership, merchant/agent training, and support. The minimum share capital requirement for obtaining the PTSP license is N100,000,000 (one hundred million naira).
c. Payment Solutions Service Provider (PSSP) license: this license category permits activities such as; payment processing gateway portals, payment solution, and application development, merchant service aggregation, and collection.
2. Mobile Money Operation (MMO) License: This license category permits activities such as; e-money issuing, wallet creation, and management, as well as activities companies with the Super-Agent license, are permitted to carry out. The minimum share capital requirement for the MMO license is N2, 000,000,000 (two billion naira).
3. Switching and Processing License: This license category permits activities such as; switching, card processing, transaction clearing, settlement agent services, non-bank acquiring services, and also activities permitted by holders of the Super-Agent, PTSP, and PSSP license. The minimum share capital requirement for this license is N2, 000,000,000 (two billion naira).
A payment solution service provider must not necessarily obtain all licenses listed above. A company may opt for a license category that is compatible with its proposed business activities.
LICENSE REQUIREMENT FOR DIGITAL INVESTMENT PLATFORMS
Investments are in various forms and classes. Thus, a person or companies seeking to provide digital investment services to the Nigerian public must obtain a license from the Securities and Exchange Commission (SEC) in Nigeria.
The regulatory landscape with respect to investments in Nigeria is broad and varied. Therefore, depending on the kind of investment service your company seeks to provide, we recommend you seek professional legal advice to enable you to arrive at a launch strategy for your company in Nigeria.
CAN A FOREIGNER SET UP A FINTECH COMPANY IN NIGERIA?
Yes, a foreigner or foreign entity can set up a fintech company in Nigeria provided such a foreign entity is incorporated in Nigeria and complies with the license requirements for financial service providers listed above.
In addition to obtaining a financial service license, there are other compliance requirements a foreigner or foreign entity must satisfy such as; immigration, tax compliance, and incentives, to navigate the business terrain in Nigeria.
If you need guidance in this regard, you may reach out to our team of compliance experts to assist you with a launch strategy.
As the possibilities to which we can deploy technology in solving financial problems in Africa continues to evolve, we have witnessed regulators make several attempts at catching up with it. It is therefore important that existing financial technology companies and founders intending to navigate the financial technology terrain, stay up to date with regulations within the sector.
Will you like to learn more about the requirements for setting up your fintech company in Nigeria? Or, if you are confident you know the requirements but need help with securing a license, we would be happy to provide you with the needed effective strategies to navigate the regulatory hurdles of starting and running your fintech startups. Please reach out to us through the Whatsapp button on your lower right or HERE, and we will be delighted to assist you.