New CBN guidelines for financial institutions

The Central Bank of Nigeria (CBN) has announced the release of new guidelines for financial institutions wishing to offer at least two of its four licensed payment systems. This is part of the measures taken by apex bank to improve financial inclusion and create efficient payment systems.

The announcement was made on Tuesday August 3 by the Director of Payment System Management Musa I. Jimoh, who mentioned that all companies interested in offering payment switching and issuing services, d ‘Mobile Money (MMO) or Payment Operations Solutions Services (PSS) will now be required to create a payment services holding company.

In December 2020, apex bank announced new licensing categorizations for Nigerian payment systems, dividing all operations into four units, and announcing that institutions that wanted to combine MMOs with payment switching and processing would be required to upgrade. in place of holding company structures.

What is a payment services holding company?

According to section 2.0 of the Guidelines for the Licensing and Regulation of Payment Services Holding Companies in Nigeria, these are holding companies whose primary objectives are to manage the equity investments of two or more companies which are payment service providers operating in two mobile money operations, switching and processing, or payment solution services.

One point to note is that not all PSHCs are operational and will only handle investments in one or the other of these systems. This means that PSHC will not manage the day-to-day operations of any of the payment systems, the holding companies can only manage investments or create subsidiaries that will engage directly in these activities.

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In fact, S.5.1 states that “the activities of the PSHC shall be limited to the holding of shares in financial and technological subsidiaries that facilitate and / or enhance innovative digital financial services”. The guidelines also list other activities, including human resource management, risk management and ICT, in which PSWs can engage provided they obtain the prior written approval of the CBN.

A new obstacle for financial institutions

Earlier in July, the CBN issued new guidelines for payment service banks and mobile money operators, ordering operators of the latter to standardize their operations and infrastructure. These guidelines aimed to ensure that MMOs and PSBs can access rural and peri-urban underbanked communities, and provide them with functional financial solutions.

Some of them will have to overcome some obstacles with the previous directives, in particular the provisions relating to the dissemination of information and the scope of activities. These new guidelines also present a new obstacle that some institutions will have to face.

Any financial institution, including banks and fintechs, that offers at least two of the three systems listed in the Guidelines, namely mobile money services, switching and processing, and payment solutions services, will need to create a payment services holding company.

Banks that offer switching and payment processing services as part of their banking operations will be required to follow guidelines and delineate their processes.

According to the CBN, this will help draw clear distinctions between the activities of each institution and provide the umbrella bank with sufficient regulatory oversight.

What it takes to set up a PSHC

For the budgetary aspect, non-refundable application fees of 1,000,000 ($ 2,439) and non-refundable fees of 5,000,000 ($ 12,121).

From a more technical perspective, institutions wishing to apply for PSHC licenses must go through two stages: submit a request for approval in principle and request a final license.

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Marianne R. Winn

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