Compliance is a critical issue in the incorporation and operation of a startup. To operate with ease and prevent unnecessary sanctions fintech startups need to understand the regulatory provisions of the country they operate.
The regulatory agencies Nigerian startups must pay attention to at different stages of their operations and growth are the Corporate Affairs Commission (CAMA ACT), Federal and State Inland Revenue Service (FIRS), Nigeria Social Insurance Trust Fund (NSITF), National Office for Technology Acquisition and Promotion (NOTAP), Economic and Financial Crimes Commission (EFCC).
Being compliant not only makes startups meet federal and state laws, it tells investors that the startup takes risk management seriously and makes it easier for enterprise customers who require their startup vendors to have a security framework in place.
For fintech startups specifically, the regulators are the Central Bank of Nigeria (CBN), National Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC), Nigeria Interbank Settlement System (NIBSS)
The licence a Fintech startup obtains determines how they operate. For this article I will focus on five categories of Fintechs in Nigeria – payment service banks (PSBs), or payment service providers (PSP), digital banks, lending/ credit startups, and wealthtech. Here are the requirements startups must submit to obtain their licences.
Payment Service Banks (PSB)
Payment service banks are banks tasked with increasing financial inclusion in Nigeria. The PSBs provide banking services to rural areas through the use of technology and agency banking. The minimum share capital of a PSB in Nigeria is ₦5 Billion. To obtain a PSB licence in Nigeria, startups must:
- Submit an application to the CBN with a proposed Memorandum of Association and the proposed name of the company.
- Pay an application fee of ₦500,000.
- After the CBN receives the application within 90 days, the CBN would either approve or disapprove of the application. Where the CBN approves, then the CBN would issue a notice of Approval in Principle.
- The applicant then proceeds to register the business with the Corporate Affairs Commission.
- Then they apply for the final licence within 6 months of registering the company with accompanying documents. Such documents include the certificate of registration of the company.
- Pay the sum of ₦2 Million as the final licence fee.
Payment Service Provider (PSP)
Payment service providers are non-bank fintech startups that offer various financial services. They are divided into six categories based on the type of services they provide.
For fintech startups specifically, the regulators are the Central Bank of Nigeria (CBN), National Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC), Nigeria Interbank Settlement System (NIBSS)
The types of Fintech PSPs in Nigeria are Switching and processing, Mobile money operators, payment solution services, Payment terminal services providers, Payment solution service providers, and Super agents. Here are the procedures for obtaining the licence of each of the PSP fintech companies.
A. Switching and processing
Switching and processing fintech companies provide the processing of financial transactions. Examples in Nigeria include Flutterwave, Interswitch and Paystack. The procedure for obtaining a switching and processing licence includes:
- Registration of the company with the Corporate Affairs Commission
- The minimum share capital of a switching and processing company is ₦2 billion
- An application must be made to the CBN with all accompanying documents
- The application fee is ₦100,000 while the licensing fee is ₦1 Million.
B. Mobile Money Operators
Mobile money operators enable customers to engage in financial activities through the use of their mobile phones. They allow their customers to transact by using special USSD codes on their phone network. Examples include MTN’s Momo, Paga Mobile, Opay, etc.
The process for obtaining a mobile money operator licence is:
- Registration of the company with the Corporate Affairs Commission
- The minimum share capital of a mobile money operator company is ₦2 billion
- An application must be made to the CBN with all accompanying documents
- The application fee is ₦100,000 while the licensing fee is ₦1 Million.
C. Payment Terminal Services Providers (PTSPs)
Payment Terminal Service providers are fintech companies licensed to provide POS terminal deployment, support and maintenance services. Examples of PTSPs in Nigeria are Interswitch Limited, IntelliFin Solutions Ltd, and Fidesic Nigeria Limited.
To obtain a PTSP licence in Nigeria startups need to do as follows:
- Registration of the company with the Corporate Affairs Commission
- The minimum share capital of a Payment Terminal Services Provider company is ₦100 Million
- An application must be made to the CBN with all accompanying documents
- The application fee is ₦100,000 while the licensing fee is ₦1 Million.
D. Payment Solution Service Providers (PSSP)
Payment solution service providers are fintech companies that act as fund collectors on behalf of their customers. They serve mostly the interest of merchants by enabling payment through the web. Popular examples are Paystack, Flutterwave and Interswitch Nigeria.
The procedure for obtaining a PSSP license in Nigeria is as follows:
- Registration of the company with the Corporate Affairs Commission
- The minimum share capital of a Payment Solution Service Provider company is ₦100 Million
- An application must be made to the CBN with all accompanying documents
- The application fee is ₦100,000 while the licensing fee is ₦1 Million.
E. Super Agents
Super Agents are a sub-category of payment solution service fintech companies who operate as recruiters and supervisors of agents who carry out financial services targeted at the financially excluded. They focus primarily on agency banking. Examples include Opay, Teamapt, Paga.
The procedure for obtaining a Super Agent’s license in Nigeria is as follows:
- Registration of the company with the Corporate Affairs Commission.
- The minimum share capital of a Super Agent company is ₦50 Million.
- Make an application to the CBN with all accompanying documents.
- The application fee is ₦100,000 while the licensing fee is ₦1 Million.
Related Article: Moe Odele of Vazi Legal on startup compliance in Africa
Digital Banks
A digital bank primarily operates banking activities through technology, especially a mobile phone or a computer device rather than a physical office. Popular digital banks are Kuda Bank, VBank, and Eyowo.
Since the CBN is yet to create a specific licence regime for digital banks, promoters can operate as microfinance banks, payment service banks, or a finance company.
Lending/ Credit Fintech Startups
These startups lend short-term loans to individuals and businesses to cater to their urgent needs. Examples include FairMoney, Carbon and Renmoney. Startups who want to obtain a lending licence need to obtain a licence from their state of operation and a microfinance bank licence from CBN.
- Registration of the company with the Corporate Affairs Commission.
- Application to a magistrate court at the startup’s state of operation.
- Proof of payment of licensing fee.
- An application to the state’s Commissioner of Police.
- An application for a microfinance bank licence from CBN (depending on the scope of operation of the startup).
Wealthtech Startups
These are startups that offer a platform for the purchase of shares in foreign companies (“investment tech” or “wealth tech”) through a digital platform. Examples include Chaka Technologies, Risevest, Cowrywise, etc.
These startups are known as Sub-brokers according to an amendment made by the SEC on April 21, 2021. To apply for this licence, startups must:
- Application for registration as a Sub-Broker/Sub-Broker serving multiple brokers through a digital platform to SEC.
- Have a minimum paid-up capital of N10,000,000 (Ten Million Naira) and a Current Fidelity Insurance Bond covering at least 20% of the minimum paid-up capital.
- Sub-Brokers serving multiple brokers through a digital platform must submit a copy of their Principal Agreement with brokers.
- Certification issued by a registered IT service provider shows that the startup’s infrastructure is sufficient to perform the required function.
Closing Thoughts
As a startup grows, there would be more laws to comply with. Instead of waiting for the startup to grow before creating a compliance function, it’s much better to be well-prepared from the very beginning. This proactive step would preempt waste, loss of name or a government fine.
