INTRODUCTION

In an era where Digital Financial service plays a key role in creating economic growth, Nigeria has experienced a slow pace of formal financial services provided by financial institutions, which includes electronic payments, savings, credit, insurance, and pension schemes.

The Central Bank of Nigeria (CBN) recognized the need to advance digital finance in Nigeria. In 2018 the CBN introduced a novel type of banking License, known as the Payment Service Banks (PSBs). This was created to stabilize the economy, and leverage on technology to provide services that would be easily accessed by the un-banked population and those who are in hard-to-reach areas of the country[1] thereby leveraging the strength of small-scale businesses such as mobile network operators while maintaining a bank-led rather than a telecoms-led banking model[2].

PSBs are regarded as a hybrid of the conventional banks and the fintech companies, they provide banking solutions with the flexibility, accessibility, and technological tools employed by fintech companies to achieve the financial inclusion aims of the Central Bank of Nigeria. They provide their banking services through physical access points or digital interfaces[3]. PSBs also accepts deposits from individual and small businesses, they conduct payment and remittance services within Nigeria, issues debit and prepaid card, and operate electronic purse and other activities prescribed by the CBN.

Given the creation of the PSB, the Central Bank of Nigeria also released guidelines for the licensing and regulation of the PSB which would legally permit the PSB to conduct all activities assigned and approved by the CBN.

GUIDELINES FOR OBTAINING A PSB LICENSE

The Guidelines as provided by the CBN, contains extensive provisions on licensing requirements, eligibility, documentation, financial requirements, charging rates, revocation of license and so much more. In compliance with the regulations of CBN, Banking Agents, Telecommunications Companies, Retail Chains, and Mobile Money Operators are eligible to set up a PSB[4]. And PSB License are gotten through two applications, the first is the Grant of Approval-in-Principe, and Grant for a Final Banking License.

The promoters of a payment service bank are required to submit a formal application for the grant of a PSB License addressed to the Governor of the CBN, thereafter, the promoters shall make a formal presentation of the proposal to the Director, Financial Policy, and Regulation Department (FPRD) of the Central Bank of Nigeria. This proposal is to cover the following areas: business case, vision and strategy, governance arrangements, risk management, compliance, and financial viability[5].

In line with the guidelines laid down by the CBN, due compliance must be followed to ensure that the requirements laid down in Section 6 (1) of the Guideline of the Payment Service Bank in Nigeria must be followed, and the application for the grant of Approval-in-Principle must be accompanied by[6] (a) A non-refundable application fee of ₦500,000 (Five Hundred Thousand Naira) in bank draft, payable to the Central Bank of Nigeria or such other amount as the CBN may specify from time to time (b) Evidence of minimum capital deposit of ₦5,000,000,000.00 (Five Billion Naira) (c) Evidence of capital contribution by each shareholder (d) Evidence of name reservation with the Corporate Affairs Commission (CAC) and any other information that the CBN may require from time to time.

After the receipt of the application with complete and satisfactory documentation, the CBN will communicate its decision to the applicant within 90 days, after the application has been made. Where the CBN is satisfied with the application, it shall issue an Approval-in-Principle (AIP) to the applicant. Where the Approval-in-Principle has been granted to the proposed bank, the PSB must apply to the CBN for the grant of final license not later than six (6) months[7]. The application for grant of final license shall be accompanied by a non-refundable licensing fee of ₦2,000,000.00 (Two Million Naira Only) in bank draft payable to the Central Bank of Nigeria and any other information that the CBN may require from time to time. As a requirement for the grant of a final license, the CBN shall inspect the premises and facilities of the proposed bank to ensure that it complies with the requirements laid down in the Guidelines[8]

PERMISSIBLE AND NON-PERMISSIBLE ACTIVITIES

Upon grant of the Licence to operate, the PSB must act within the permissible activities laid down in the guidelines[9] amongst which are; Accepting deposits from individuals and small businesses, carrying out payments and remittances, issuance of debit and prepaid cards, operating electronic wallets, rendering financial advisory services, investing in FGN and CBN securities, and carrying out such other activities as may be prescribed by the CBN from time to time.

PSBs are prohibited from carrying out activities not permitted by CBN, such as; Granting loans, advances, or guarantees, accepting foreign currency deposits, insurance underwriting, accepting any closed scheme electronic value as a form of deposit or payment, establishing any subsidiary except as prescribed in the CBN Regulation on the scope of Banking and Ancillary matters, No 3 2010[10]

CORPORATE GOVERNANCE AND COMPLIANCE BY PSBs

All licensed PSBs must use the words ‘Payment Service Bank’ in their name, to differentiate them from all other kinds of banks. The CBN code of corporate governance for banks shall govern PSBs[11], therefore the number of directors a PSB is permitted to have shall be between 5 and 7, with at least 2 independent directors. Worthy of note is that the provisions of the revised assessment criteria for approved persons’ regime for financial institutions shall apply to a PSB[12]

In terms of Credit Risk Management, PSBs are not permitted to grant any form of loans and advances, as such the provisions for the management of credit risk applicable to Deposit Money Banks (DMB) shall not apply to PSBs.[13] With regards to the management of other risks, such as market, operational, liquidity, strategic, information technology, and reputational risks, they shall be as may be prescribed by the CBN from time to time[14]

The guidelines also provide that not less than 75% of a PSBs deposit liabilities shall be invested in the CBN securities, Treasury Bills, and any other short-term federal government debt instruments at any point in time. And all excess funds in a PSBs operational float shall be deposited with Deposit Money Banks.[15] And a PSB should not declare or pay a dividend on its shares until it has completely written off all its preliminary and pre-operational expenses, complied with all relevant CBN regulations on dividend payments, and obtained the approval of the CBN in respect thereof[16]

PSBs shall be supervised by the CBN and there must comply with all extant CBN Guidelines and circulars relating to the operation of PSBs[17] and the rate of charges to be imposed on any CBN regulated institution and their customers on mobile payment and other payment platforms by a parent/related entity of any PSB shall be subject to the provisions of the Guide to Charges by Banks, other financial and Non-bank institutions where applicable or subject to prior approval of the CBN as the case may be [18]

PSBs shall comply with the relevant provisions of the Money Laundering (Prohibition) Act, 2011 (as amended), Terrorism Prevention Act, 2011 (as amended), CBN’s extensive Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) Regulations for Banks and Other Financial Institutions 2013[19], other extant laws and regulations on Know Your Customer (KYC) issued by the CBN. PSBs shall adopt a risk-based approach in the conduct of KYC and ensure that every customer complies with the KYC requirements.[20]

REVOCATION OF THE PSB LICENSE

CBN has the power to revoke any license granted to a PSB. The revocation may occur if the PSB fails to comply with any of the PSB Guidelines or Circulars and any other Guidelines issued by the CBN from time to time if the PSB fails to comply with the provisions of BOFIA and by a voluntary liquidation by a PSB with the prior written approval of the CBN.[21]

CONCLUSION

The Framework is indeed a bold attempt by the CBN to provide a robust guide and check on the activities of PSBs, considering the role they play, which is similar to the role of regular deposit money banks. Also, the need for adequate AML/CFT policy/regulations cannot be overemphasized as the non-financial institutions, who are permitted to operate as PSBs may not be familiar with existing AML/CFT/CDD requirements

 FOOTNOTES:

[1] https://www.cbn.gov.ng/Out/2021/CCD/Supervisory%20Framework%20for%20PSBs.pdf

[2] https://www.gsma.com/mobilefordevelopment/resources/payment-service-banks-in-nigeria/

[3]https://thenationonlineng.net/financial-inclusion-ray-of-hope-as-cbn-licenses-psbs/#:~:text=The%20guidelines%20issued%20by%20CBN%20stipulate%20that%20PSBs,per%20cent%20of%20their%20presence%20in%20these%20areas

[4] Guideline 5 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[5] Guideline 6 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[6] Guideline 6.1 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[7] Guideline 6.2 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[8]  Guideline 6.3 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[9] Guideline 4.1 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[10] Guideline 4.2 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[11] Guideline 7.1 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[12] Guideline 7.2 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[13] Guideline 13.1 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[14] Guideline 13.3 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[15] Guideline 9.4 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[16] Guideline 9.2 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[17] Guideline 10.2 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[18] Guideline 10.6 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[19] Guideline 11 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[20] Guideline 11.1 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020

[21] Guideline 15 of the Guidelines for Licensing and Regulation of Payment Service Bank in Nigeria 2020


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