HOW TO OBTAIN A FINTECH LICENSE IN NIGERIA: SWITCHING AND PROCESSING LICENSE

A Switching and Processing License is one required by companies that engage in processing payments and routing of payment transactions between different financial institution, and payment service providers to ensure that payment instructions are correctly directed to the appropriate financial institution for authorization and processing. This license is mostly used by financial technology (Fintech) companies such as flutterwave, Paystack, Habaripay, Interswitch, Moniepoint (formerly Teamapt), Remita and a host of others.

What Can You Use This License For?

1. Directing payments between different banks and financial institutions.
2. Authorizing and processing card transactions.
3. Verifying the accurate transfer of funds between parties.
4. Enabling merchants outside the traditional banking system to accept electronic payments.

What Regulatory Body Issues this License?

The Central Bank of Nigeria (CBN) is the regulatory body that issues and regulates the usage of this license. It is also worthy to note that only those registered as a company with a memorandum and articles of association that can apply for the license.

The capital requirement for obtaining this license include:

1. (N 2,000,000,000 -Shareholders’ funds unimpaired by losses)
2. Preceding 3-years audited financial statements of the company (If applicable)
3. Escrow of refundable N2bn into CBN PSP Share Capital Deposit Account which must be paid in full (one lump sum) and made in the name of the company applying for the licence (not an individual or related company). The escrowed funds are invested in treasury bills, subject to availability of treasury instruments, which would be refunded accordingly. The refund is usually done once the final approval of the CBN is received

The CBN recently stated that companies with the switching and processing license can now operate under the scope of activities of those with Super-Agents, Payment Terminal Service Providers (PTSPs), and Payment Solutions Service Providers (PSSPs) licenses. This would enable the license holder to have a broader range of functionalities.

Requirements for Obtaining this License

1. Certificate of Incorporation of the company
2. Memorandum & Articles of Association (Note: the object clause(s) must be restricted to relevant payments system activities permitted by the Bank)
3. Form CAC 2A (Return on Allotment of shares)
4. Form CAC 7A (Particulars of Directors)
5. Tax Clearance Certificate for three (3) years of the company (if applicable) and Taxpayer Identification Number (TIN) of the company
6. The company’s profile detailing current type of business operation, products and services
7. Structure of holding company or parent company (if applicable)
8. Details of ownership: private/public; ultimate parent; any significant changes in ownership in the last two years
9. Total number of employees
10. Organogram
11. . Functional physical address, contact e-mails from company’s domain and telephone numbers
12. Board Structure showing at a minimum Chairman, CEO/MD, and at least, one (1) Independent Non -Executive Director and other Director(s)
13. Bank Verification Number (BVN), Curricula Vitae (CVs), valid means of identification (National Identification Number (NIN), International Passport, Driver’s Licence, Voter’s Card) of Board and top management team.
14. Details of current line of business (if applicable)
15. Business Plan that should include:

a. Nature of the business

b. Features of the scheme

c. Security features that will be put in place

d. 5 years financial projections

e. Proposed schedule of charges

f. Profit sharing arrangement

g. Diagrammatic illustration of transaction flows

h. Understanding of the nature of the POS business and

support requirements

i. Terminal deployment and connectivity strategy

j. POS support strategy (on-site and offsite) and strategy to ensure failures are remotely detected and fixed within 72 hours

k. Transaction fees and other charges to be borne by customers

l. Strategy for ensuring 99.9% uptime for terminals

m. Training and merchant relationship management strategy

n. Customer care and issue resolution strategy

o. Project work plan that demonstrates readiness/ability to commence work.

p. Partnerships & Alliances scope, duration, and other pertinent details

q. Competitive advantage/value proposition

r. Planned coverage area

s. Experience with this activity or something similar in the past

1. Information Technology policy of the company including:

a. Privacy Policy

b. Information Ownership/Disclosure/Loss Policy

c. Backup and Restore Policy

Network Security Policy

e. Encryption Policy

f. Confidential Data Policy

g. Password Policy

h. Third Party Connection Policy

i. Incidence Response Policy

j. Physical Security Policy

1. Enterprise Risk Management Framework
2. Dispute Resolution Framework
3. Contingency and Disaster Recovery Plan (Business Continuity Plan)
4. Duly executed agreements (drafts, as applicable) with the following parties:

a. Technical partners

b. Participating banks

c. Merchants

d. Telcos

e. Any other relevant party

• Project Deployment Methodology
• A document that shall outline the strategy of the shared agent network including current and potential engagements, geographical spread and benefits to be derived
• Qualifying criteria for engaging agents e.g.

a. Outreach

b. Competence

c. Integrity

d. Others

• Draft Service Level Agreements (SLAs) with sub-agents and Financial Institution (FI) Agent Banking Contract
• Risk management, internal control, operational procedures and any other policy and procedures relevant to the management of an agent banking arrangement
• Procedures for KYC and AML/CFT compliance
• Fraud detection plan and standard of care
• Consumer Protection Policy and Procedure Board Approval
• Certifications such as:

a) Payment Card Industry Data Security Standard (PCIDSS) Certification (if applicable)

b) Payment Application Data Security Standard (PADSS) Certification or Compliance with CBN IT Standards for Solution Development (if applicable)

c) Payment Terminal Service Aggregator (PTSA) of Payment Terminal Application Certification

d) Other relevant certifications

CAC registration requirements for this license

1. Two alternative company names
2. Nature of business
3. valid means of identification, e-signature, e-passport, phone number, date of birth, email address, state, city, street, local government area and street number of the director, secretary (if applicable), witness, shareholder(s)
4. Share spilt among shareholders (note that people with 5% shares and above will be made persons of significant control in the company)
5. Email, phone number, state, city, street, street number, local government area of the company

Cost of obtaining this license

1. Non-refundable application fee of N100,000.00 (One hundred thousand naira)
2. Licensing fee of N1,000,000.00 to be paid before the issuance of the final licence, if successful.
3. Professional fee will also be charged by whoever is assisting to obtain this license

Timeline for obtaining this license

1. Approval-in-Principle is granted within 2 to 3 months from the date of applying for the license and it is valid for at least six (6) Months
2. Upon satisfaction that all the requirements have been met, the final license is granted within 6 to 8 months from the date of applying for the license

Please note that the validity of the license is determined by CBN and renewable upon satisfactory performance of operations.

Can Foreigners Operate a Business with this License?

The CBN can grant this license to a 100% foreign owned business in Nigeria as far as they comply with the license and company registration requirements.

Additionally, the foreigner would be required to register with the Nigerian Investment Promotion Commission, get a work and residence permit, business permit and expatriate quota.

Conclusion

A switching and processing license is one of the most important licenses in the payment space as it gives you the ability to offer a wide range of payment services. The process of obtaining this license is capital intensive and rigorous as the CBN does not like issuing licenses that will become dormant so they always ensure that it is issued to a serious applicant. If you find this article insightful and you would like to get this license you can always reach out to us.