New CBN license categorization requirements explained

Last week the Central Bank of Nigeria released new guidelines for businesses looking to apply for one of the many license categories available in the payments subsector. The major change is that these payment companies are now required to match their share capital and pay the amount to CBN who will hold it in escrow. Escrow simply refers to funds owned by a business but is not directly reflected on its balance sheet.

All new license applications have a non-refundable application fee of N 100,000 and a non-refundable license fee of N 1 million payable prior to issuance, in the event the company’s application is deemed successful. . While the price of individual licenses varies depending on the degree of services covered. Existing companies in the sector are required to submit their audited reports detailing their last three financial years. This requirement is waived for new businesses making these requests. New companies, however, should file the relevant information of their board of directors next to their BVN numbers.

Shareholder escrow and capital requirements are based on a CBN directive published on December 9, 2020. The aforementioned directive imposed the structure and reclassification of the Nigerian payment system licenses into four broad categories. It also expressly classifies MMOs (Mobile Money Payment Terminal Service Provider Organizations) as the only payment companies authorized to hold depositors’ funds.

The new regulation aims to ensure that businesses are well funded. In addition to the increased capital requirements, companies are required to match their shareholder capital requirements which are then sequestered by the CBN and are redeemable. Subject to availability, the CBN intends to invest these funds in treasury bills. The deposit for escrow must also be payable in a lump sum to a designated CBN account.

This decision ensures that companies in the sector operate on a more solid and transparent financial basis. It also ensures that companies are run efficiently and that they do not compromise shareholder capital to cover operational losses. This development is in line with CBN’s previous commitment to monitor and issue new guidelines to further streamline the operations of companies under its regulatory (or oversight) jurisdiction.

New shareholder capital requirements and their corresponding escrow contributions are as fellows

  • Switching and Processing License – Two billion naira in shareholders’ equity and two billion held in escrow with the CBN PSP share deposit account.
  • Mobile Money Operator License – Two billion naira in registered capital and two billion naira held in escrow paid into the CBN PSP share capital deposit account.
  • Payment solutions service (umbrella license) – N 250 million in shareholders’ capital, with N 250 million in the event of an offer for the three licenses (PSSP, PTSP, Super Agent). If you are bidding for the standalone PSS license, the required escrow contribution is 100 million Naira.
  • Payment terminal service provider – N100 million in shareholders’ funds and N100 million in escrow with the CBN PSP share capital deposit account.
  • Super Agent License – N50 million shareholder capital and N50 million escrow paid into CBN PSP share capital deposit account.

The CBN, with its commitment to constantly monitor and evaluate the payments sub-sector, ensures efficiency and seeks to improve the corporate governance of industry players. This directive allows companies to recapitalize in the event that they decide to extend their activities to other sectors not covered by their current licenses.

Written by Ogodilieze Osaji-Ugo

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