How to Apply for a Fintech Switching and Processing License in Nigeria
Introduction
Fintech are computer programs and other technology used to support or enable banking and financial services. A fintech license is essential for establishing a compliant payment processing and routing business in Nigeria, granting authority to facilitate interbank transactions, electronic payments, and broader financial service offerings. In order to apply for a Fintech Switching and Processing License in Nigeria, you’ll need to meet the requirements set by the Central Bank of Nigeria (CBN).
While it is important to state that there are various types of Fintech License available. This article will focus on how to obtain a switching and processing License
Switching and Processing License
A Switching and Processing License, issued by the Central Bank of Nigeria (CBN), enables companies to facilitate card processing, transaction clearing, and settlement services.
A Switching and Processing License is a necessary requirement for any fintech company in Nigeria that intends to engage in payment processing and transaction routing activities between banks and other financial service providers. Notable examples of switching and processing fintech companies in Nigeria include Remita, Flutterwave, Moniepoint, Interswitch, and Paystack etc
What Regulatory Body issues this license?
The body which issues Fintech license is the Central Bank of Nigeria. The fintech sector’s rapid evolution necessitates a dynamic regulatory framework. It includes key laws, regulations, and institutional guidelines that govern fintech operations, ensuring stability, security, and innovation.
To obtain a switching and processing license, the following steps must be taken:
Capital Requirements
- Minimum shareholders’ funds of ₦2 billion unimpaired by losses
- Refundable escrow deposit of ₦2 billion into the CBN PSP Share Capital Deposit Account, paid as a lump sum
Licensing Process
- A written application to the Director, Payments System Management Department of Central Bank of Nigeria (CBN), together with proof of payment and other required documents.
- Application fee of ₦100,000
- Validity period determined by CBN upon satisfactory performance
The Documents required to obtain a switching and processing fintech license
- Incorporation documents
- 3 years of tax clearance
- Share structure, number of employees, and organogram
- Functional physical and digital addresses
- Board composition and personal details of board members and top management
- 5-year business plan and financial projections
- Features of the switching and processing scheme, security architecture, and process flows
- IT Policies: (Develop policies on privacy, data protection, backup, security, etc.)
- Risk management, internal control, KYC/AML procedures, fraud detection plan, consumer protection policy
- Executed agreements with technical partners, banks, merchants, etc.
What Activities are permissible
- Switching
- Card processing
- Transaction clearing and settlement agent services
- Non-bank acquiring services
- Activities of super-agents, payment terminal service providers (PTSPs), and payment system service providers (PSSPs)
Application Process
- Pre-Application Engagement: Engage with the CBN or experienced consultants / Attorneys for clarification on requirements.
- Submission of Application: Submit the formal application, accompanied by all necessary documents, to the CBN.
- Payment of Shareholder Funds: Deposit the required shareholders’ funds immediately after submitting the application.
- Due Diligence and Background Checks: The CBN conducts due diligence and background checks on the directors, shareholders, and key management personnel.
- On-Site Inspection: The CBN may conduct an on-site inspection of the applicant’s premises.
- Review and Approval: The CBN reviews the application, taking into consideration all relevant factors.
- Post-Licensing Obligations: License holders are required to comply with ongoing reporting requirements, risk management practices, and any additional guidelines issued by the CBN.
Fees
– Non-Refundable Application Fee: ₦100,000 paid via RTGS
– Licensing Fee: ₦1,000,000 to be paid before the issuance of the final license, if successful
Conclusion
In summary, a Switching and Processing License is a vital prerequisite for fintech companies in Nigeria, unlocking access to a broader range of payment services and facilitating growth, despite the complexities and costs associated with the licensing process.
Note: The content of this article is anticipated to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstance.
By Deborah Ogedengbe for Adeola Oyinlade & Co.
Adeola Oyinlade & Co. is a leading Corporate and Commercial full-service law firm in Nigeria offering advisory services to both local and foreign clients in the Fintech, Banking and Finance sectors in Nigeria.
To see our service offerings, please contact us at [email protected] or visit www.adeolaoyinlade.com
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