The guidelines for the licensing and regulation of Payment Service Bank (PSB) license are provided by the Central Bank of Nigeria (CBN). Payment Service Banks are banks that accept deposits from individuals and small businesses, carry out payment and remittance services within Nigeria, issues debit & prepaid card, operate electronic purse, and other activities prescribed by the CBN. To legally perform these activities, a PSB License must be obtained from CBN. In this write-up, we briefly looked into the requirements for obtaining a PSB License as stipulated by the CBN.
Following the CBN's current regulations, the following categories of companies are eligible to set up PSB:
- Banking Agents
- Telecommunication Companies
- Retail Chains
- Mobile Money Operators among others
The Application Requirements for obtaining the Payment Service Bank License
There are two steps of requirements for the application of the PSB License and these are;
- Requirements for the Grant of Approval-in-Principle.
- Requirements for the Grant for a Final Banking License
Requirements for Grant of Approval-in-Principle (A.I.P)
- 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. The proposal is to cover the following amongst others;
- business case;
- vision and strategy;
- governance arrangements;
- risk management, and
- financial viability.
- The application is to be accompanied by the followings;
- A non-refundable application fee of N500,000 (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;
- Evidence of minimum capital deposit of ₦5,000,000,000.00 (Five Billion Naira).
- Evidence of capital contribution made by each shareholder;
- Evidence of name reservation with the Corporate Affairs Commission (CAC);
- Detailed business plan or feasibility report which shall, at a minimum, include:
- Objectives of the PSB;
- Justification for the application;
- Proposed ownership structure in a tabular form, indicating the names of potential investors, profession/business, and percentage shareholdings;
- Detailed bio-data/resume of proposed shareholders;
- Source(s) of funding of the proposed equity contribution for each investor. Where the source of funding the equity contribution is a loan, such shall be a long-term facility of at least 7-year tenor and shall not be taken from the Nigerian banking system;
- Board and board committee charters stating the roles and responsibilities of the board and sub-committees;
- Criteria for selecting board members;
- Board composition and detailed resumes of proposed directors. The total number of directors shall be between 5 and 7, including at least two independent directors;
- Completed Fitness and Propriety Questionnaire, and sworn declaration of net worth executed by the proposed directors and significant shareholders;
- Bank Verification Number (BVN) and Tax Clearance Certificate of each proposed director and significant shareholders;
- Organizational structure, showing functional units, responsibilities, reporting relationships, and grade of heads of departments/units;
- List of proposed top management staff (AGM and above) and their detailed resumes, stating qualification (including copies of academic and professional credentials), experience, and records of accomplishments, etc;
- Schedule of services to be rendered;
- Sales, distribution, and marketing strategy showing geographic coverage;
- Five-year financial projection of the proposed bank indicating expected growth, profitability, and the underlying assumptions; and
- Details of information technology requirements and facilities.
- For corporate investors, the promoters shall forward the following additional documents:
- Certificate of Incorporation and certified true copies of other incorporation documents;
- Board resolution supporting the company's decision to invest in the equity shares of the proposed bank;
- Names and addresses (business and residential) of owners, directors, and their related companies, if any; and
- Audited financial statements & reports of the company and Tax Clearance Certificate for the immediate past 3 years.
- A draft copy of the company's Memorandum and Articles of Association (MEMART). which shall contain the following information:
- Proposed name of the bank;
- Object clause;
- Subscribers to the MEMART;
- Procedure for amendment;
- Procedure for share transfer/disposal and,
- Appointment of directors.
- A written and duly executed undertaking by the promoters that the bank will be adequately capitalized for the volume and character of its business at all times, and that the CBN shall have powers to supervise and regulate its operations;
- For regulated foreign institutional investors, an approval or a 'no objection letter' from the regulatory authority in the country of domicile;
- Shareholders' agreement providing for disposal/transfer of shares as well as authorization, amendments, waivers, reimbursement of expenses;
- Statement of intent to invest in the bank by each investor;
- Technical Services Agreement;
- Detailed Manuals and Policies, particularly:
- Manual of Operations;
- Asset/Liability Management Policy (ALM Policy) that highlights the bank's permissible assets and liabilities, sets the standards for managing its interest rate, duration risk, and liquidity risk, and delineates the composition, duties, and operational procedures for the bank's Asset/Liability Management Committee;
- Financial Management Policy that highlights the bank's
financial management policies and procedures, and system of
internal controls. The Policy should include, at a minimum:
- Accounting policies and principles;
- Roles and responsibilities of the senior management officials responsible for financial management;
- Treasury operations, including funds management, vouchers, payroll, and procurement;
- Financial record-keeping and reporting; and
- Auditing and periodic testing of internal controls.
- Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Policy;
- Enterprise-Wide Risk Management Framework; 13 Classified as Confidential;
- Code of Ethics and Business Conduct that specifies high standards for honesty, integrity, and impartiality for the bank's employees, officers, and directors and provides guidance on avoiding conflicts of interest, self-dealing, and other types of impropriety as specified in the BOFIA or by the Bank. Every director and officer of the bank shall be required to sign the Code of Ethics and Business Conduct;
- 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. Where the CBN is satisfied with the application, it shall issue an Approval-in-Principle (AIP) to the applicant.
Note that the proposed bank is not to register its name with the Corporate Affairs Commission (CAC) until an AIP has been obtained from the CBN in writing, a copy of which shall be presented to the CAC for registration.
Requirements for Granting of Final License
Not later than six (6) months after obtaining the A.I.P, the promoters of a proposed bank are required to submit the application for the grant of a final license to the CBN.
The application shall be accompanied by the following:
- A non-refundable licensing fee of N2,000,000.00 (Two Million Naira Only) in bank draft payable to the Central Bank of Nigeria;
- Certified True Copy (CTC) of Certificate of Incorporation of the bank;
- Certified True Copy of the Memorandum and Articles of Association;
- Certified True Copy of Form CAC 1.1 or Application for Registration Status
- Evidence of the location of Head Office (rented or owned) for the takeoff of the business;
- Schedule of changes, if any, in the Board and Shareholding after the grant of AIP;
- Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, to perform the bank's operations and meet CBN and other regulatory requirements;
- Copies of letters of offer and acceptance of employment in respect of the management team;
- Detailed resumes of top management staff;
- Completed Fitness and Propriety Questionnaire, and sworn declaration of net worth executed by top management staff;
- Bank Verification Number (BVN) and Tax Clearance Certificate of each top management staff;
- Comprehensive plan on the commencement of the bank's operations with milestones and timelines for the roll-out of key payment channels; and
- Board and staff training programme.
Finally, as a requirement to the grant of a final license, the CBN shall conduct an inspection of the premises and facilities of the proposed bank for the following purposes;
- Check the physical structure of the office building and infrastructure provided for the take-off of the PSB;
- Sight the original copies of the documents submitted in support of the application for license;
- Meet with the Board and Management team whose resumes had earlier been submitted to the CBN;
- Verify the capital contributions of the promoters; and
- Verify the integration of its infrastructure with the National Payments System.
Financial Requirements for Payment Service Bank License
The summary of capital requirements for the PSB licensing process is as follows:
- Minimum capital- ₦5,000,000,000.00 (Five Billion Naira).
- Non-refundable application Fee- ₦500,000.00 (Five Hundred Thousand Naira).
- Non-Refundable Licensing Fee- ₦2,000,000.00 (Two Million Naira).
- Change of name fee ₦1,000,000.00 (One Million Naira) where applicable
A PSB is required to comply with all guidelines and regulations issued by the CBN and other sector regulators. It is important to state that upon the grant of a license, the CBN will refund the shareholder funds deposited to the applicant, together with the interest, if any, after deducting administrative expenses and tax on the income.