FINTECH REGULATION IN NIGERIA: CBN DIRECTIVES ON PAYMENT TERMINAL SERVICES

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By Aderonke Alex-Adedipe and Hillary Okorotie 

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Introduction

As part of the Central Bank of Nigeria’s (the “CBN”) efforts to maintain a transparent transactions settlement system, the CBN issued a Payment Terminal Service Aggregator (PTSA) license to the Nigeria Interbank Settlement System (NIBBS) in 2011. In April 2024, the CBN also issued a PTSA license to Unified Payment Services Limited, therefore becoming the second PTSA license holder in Nigeria. This second license was issued to provide an efficient and transparent settlement system of all Point of Sale (PoS) transactions in the Country and to decentralize the sector.

Subsequently, via a circular released by the CBN on September 11, 2024, the CBN issued new guidelines requiring all Payment Service Providers (PSPs) to commence regularization and channel their operations through either of the two PTSA licensed operators.

In this newsletter, we highlight some of the functions of PTSA licensed operators and some of the important directives set down by the CBN to PSPs in Nigeria.

What are the Functions of a PTSA Licensed Operator?

Under the approved CBN Guidelines on the Operation of Electronic Transaction Channels, a PTSA has the following functions:

  1. Ensure all deployed PoS devices meet technical and operational standards through terminal certification processes.
  2. Establish a communication network that guarantees reliable PoS data traffic and ensures the service and availability expectations of the industry are met cost-effectively.
  3. Route all transactions from PoS terminals to the relevant acquirer or their designated third-party processor.
  4. Certify PoS terminals that meet the industry standards as approved by the CBN.
  5. Continuously monitor the availability and transaction traffic of all PoS terminals, providing detailed analysis and performance reports to the CBN and industry stakeholders.
  6. Ensure timely settlement for merchants and other relevant parties upon receiving settlement reports from card schemes or their appointed switches.

What are the New CBN Directives to all Relevant Stakeholders?

a.Transaction Routing:  All Acquirers1 must process transactions from PoS terminals at merchant and agent locations (whether on physical or electronic terminals) through one of the two Payment Terminal Service Aggregator (PTSA) licensed by the CBN.

b.Transaction Processing and Integration: PTSAs must ensure that all PoS transactions are sent to only those Processors2  that; (i) have been certified by the relevant payment scheme3;  (ii) are nominated by the Acquirer; and (iii) are licensed by the CBN. In addition, all licensed Processors must integrate with both PTSAs, giving acquirers the flexibility to choose which processor(s) and PTSA processes its transaction.

c.PoS Device Configuration: All Payment Terminal Service Providers (PTSPs) providing PoS devices must ensure that their PoS devices and software are configured  to route transactions through either of the PTSAs only, as directed by the Acquirer.

d.Monthly Reporting: In order to ensure compliance with the guidelines, all PTSPs are required to issue a monthly report to the CBN containing (i) details of the number of merchants and agents they manage and (ii) details of  the PTSA used to route the transactions. Each PTSA is also required to submit a monthly report outlining all transactions processed through its platform.

Conclusion

The decision of the CBN to decentralize the PTSA sector is commendable, creating opportunities for competition and providing participants with the ability to make a choice without over-burdening a single PTSA with excessive transactions.  It is also important that all relevant stakeholders align and adopt the new directives of the CBN to facilitate seamless electronic transactions in Nigeria.

 

 

Footnotes

1.Acquirers mean banks that enter into agreements with Merchants to accept payment using electronic payment methods.

2.Processors mean switching companies processing card transactions.

3.Payment schemes are systems or infrastructures used in processing electronic transactions.