On 28th May 2021, the CBN issued a framework for non-bank acquiring in Nigeria. The framework sets out requirements for Participants and it is the primary regulation for non-bank acquiring in Nigeria.
Participants in non-bank acquiring
- Non-Bank Acquirer
- Settlement Bank/Sponsor Bank
- Merchant’s Deposit Money Bank
- Card Schemes
- Other Payment Schemes
- Nigeria Central Switch (NCS).
Who is a Non-Bank Acquirer?
A Non-Bank Acquirer is a CBN licensed switching and processing Company or any other Company as may be approved by the CBN, other than Acquiring Banks.
Requirements for Approval as a Non-Bank Acquirer
An intending Non-Bank Acquirer must be a CBN-licensed Switching and Processing Company or any other company as approved by the CBN and is to seek for approval from the CBN with the following documents:
- Evidence of engagement with a card scheme
- Due Diligence and Merchant Onboarding Process
- Merchant Risk Monitoring Framework
- Sponsorship letter from one (1) Settlement Bank
- Draft Merchant Agreements
- Details of its settlement arrangements
- Service Level Agreement (SLA) with Settlement Bank
Business Continuity Plan and any other document(s) that may be required by the CBN.
The role & responsibilities of Non-Bank Acquirer are as follows:
- Process and settle transactions on behalf of merchants in Nigeria.
- Put in place, risk controls measure to monitor merchant activity as well as a fraud monitoring/behavioral management solution, such as the KYC/AML policy.
- Control merchant approvals and Provide Payment Scheme acceptance privileges;
- Stipulate its responsibilities to the merchant, for the security and settlement of transaction amounts to merchant accounts.
- Ensure that Merchants’ accounts are credited in respect of the acquired transactions, as agreed in executed SLAs
- Have controls in place, related to establishing and changing merchants’ bank accounts where settlement funds are deposited.
- Execute Agreement with each payment scheme whose transactions it wishes to acquire.
Termination of Non-Bank Acquirer’s Approval
The CBN may terminate a Non-Bank Acquirer’s Approval if:
- It fails to meet the conditions for renewal of operating license, as a switching and processing company in Nigeria;
- CBN revokes any existing license/approval;
- An agreement with or approval of payment scheme(s) is terminated;
- It is unable to maintain relationship with at least two (2) payment schemes;
- There is an operational failure that leads to significant losses/fraud.
Non-Bank Acquirers are prohibited from havingdirect access to or from holding Merchants’ Funds for any other reason whatsoever.
An application for approval is to be sponsored by at least, one (1) acquiring bank (Settlement/Sponsor bank) where the settlement will be domiciled.
The role of the Settlement bank is to:
- Generate financial/transaction data; and
- Compute settlement position in the acquisition process.
The roles of other Participants in a Non-Bank Acquiring Process, that is, the Settlement Bank, Merchant’s Deposit Money Bank, Payment Schemes and NCS are and, may from time to time be provided in the Guidelines for the Operations of Electronic Payment Channels in Nigeria as well as other relevant regulations.
The Framework for Non-Bank Acquiring in Nigeria is a welcome development. The Framework seems to specify requirements for the Non-Bank Acquirer and makes some provisions for the role of the Settlement Banks. It points to the Guidelines for the Operations of Electronic Payment Channels in Nigeria for more direction on the roles of other participants.
The Non-bank financial institutions including FinTech companies that fall into this category will be guided by this regulation, the Guidelines for the Operations of Electronic Payment Channels in Nigeria as well as any other legislation that may be enacted from time to time. The Framework also emphases the importance of risk management and the need for Non-bank acquirers to have a KYC/AML policy.
Please note that the content of this Article is for general guidance on the Subject Matter. It is NOT and is not to be taken as giving legal advice.
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