LICENSING IN NIGERIA’S FINTECH INDUSTRY: UNDERSTANDING THE CBN’S FRAMEWORK.

Nigeria’s fintech industry is one of Africa’s most dynamic, with rapid innovation driven by digital payments, mobile money, and API-based financial services. To maintain stability and protect consumers, the Central Bank of Nigeria (CBN) has introduced several licensing frameworks that govern how payment companies operate. These frameworks seek to balance innovation with accountability, providing clear guidance on permissible activities, capital requirements, and risk management obligations.

Regulatory Basis for Licensing

The bedrock of Nigeria’s licensing structure lies in the Banks and Other Financial Institutions Act (BOFIA) 2020and the Central Bank of Nigeria (CBN) Act 2007. Section 56 grants the CBN Act powers to issue rules, guidelines and policies for the operation of the bank. Complementing these statutes are some key frameworks, such as:

1. The New Licence Categorisations for the Nigerian Payments System (2020), which classify fintech operators into specific licensing categories with distinct capital thresholds and permissible activities.
2. The Guidelines on Operations of Electronic Payment Channels in Nigeria (2021), which prescribes the operational, security, and risk management standards for e-payment services.
3. CBN Regulatory Sandbox Operations Framework (2021) which allows fintech innovators to test new financial products and services under CBN supervision before full market launch.
4. Nigerian Payments System Vision 2025, a strategic blueprint by the CBN that aims to create a “cashless, inclusive, and efficient” payments landscape by 2025.

Together, these frameworks establish the operational boundaries for fintechs and payment service providers, reinforcing the CBN’s supervisory role in the digital economy.

Payment Service Licensing Framework

Under the BOFIA and the 2021 Payment Systems Guidelines, the CBN operates a multi-tier licensing system for Payment Service Providers (PSPs). The framework enhances consumer protection and market integrity, with sanctions for non-compliance including fines up to ₦500 million, licence suspension or revocation, and possible criminal prosecution. Sections 57–58 of BOFIA 2020 make it an offence to conduct financial business without authorisation, while periodic CBN circulars and enforcement notices outline penalties and corrective measures for non-compliant operators. All payment activities are categorised into distinct licence types, each with specific permissible functions, capital requirements, and consumer obligations such as:

1. Switching and Processing: For entities that route electronic transactions between financial institutions. These operators cannot hold customer funds. The required minimum paid up share capital is ₦2 billion.
2. Mobile Money Operations (MMOs): Licensed to hold customer deposits, issue e-money, and operate wallets under NDIC supervision through designated trust accounts. Capital requirement: ₦2 billion.
3. Payment Solution Services (PSS): Covers sub-licences such as Payment Solution Service Providers (PSSP), Payment Terminal Service Providers (PTSP), and Super Agents. Capital requirements: ₦50 million – ₦250 million.
4. Payment Service Banks (PSBs): Authorised to accept deposits, issue debit cards, and extend financial services to rural or unbanked populations. Operate under inclusion-focused rules. The minimum capital requirement is ₦5 billion.
5. The CBN Regulatory Sandbox Framework (2021): allows fintech innovators to test new products for up to six months under regulatory supervision before applying for a full licence. However, conversion from sandbox to full licence remains low due to stringent compliance and approval timelines.

Compliance Obligations and Operational Boundaries

The Central Bank of Nigeria has established these frameworks to ensure the payment service operators maintain both operational integrity and financial stability.

• The Guidelines on Operations of Electronic Payment Channels (2021) outline strict operational and security requirements for licensed operators
• Paragraph 7 of theLicence Categorisations for the Nigerian Payments System (2020); fintechs must obtain prior CBN approval before forming partnerships with banks or other licensed institutions.
• Operators must implement robust risk management, cybersecurity, and data protection frameworks as provided under the CBN Risk-Based Cyber-security Framework and Guidelines for Deposit Money Banks and Payment System Providers, 2018. They are required to establish governance structures, conduct annual cyber-security audits and ensure compliance with data security best practices.

Fintechs are prohibited from holding/keeping funds, unless licensed as MMOs or PSBs. Violations attract penalties under BOFIA 2020 or CBN administrative sanctions. Additional obligations also arise under the Nigeria Data Protection Act (NDPA) 2023, which mandates lawful data processing and cross-border data safeguards for financial operators.

Industry Implications

The CBN’s licensing structure has reshaped Nigeria’s fintech industry, yielding both benefits and constraints:

Higher Regulatory Barriers: Licensing clarity has boosted investor confidence but high capital thresholds (₦100 million–₦2 billion) limit market access for early-stage firms, concentrating market share among large players.

Compliance Costs vs. Innovation: Enhanced scrutiny from NDPA data audits to cybersecurity certification under the CBN Risk-Based Framework has improved systemic integrity but increased operating costs.

Collaborations and Competitive Dynamics: As only MMOs and PSBs may hold customer funds, most fintechs rely on partnerships with banks or licensed intermediaries, constraining autonomy. The Open Banking Framework may reduce such asymmetries.

Innovation-Regulation Gap: While regulation promotes prudence, technological shifts, AI, blockchain, and embedded finance, require adaptive oversight to prevent stifling innovation. Sustained engagement between CBN and the industry will determine whether regulation remains a growth enabler or becomes a bottleneck to innovation.

Consumer Protection and Trust: CBN’s supervision has improved consumer confidence through fund insurance, disclosure requirements, and faster dispute resolution. Users are now better protected from fraud and unlicensed operators, which is a key milestone in Nigeria’s financial inclusion journey.

Conclusion

Licensing remains the cornerstone of Nigeria’s fintech regulatory architecture. The CBN’s frameworks, notably the 2021 Guidelines and the New Licence Categorisation Circular, have positioned the country as a regulatory leader in Africa’s digital finance landscape. Reforms should aim at streamlining approval timelines, introducing proportionate capital thresholds, and creating specialised licences for emerging segments such as API banking, embedded finance, and digital asset custody. A regulatory approach that safeguards consumers while nurturing innovation will sustain Nigeria’s leadership in Africa’s fintech evolution.