In a move to enhance oversight, security, and compliance in Nigeria’s payment ecosystem, the Central Bank of Nigeria (CBN) released a directive on September 11, 2024. The policy mandates that all Point of Sale (PoS) transactions in Nigeria must be routed through Payment Terminal Service Aggregators (PTSAs), which are licensed by the CBN. This significant development is aimed at improving transparency and monitoring electronic payments, minimizing fraud, and strengthening Nigeria’s financial system.
What Are Payment Terminal Service Aggregators (PTSAs)?
Payment Terminal Service Aggregators (PTSAs) act as intermediaries in the financial system, responsible for processing PoS transactions from various merchants, agents, and businesses. Initially, the Nigeria Interbank Settlement System Plc (NIBSS) was the sole PTSA licensed by the CBN in 2011. However, to reduce the risks associated with having a single aggregator process all PoS transactions, the CBN licensed Unified Payment Services Limited as the second PTSA in April 2024. This addition decentralizes the PoS transaction network, increasing market competition and improving system resilience.
Key Requirements Under the New Directive
The new policy requires the following:
- Mandatory PTSA Routing: All PoS transactions must be processed through one of the two licensed PTSAs—NIBSS or Unified Payment Services Limited.
- Integration for Payment Processors: Payment processors must integrate with both licensed PTSAs to ensure that financial institutions, known as acquirers, can select their preferred service provider.
- Reporting Requirements: Payment Terminal Service Providers (PTSPs) and payment processors are obligated to submit monthly reports to the CBN. These reports must include transaction volumes, routing specifics, and any operational issues encountered.
Importance of the Directive
The CBN’s directive forms part of a larger strategy to bolster the security, efficiency, and transparency of electronic payments across Nigeria. The new rules are expected to:
- Enhance Monitoring and Oversight: By centralizing transaction reporting through licensed PTSAs, the CBN gains better visibility into the market, allowing for more effective oversight.
- Strengthen Fraud Prevention: More stringent monitoring will help reduce incidences of fraud and cybercrime within the PoS payment ecosystem.
- Improve Compliance: With enhanced tracking of transactions, the CBN can ensure that payment processors and acquirers meet regulatory requirements, helping to prevent money laundering and other financial crimes.
Compliance Obligations for Payment Terminal Service Providers (PTSPs)
Under the new regulations, PTSPs—who manage PoS terminals—must adhere to specific compliance measures. This includes:
- Integration with Licensed PTSAs: PTSPs must ensure their PoS terminals are configured to work seamlessly with the two licensed PTSAs, facilitating smooth transaction processing.
- Monthly Reporting to the CBN: PTSPs are required to submit detailed monthly reports to the CBN, providing transparency into the number of transactions processed and any system issues. This increased reporting frequency will enhance regulatory oversight.
Compliance Challenges for Fintechs and Payment Processors
Fintech companies, particularly those offering payment services, will need to adjust to these changes swiftly. Here are some compliance implications:
- Data Reporting and Transparency
- Fintechs must ensure that their payment systems are capable of capturing and accurately reporting PoS transaction data. This could involve upgrading existing infrastructure or implementing new data management tools to meet the reporting requirements.
- Failure to comply with these reporting standards could result in penalties from the CBN, putting fintechs at financial and reputational risk.
- Implications for Third-Party Partnerships
- Many fintechs partner with PTSPs to offer PoS services to their merchants. These partnerships now come with added responsibilities, as fintechs must ensure that their partners comply with the new regulations.
- Third-Party Risk Management: Fintechs should perform due diligence checks on their PTSP partners to ensure their systems are fully compliant with CBN mandates. This may include verifying technical configurations of PoS devices and ensuring that they are compatible with the licensed PTSAs.
- Contractual Adjustments: Fintechs may need to renegotiate contracts with their PTSP partners to clearly outline the new compliance obligations and reporting requirements.
Regulatory Scrutiny and Penalties
The CBN has given operators a 30-day deadline to align their systems with the new regulations. Payment processors, PTSPs, and fintechs must register their systems with the Corporate Affairs Commission (CAC) within this period. Failure to meet this timeline can result in fines, operational restrictions, and potential reputational damage.
- Non-Compliance Risks:
- Financial Penalties: Companies that do not comply with the new directive may face hefty fines from the CBN.
- Reputational Impact: For fintechs that rely on trust in handling sensitive financial transactions, any publicized non-compliance could harm their reputation and erode customer trust.
Cybersecurity and Fraud Mitigation Measures
As part of its efforts to mitigate fraud in electronic payments, the CBN expects fintechs and payment processors to enhance their cybersecurity protocols, including:
- Multi-Factor Authentication (MFA): Strengthening authentication methods for PoS transactions will help reduce fraud.
- Encryption: PoS data must be encrypted to prevent interception by fraudsters, protecting sensitive customer information.
- Penetration Testing: Regular security testing of payment systems will ensure that they remain resilient to cyber-attacks.
- Anti-Money Laundering (AML) Compliance: Fintechs must adopt more stringent anti-money laundering measures, including enhanced know-your-customer (KYC) processes, to prevent illicit financial activity.
The CBN’s new directive on PoS transaction routing and PTSA licensing marks a significant shift in Nigeria’s electronic payment landscape. For fintechs, payment processors, and PTSPs, these changes introduce new compliance responsibilities but also offer opportunities for greater transparency and security. By integrating with licensed PTSAs and adopting the required reporting measures, fintechs can align with CBN’s vision of a safer, more robust financial system.
Fintechs and payment processors must act to ensure compliance with these new regulations to avoid penalties and maintain customer trust in an increasingly regulated market
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