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Regulatory shift: Nigerian banks directed to cut off switches, payment solution service providers

In a recent circular, the Nigeria Inter-Bank Settlement System instructs banks to disconnect non-deposit-taking financial institutions from the NIP Outward System, citing contravention of CBN guidelines

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In a significant regulatory move, banks in Nigeria have been instructed to sever connections with switches, payment solution service providers (PSSPs), and super agents from the Nigeria Inter-Bank Settlement System Instant Payment Outwards System. The directive, outlined in a circular dated December 5, 2023, with Ref: NIBSS/BD/NI/PO/005/051223, stems from the contravention of Central Bank of Nigeria (CBN) guidelines on electronic payments.

The circular from the national payment infrastructure company highlights the violation, stating, “This is to bring to your attention that listing non-deposit-taking financial institutions such as switching companies, payment solution service providers, and super agents as beneficiary institutions on your NIP funds transfer channels contravenes the CBN Guidelines on Electronic Payment of Salaries, Pensions, Suppliers, and Taxes in Nigeria dated February 2014.”

NIBSS emphasizes that switches, PSSPs, and SAs, while permitted to process outward transfers as inflows to banks, should not receive inflows as their licenses do not authorize them to hold customers’ funds. The directive also refers to a previous circular dated May 11, 2018, titled ‘Permissible Services and Products of PSSP Operation in Nigeria.’

To operate within Nigeria’s payment ecosystem, entities must obtain one of the specified licenses from the CBN, including Switching and Processing, Mobile Money Operations, Payment Solution Services, and Regulatory Sandbox. Only mobile money operators (MMOs) are authorized to hold customer funds under CBN regulations.

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