New CBN Directive for Payment Service Providers: Mandatory Routing of PoS Transactions Through Licensed Aggregators

On September 11, 2024, the Central Bank of Nigeria (CBN) released a circular directed at Payment Service Providers (PSPs), enforcing new regulations to ensure improved tracking and management of electronic transactions across the country. This circular, signed by Oladimeji Yisa Taiwo, Director of the Payments System Management Department, marked a significant shift in how Point of Sale (PoS) transactions would be processed. The circular mandates that all PoS transactions, whether conducted on physical or electronic terminals, must be routed through certified Payment Terminal Service Aggregators (PTSAs). This regulation is intended to streamline the nation's payment infrastructure, reduce reliance on a single aggregator, and promote transparency​.

This regulatory change impacts the entire ecosystem of payment service providers in Nigeria, particularly acquirers, processors, Payment Terminal Service Providers (PTSPs), and the PTSAs themselves. The directive applies broadly to merchant and agent locations throughout Nigeria and aims to fortify the integrity of the payment system in the country.

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Background and Evolution of the PTSA System

To understand the implications of this new directive, it’s important to look into the history of the Payment Terminal Service Aggregators in Nigeria. In August 2011, the CBN granted its first PTSA license to the Nigeria Interbank Settlement System (NIBSS). This move allowed NIBSS to become the central aggregator for all PoS transactions in Nigeria. However, over time, concerns emerged regarding the risks of consolidating all PoS transactions through a single aggregator, raising fears of inefficiency, potential failures, and limited innovation in the sector​.

In response to these concerns, the CBN granted a second PTSA license in April 2024 to Unified Payment Services Limited (UPSL). The CBN, by doing so, introduced competition into the system, aiming to decentralize the payment aggregation process and provide PSPs with more choices. This step was taken to bolster the nation’s electronic payment ecosystem, reduce the risks posed by monopolistic control, and enhance operational flexibility​.

Here’s how the circular impacts payment service providers in Nigeria:

1. Mandatory PTSA Integration

PSPs must ensure all transactions from PoS terminals are routed through any CBN-licensed PTSA. Initially, the Nigeria Interbank Settlement System (NIBSS) held a monopoly as the sole PTSA, but in April 2024, CBN granted a second PTSA license to Unified Payment Services Limited (UPSL). This development provides PSPs with flexibility in choosing between licensed PTSAs​.

2. Processor and PTSA Flexibility

Acquirers now have the liberty to choose which PTSA and processor they prefer. Licensed processors must integrate with both PTSAs, ensuring PSPs can select processors certified by relevant payment schemes and authorized by CBN. This enhances competition and prevents reliance on a single aggregator​.

3. Configuration of PoS Devices

Payment Terminal Service Providers (PTSPs) are required to configure their PoS devices to route transactions through PTSAs as per the acquirer’s directives. This guarantees that the transaction flow complies with the new regulatory requirements, securing the overall payment process​.

4. Reporting Requirements

To ensure transparency and compliance, PSPs and PTSAs must submit monthly reports to CBN. PTSPs are responsible for reporting the number of merchants and agents they manage and the PTSA services used. PTSAs must also submit detailed transaction reports from their platforms within seven days of the end of each month​.

5. Compliance and Sanctions

The circular enforces a 30-day compliance deadline for PSPs to regularize their systems with PTSAs. PSPs must notify CBN in writing about their compliance status within this period. Failure to comply will result in sanctions, although specific penalties were not detailed in the circular​.

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Conclusion

The CBN’s directive is a significant step in strengthening Nigeria’s electronic payment infrastructure. With the introduction of competition into the aggregation process, enhancing transparency through strict reporting requirements, and mandating compliance within a 30-day window, the CBN aims to improve both the efficiency and security of the payment system. PSPs, PTSPs, and PTSAs must adapt quickly to these changes to remain compliant and avoid sanctions​. Ultimately, these reforms are expected to foster a more resilient and dynamic payment ecosystem in Nigeria, benefiting merchants, consumers, and the broader financial system.

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