The Central Bank of Nigeria (CBN) has recently announced a new policy requiring all Point of Sale (POS) terminal operators to register with the Corporate Affairs Commission (CAC).

This decision marks a significant shift in the regulation of financial services in Africa's largest economy and has far-reaching implications for businesses, consumers, and the broader financial ecosystem.

CBN Mandates Registration of POS Business Operators in Nigeria: What You Need to Know

In this blog, we’ll explore the differences between an LLP and a General Partnership, and provide a guide on how to convert a General Partnership to an LLP, outlining the benefits and process involved.

Understanding the CBN Directive on PoS Operators

The Central Bank of Nigeria, in its role as the apex financial regulator in the country, has taken a bold step to formalize the operations of POS businesses.

The new directive stipulates that all individuals and entities operating POS terminals must now be officially registered under the Corporate Affairs Commission. This move aims to bring structure and accountability to a sector that has experienced explosive growth in recent years.

The decision follows a concerning trend revealed by the Nigeria Inter-Bank Settlement System Plc (NIBSS), which showed that PoS terminals accounted for 26.37% of fraud incidents in 2023. 

By mandating registration, the CBN aims to identify and monitor PoS operators, ensuring compliance with regulations and safeguarding the interests of customers and the overall economy.

The Rise of POS Operations in Nigeria

To understand the significance of this new policy, it's crucial to look at the context of POS operations in Nigeria:

  1. Rapid Growth: In the past decade, POS terminals have become ubiquitous across Nigeria, serving as essential tools for financial transactions in urban and rural areas.
  2. Financial Inclusion: POS operators have played a pivotal role in extending financial services to underbanked and unbanked populations, especially in areas with limited access to traditional banking infrastructure.
  3. Job Creation: The POS business has emerged as a significant source of employment, particularly for young entrepreneurs looking to enter the financial services sector.
  4. Economic Impact: POS transactions have contributed substantially to the growth of Nigeria's digital economy, facilitating billions of naira in transactions annually.

Implications of the CBN Policy

The CBN's mandate for POS operator registration is likely to have several significant implications:

1. Increased Formalization of the Sector

By requiring CAC registration, the CBN is effectively pushing for the formalization of what has been, in many cases, an informal sector. This move is expected to:

  • Improve record-keeping and financial reporting
  • Enhance the government's ability to monitor and regulate POS operations
  • Potentially increase tax revenue from the sector

2. Enhanced Consumer Protection

With operators now required to be formally registered entities, consumers may benefit from:

  • Improved accountability in case of disputes or fraudulent activities
  • Potentially more standardized service offerings and pricing
  • Greater recourse in the event of service failures or misconduct
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3. Potential Barriers to Entry

While the policy aims to bring order to the sector, it may also create some challenges:

  • Increased costs for new entrants due to registration fees and compliance requirements
  • Potential reduction in the number of small-scale or part-time POS operators
  • A possible short-term disruption in services as existing operators scramble to comply

4. Improved Data Collection and Policy Formulation

The registration requirement will likely provide the CBN and other government agencies with:

  • Better data on the scale and scope of POS operations in Nigeria
  • Improved ability to formulate targeted policies for the fintech sector
  • Enhanced capacity to monitor money flows and combat financial crimes.

Steps for Compliance

For existing and prospective POS operators, the path to compliance involves several key steps:

  1. CAC Registration: Operators must register their business with the Corporate Affairs Commission as a business name or a limited liability company.
  2. Obtain Necessary Licenses: Beyond CAC registration, operators may need to secure additional licenses or permits from relevant financial authorities.
  3. Update Existing Registrations: For those already registered with payment processors or banks, updating their information to reflect their new CAC status will be crucial.
  4. Compliance Training: Operators should familiarize themselves with relevant financial regulations and anti-money laundering protocols.

Options for POS Operators to Formalize Their Business

In light of the CBN's directive requiring POS operators to register with the Corporate Affairs Commission (CAC), operators have several options to consider when formalizing their business. Each option has its advantages and considerations:

1. Sole Proprietorship (Business Name)

Process:

  • Choose a unique business name
  • Fill out the necessary CAC forms
  • Pay the required registration fee
  • Submit the application along with necessary documents

Advantages:

  • Simpler and less expensive than registering a company
  • Suitable for small-scale operators or sole proprietors
  • Easier to manage in terms of compliance and reporting

Considerations:

  • Limited liability protection is not provided
  • May have limitations on growth and expansion
  • Some financial institutions might prefer dealing with registered companies

 

2. Private Limited Liability Company (LTD)

Process:

  • Choose a unique company name
  • Appoint directors and shareholders
  • Prepare and file necessary CAC documents (e.g., Memorandum and Articles of Association)
  • Pay the required registration fees
  • Complete post-incorporation processes

Advantages:

  • Provides personal asset protection through limited liability
  • More credibility with financial institutions and potential partners
  • Better positioned for growth and expansion
  • Potential tax benefits

Considerations:

  • More complex and expensive registration process
  • Higher compliance requirements (annual returns, audited accounts, etc.)
  • May require professional assistance to set up and maintain
See also  Kinds of Limited Liability Partnership (LLP) Business

 

3. General Partnership

Process:

  • Draft a partnership agreement
  • Register the partnership with the CAC
  • Obtain necessary licenses and permits

Advantages:

  • Shared responsibilities and resources among partners
  • Relatively easy and inexpensive to form
  • Flexibility in management structure

Considerations:

  • Unlimited personal liability for all partners
  • Potential conflicts between partners
  • Dissolution if a partner leaves or dies

 

4. Limited Liability Partnership (LLP)

Process:

  • Register with the CAC as an LLP
  • Draft an LLP agreement
  • Appoint designated partners

Advantages:

  • Partners have limited liability
  • Flexibility of a partnership with some corporate benefits
  • Suitable for professional services

Considerations:

  • More complex to set up than a general partnership
  • May have higher registration and compliance costs
  • Not as widely recognized as LTDs

 

5. Limited Partnership (LP)

Process:

  • Register with the CAC
  • Draft a limited partnership agreement
  • Designate general and limited partners

Advantages:

  • Limited partners have limited liability
  • Allows for silent investors (limited partners)
  • Flexibility in profit sharing

Considerations:

  • General partners have unlimited liability
  • More complex structure
  • Limited partners cannot participate in management

 

6. Company Limited by Guarantee

Process:

  • Register with the CAC as a company limited by guarantee
  • Obtain special approval from the Attorney General of the Federation
  • Draft memorandum and articles of association

Advantages:

  • Suitable for non-profit activities
  • Limited liability for members
  • Can engage in business activities to support its objectives

Considerations:

  • Profits cannot be distributed to members
  • More complex registration process
  • Stricter regulatory oversight

 

7. One Person Company

Process:

  • Register with the CAC as a one person company
  • Nominate a nominee director
  • Prepare and file necessary documents

Advantages:

  • Limited liability protection for a single owner
  • Simpler compliance requirements than a multi-member LTD
  • Enhanced credibility compared to a sole proprietorship

Considerations:

  • Restrictions on certain types of businesses
  • May face challenges in raising capital
  • Limited growth potential without structural changes

 

8. Unlimited Company

Process:

  • Register with the CAC as an unlimited company
  • Draft memorandum and articles of association
  • Appoint directors and shareholders

Advantages:

  • No minimum capital requirement
  • Flexibility in internal management
  • Privacy in financial affairs (no public filing of accounts)

Considerations:

  • Unlimited liability for shareholders
  • Less common and potentially less understood by stakeholders
  • May face challenges in raising external capital

 

10. Join an Existing Registered Entity as an Agent

Process:

  • Partner with an already registered POS service provider or fintech company
  • Sign up as an agent or franchisee under their umbrella
  • Comply with the partner company's requirements and standards

Advantages:

  • Avoid direct registration costs and complexities
  • Benefit from the established company's infrastructure and support
  • Potentially faster way to achieve compliance

Considerations:

  • Less independence in operations
  • Profit-sharing with the parent company
  • Subject to the partner company's policies and restrictions
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New Directive on Transaction Routing

In addition to the registration requirement, the CBN has introduced a new directive on transaction routing for POS operators.

Key Points of the New Directive

  1. Mandatory Routing Through Licensed Aggregators: All POS operators must now route transactions through licensed Payment Terminal Service Aggregators (PTSAs).
  2. Two Licensed PTSAs:
    • Nigeria Interbank Settlement System Plc (NIBSS) - licensed in August 2011
    • Unified Payment Services Limited - licensed on April 19, 2024
  3. Acquirer Requirements: Acquirers (institutions processing payments from POS terminals) must channel transactions through any of the two licensed aggregators.
  4. Processor Integration: Licensed processors are required to integrate with both PTSAs to give acquirers flexibility in choosing service providers.
  5. PTSP Configurations: Payment Terminal Service Providers (PTSPs) must ensure their devices and applications are configured to work with any PTSA chosen by the acquirers.
  6. Reporting Requirements:
    • PTSPs must submit monthly reports to the CBN detailing the number of merchants and agents they manage, as well as the PTSA services used.
    • Each PTSA must submit monthly reports of all transactions processed through their platforms to the director of the Payments System Management Department within seven days after the end of each month.
  7. Compliance Deadline: All Payment Service Providers (PSPs) must regularize their operations with the PTSAs within 30 days of the directive.

Implications of the New Routing Directive

  1. Enhanced Tracking: This move aims to enhance the tracking and management of electronic transactions in the country.
  2. Increased Oversight: The directive will provide the CBN with more comprehensive data on POS transactions, potentially aiding in policy formulation and combating financial crimes.
  3. Operational Adjustments: POS operators and related service providers will need to adjust their systems and processes to comply with the new routing requirements.
  4. Potential for Innovation: The introduction of a second PTSA may foster competition and innovation in transaction processing services.

The CBN's dual directives on POS operator registration and transaction routing represent significant milestones in the evolution of Nigeria's financial services landscape. While they present challenges, particularly for smaller operators, they also offer the promise of a more structured, accountable, and potentially more robust POS ecosystem.

As stakeholders across the financial sector adapt to these new requirements, it will be crucial to strike a balance between regulatory compliance and maintaining the dynamism that has made POS operations such a vital part of Nigeria's financial infrastructure.

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