Regulatory Framework For Mobile Money Operators


By Chinonye Nnanji

1 Introduction 

I’ve had the pleasure of being part of the last two discussions on this platform and both speakers succinctly gave a guide as to general fintech law and regulation. If we recall, there are various Fintech classifications or may I say offerings worldwide and in Nigeria. Some of which include PSSP, PSTP, MMOs (our topic for today), payment service banks, payment gateways, switching companies and a host of others, many of which offer mobile payment services or mobile banking services.

  1. Overview of the Mobile Money Operators

At this point, it is important for me to clarify the distinction between Mobile Payment and Mobile Banking. Most Fintechs offer Mobile Payment which entails sending funds directly to the recipient through a mobile phone, application, etc. while Mobile Banking involves logging on to a banks site or its web application to access mobile services.

Also, Mobile Payments replace a payment card with a phone, either at the physical point of sale or via a phone using a browser or application, while Mobile Banking essentially entails obtaining banking services through a phone. Both of them utilize same tools/ infrastructure but different uses. Note that some banks offer both, a good example of this is Wema Bank’s ALAT.

Why is this distinction necessary? Because it will help us to understand the use cases of the Mobile Money Services (MMS) provided by Mobile Money Operators (MMOs). MMS falls under Mobile Banking as opposed to Mobile Payment and this informs their use cases.

The activities of a MMO can be described as synonymous with a bank who decides to provide mobile banking services to its customers. Through a smart phone you can download a mobile banking app and explore banking through using Unstructured Supplementary Service Data (USSD) and make payments of all sorts. We all hear USSD but never really know what it means. They are “Quick Codes” or “Feature Codes” meaning a communications protocol used by GSM cellular telephones to communicate with the mobile network operator’s computers to give instructions and carry out those commands.

Persons who have cards can also connect to the smartphone applications or the mobile number of their phones. With this mobile banking cards like other traditional cards, you can purchase goods in store that accept non-cash payment. Essentially this is what MMOs facilitate. Examples are Paga, First Monie (by First Bank), GT MobileMoney (by GTB), PocketMoni, EazyMoney by Zenith Bank, my wallet, etc.

Mobile payment has evolved as a veritable channel for facilitating the growth of commerce, once again, this essentially entails the use of a mobile phone for the initiation, authorization and confirmation of the transfer of value out of a current, savings or stored value account.

Mobile money is essentially an electronic way of accessing your funds and this supports CBN propaganda of a “cashless society”. Mobile Money scenarios can be:

  • Bank account based: majorly pull based account transactions (debits through a mobile money solution) and push based account transactions (credits through a mobile money solution).
  • Card account based: This is a scenario where a payment card is linked to a mobile phone for the purpose of initiating and concluding payment transactions. It is applicable to credit, debit and pre-paid cards.
  • Stored value i.e. e-wallet account based: Under this you have re-loadable stored value account, pre-paid accounts, etc.
  1. Use Cases, Limits and Licensing Requirements for Mobile Money Operators in Nigeria 

There are a number of players/ participants in the MMS value chain (we will treat the MMOs last). Firstly, the Regulator i.e. the CBN. In some sense the NCC also, I’ll explain that shortly.

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Next you have the technology enabler/ software developer. This may be different from the Fintech or bank operating as the MMO, which means that there will be a software development agreement which involves a host of legal issues that can be treated as a topic on its own. Usually, the technology used by the MMO would have to meet specific requirements regarding interoperability and interconnectivity, PIN encryption at the point of entry, non-repudiation, consistent execution and immediate reversal upon failure, immediate value, etc. Note that MMOs are required to connect to the National Central Switch (NSC) to ensure interoperability.

There are also the infrastructure providers who provide supporting services as they enable switching, processing and settlement facilities (also intra and inter-scheme settlement providers) for MMS. So you have your merchant acquirers which can also be banks, you have your super-agent, mobile money agents who are registered by MMOs to offer mobile money services mainly registration, cash in cash out, airtime vending and bill payments, specifically, to target underserved areas where financial exclusion rates are higher.

Telecommunication companies also play a huge role here by driving the exchange of messages for mobile payments. This is why I earlier said that NCC is a regulator here as the NCC is to approve all telecoms equipment use adopted in delivering MMS. Also, when it comes to USSD Codes; MMOs are eligible for the issuance of USSD short codes from the NCC after meeting NCC’s requirements for the issuance of same.

(Refer to the CBN’s “Regulatory Framework for The Use of Unstructured Supplementary Service Data for Financial Services in Nigeria” and the NCC’s “Guidelines on Short Code Operation in Nigeria”).

As MMS develop, spin-off services would be identified by MMOs, which can be outsourced to entities with specialized skills and resources to support such services in a more efficient way.

Then off course we have the consumers/end users, you and I.

Now back to MMOs. As we now know these are the organisations licensed by CBN to provide the system for MMS.

The consortium: participants need to be clearly and carefully structured, all participants must understand their roles, obligations, benefits, etc.

Now we will go on to the other Value Chain Licensing.


The most important things you need to note in terms of licensing are;

a) Share Capital

The Share Capital requirements for operating as a MMO is N2, 000, 000, 000 (Two Billion Naira).

b) Application Fee

Payment of a non-refundable Application Fee of N100, 000.00 (One Hundred Thousand Naira), made payable to the CBN via the RTGS Third Party Transfer.

c) Licensing Fee

Licensing Fee of N500,000 shall be paid to the CBN.

d) Rules

The operating rules for the scheme settlement operators who are to leverage the Nigeria interbank settlement system (NIBSS) and CBN’s interbank funds transfer system (CIFTS) to facilitate instant payments.

In addition to the above, other requirements can be found in the Framework. Also, there is need to have a business plan, an information technology policy, an enterprise risk management framework, etc.

Furthermore, if the MMO in question is a bank’s MMO, there are additional requirements such as the verification, approval and accountability for the credibility of partners, and the MMOs have a duty to provide an agent network to extend the proposed services to the market place.

  1. Understanding the Mobile Money System/Services Ecosystem (Ecosystem) 

MMS can be implemented either through a bank led model or a non-bank led model.

The Bank-led model: This refers to were a bank or its consortium is the lead initiator. Under this model, the bank operates on a stand-alone basis or in collaboration with other banks, however the bank may partner with other approved organisations seeking to deliver banking services whilst leveraging on the mobile money system. Regardless, the bank must be the lead initiator and answerable to the CBN.

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The Non-bank led model: This allows a corporate organisation (other than a deposit money bank or a telecommunications company) duly licensed by the CBN to deliver mobile payment services. So an entity other than a bank is the lead initiator.

It is important to note that the CBN does not recognize telecommunications companies (Telcos) as lead initiator (i.e. the Telco-led model) in Nigeria. This raises a host of issues, specifically as many are of the opinion that Telcos have a huge role to play in financial inclusion. There’s a tilt to this as Telcos are permitted to participate through a subsidiary obtaining a Payment Service Bank License.

The lead initiator is legally responsible and accountable to the CBN and End Users, and all adverts and public pronouncement on the scheme should emanate and be issued by only the Lead Initiator.

It is my opinion that, the literal interpretation of the Guidelines and Framework shows that perhaps banks are not required to obtain a license as a MMO, whereas other corporate organisations are required to. Specifically, the wordings of the Framework. However, this is only my unpopular opinion.

In practice, banks obtain the license and it would be safer to advise your bank client to obtain the license.

At this point, it is pertinent to discuss the issue of deposits obtained from consumers/end users. Can MMO’s accept deposits? What can they do with the deposits/consumer funds, etc.

All MMOs are required to keep a settlement/ nominee account. i.e. Settlement accounts are to be opened in Deposit Money Banks (DMBs) as nominee accounts on behalf of the customers of the MMOs. It is very important to note that the account shall be a non-interest bearing account, there is no right of set-off as you usually have with normal accounts, debit transactions in the account shall only be for settlement related transactions and no charges of any form are to apply to the account. The CBN produces a number of restrictions to protect end users.

Importantly, at all times the balance on the settlement account shall always be equal to the total outstanding i.e. unspent balance of all holders of the e-money. Simply put, the total sum held by all account holders in the MMO must always be equal to the sum in the nominee account. This is simply to protect customers, ensure that the MMO does not tamper with funds and allows end users access to their funds at all times.

The issue of deposits doesn’t come up in the bank led model, because a bank can by its very nature accept deposits, access the funds, invest same etc.

In the case of the non bank-led model, it is important to understand that the MMO does not take deposit of money as the money goes straight into a settlement/ nominee account in a DMB. The MMO cannot hold or tamper with the money. Think of the scenario below;

Where Mr. A owns a Paga Wallet (Wallet) and transfers 10k from his UBA savings account to his Wallet. The money does not go to Paga directly, but to Paga’s nominee account opened in say First Bank. Paga can only debit the funds when you initiate the debit transaction to make a payment. This means that Paga must always partner with banks to carry out MMS.

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Paga earns its fees primarily from the fees you pay to access its platform. Also, fees are earned via payment advances, which does not entail investing of customer funds and yielding interest. They may however have some third party arrangements with the partnering bank.

  1. Understanding the Role of Lawyers and Opportunities in the Ecosystem 

I would like to address the roles of lawyers in the ecosystem. There exist plethora of opportunities for lawyers, and some are stated below;

a) to essentially assist a client, in this case i mean an intending MMO or other parties in the value chain;

b) assistance of client’s in incorporation;

c) provision of services with respect to licensing stage; obtaining MMO license, or any of the PSP tier licenses, obtaining USSD Codes, etc.

d) drafting of relevant agreements such as the software development agreement, agreements between participants/ technical partners such as the bank, switching company, telcos, merchants etc.

e) dispute resolution as the guideline provides that, if disputes are not resolved by the parties and even after CBN gets involved, then the dispute would be settled in accordance with the provisions of the Arbitration and Conciliation Act.

It is worthy to note that, Lawyers that play in the Fintech space tend to have an added advantage, owing to the fact that, we have an understanding of the technology behind that gave rise to the disputes.

f) preparation and review of risk management frameworks, security frameworks and business continuity plans.

There’s a host of opportunities if we just understand the framework. We can also come in at the consumer protection angle, for which we would also have to have at least a basic understanding of the Federal Competition and Consumer Protection Act. 

Case Study: 

IntPay Ltd (IntPay), a foreign entity in the fintech space approaches you to advise them on their venture into Nigeria. They intend to incorporate an entity in Nigeria, and wish to know what is required for them to perform the following functions, and do so in a cost effective manner:

– Access deposits

– Provide electronic deposit of funds

– Enable customers make payment for goods and services

– Have access to funds of users

– Have a physical network across Nigeria

– Give loans

– Assist online merchants to receive payments

What would you advise? 

Answer – Thanks! At first glance you might want to tell Int Pay to just a banking license since it wants to do so much. But they need a cost effective solution. The PSP Standard license which would cover all but one of what it seeks to do. Refer back to my definition of the licenses under the standard license tier.

The outstanding will be to have access to the funds. This you would have to determine with your client so there’s no clear answer. Should they set up a micro finance bank? Some other form of arrangement? Our ingenuity as lawyers come in here. Understanding of Fintech Laws: Lex should have also advised them at the point of incorporation that the provision of payments processing services is a regulated activity and he should have assisted them in procuring the applicable license.

This article was facilitated by and written under the auspices of the Nigerian Fintech Lawyers (NFL). All rights are reserved. No part of this article shall be used without the express consent of NFL admin group and the author.


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