On December 5, 2023, the Nigerian Inter-Bank Settlement System (NIBSS) published a circular that sparked a ton of conversations across the local financial industry. The circular required Deposit Money Banks (DMBs) to disconnect all non-deposit financial institutions from their NIBSS Instant Payment (NIP) platform. According to the NIBSS, this is because such institutions are not authorized to hold customers’ funds.
Conversations surrounding the NIBSS circular reveal that a good number of people are unaware of what non-deposit financial institutions are. Hopefully, this article will serve to clear the air on non-deposit financial institutions by talking about Electronic Payment Service Providers (EPSPs).
Who Are Electronic Payment Service Providers (EPSPs)?
Electronic Payment Service Providers (EPSPs) are special institutions that enable business merchants to make and receive electronic transfers or payments.
These third-party companies provide the service for electronic payment by creating platforms, software, and, sometimes, hardware. All that comes together as a unit which businesses can choose, adopt, and utilize for processing payments from customers or making payments to other businesses.
In the Nigerian digital ecosystem, EPSPs fall under the general classification of Payment Solution Service Providers (PSSPs).
They, however, stand different from Mobile Money Operators (MMOs), Payment Terminal Services (PTS), and Switching and Processing Services which all exist under the same classification.
How Electronic Payment Service Providers Operate
EPSPs serve as a kind of middleman. They take digital money from a sending party, pass it through traditional banks that do the actual work of settlement, and then pass the processed funds to a receiving party.
Three major features which make this possible are the merchant account, payment gateway, and a connection to mainstream financial infrastructure. Here’s how it all works.
Online businesses such as restaurants, e-commerce stores, and charity/donation websites usually provide users with a dashboard. Here, users have access to view their digital shopping carts, account activities, and payment history.
Besides read-only processes, user dashboards also have a “pay” or “check out” button, enabling them to initiate payment for charity or products and services purchased through the platform. Clicking this one button sends an electronic payment service into action.
The first phase of the operation will take the user off their dashboard and onto a payment gateway.
Payment gateways are platforms where users can choose their method of payment (either credit card or debit card) and securely input their private card details. Inserting the required card information is sort of a confirmation. It declares that the user trusts the gateway and accepts a debit from the account linked to the card they provided.
The gateway processes the card and transaction information (such as payment amount), identifies the bank operating the card (also known as the issuing bank), and sends both card and transaction information to the issuing bank for further processing.
The NIBSS framework is utilised for connecting payment gateways to issuing banks across Nigeria.
On receiving a gateway request, the issuing bank analyzes the transaction and determines whether to approve or reject the payment. A decision is made (usually under a second) and both paying and receiving customers are informed of it.
If the payment is rejected, the entire operation comes to an abrupt end.
Conversely, an approved payment will continue through the network. The issuing bank will release the requested fund (by debiting the payer) and send it to the merchant’s bank through the NIBSS framework. The merchant’s bank (also known as the acquiring bank) will then respond by crediting the merchant/receiver’s bank account.
List of Some Electronic Payment Service Providers in Nigeria
Tech enthusiasts would agree that Nigeria is the next frontier for fintech development and adoption.
In Africa, banking and finance companies increased by more than 80% between 2021 and 2022 alone. Much of this growth occurred in Nigeria. To make clear the extent of this, the country had an impressive record of 16 switching and processing firms, 47 super agent companies, and 75 PSSPs operating as of December 2023.
Here’s a brief about some of the available PSSPs:
Flutterwave Technology Solutions Limited
Flutterwave, a Nigerian unicorn, was developed in 2016 to help Africans build businesses that send and accept payments globally. So far, it has been a major success.
The company brilliantly offers technical and non-technical means of accepting payments. For example, businesses can simply register, connect their accounts, and acquire a payment link. All they have to do then is to place this link on their websites.
Customers who click on it will jump to a Flutterwave gateway where they can make payments to the business.
AppZone Limited
AppZone, now known as Zone, claims to be “the first decentralised payment network powered by blockchain to be licensed in the whole of Africa.” Businesses can access the platform’s APIs and integrate them into their system for multiple payment use cases.
Kora Payments
Kora Payments is an electronic payment service provider that delivers APIs for bulk payouts and real-time balances. Since its inception in 2017, the company has achieved remarkable popularity in the Nigerian financial sector and also boasts an impressive array of products.
Electronic Payment Service Providers License and Other Information
Since we’re talking about Electronic Payment Service Providers existing and operating in Nigeria, it is necessary to cover information about licenses and other requirements.
We should begin by restating that EPSPs are more specifically referred to as the PSSPs or Payment Solution Service Providers within the Nigerian fintech ecosystem.
These institutions are responsible for creating payment solutions and applications. Subset to this responsibility is maintaining payment gateways and portals. In addition, existing laws allow PSSPs to organize and coordinate collection services as well as perform merchant services aggregation.
The PSSP licensing requirement is quite distinct from those of other institutions. It may surprise you to know that while Mobile Money Operators require a paid-up share capital of NGN 2 billion for licensing, PSSPs only need to have NGN 100 million.
Now to the limitations. A PSSP licensee is not permitted to hold customer funds or to engage in any form of e-money issuing. This implies that companies behind such systems cannot create or manage digital wallets.
Conclusion
When you think about Stripe, you’re thinking about an Electronic Payment Service Provider (EPSP). In our local context, we will be thinking of businesses like Flutterwave, AppZone, and Kora Pay.
We’re sure you now understand what these types of businesses are and how they operate. However, as a final word, we advise that you research the operations of an EPSP and determine that you trust them before making use of their services.
