The legal requirements for setting up a fintech company

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Fintech startups have consistently discovered ways to enhance financial operations as a result of the “technological” dramatic increase. The demand from individuals for quicker and better accessible financial operations has kept pace with this development. 

Fintech companies have become more prevalent in Nigeria’s financial system, and by 2022, their income is anticipated to rise by $543 million. Before incorporating their company, advocates of Fintech are typically recommended to familiarize themselves with the existing legislative landscape. Sponsors can benefit from having a better understanding of the appropriate organizational structure, new equity needs, and fiscal ramifications associated with any company they wish to start.

For all the reasons outlined above, many entrepreneurs and business owners seek to know the legal requirements before starting up a fintech company. As such, this article contains those legal requirements, as well as the cost, to help you start up a fintech company.

legal requirements for setting up a FinTech company in Nigeria.

The legal requirements for setting up a FinTech company vary depending on whatever FinTech sector you choose to concentrate on. It might be commerce or insurance.

According to Resolution Lawfirm, any person, local business, or foreign corporation intending to launch a fintech company or business in Nigeria must register their own firm with the CAC. The following steps must be followed in order to register a corporation with the CAC:

  • Request a reservation for the desired company name by contacting the Corporate Affairs Commission (CAC).
  • The following details must be supplied on a Company Registration Application Form (Form CAC 1.1):
  • location of the company’s business address.
  • The approved cost of equity for a domestic corporation is typically one million naira (N1,000,000) (N1, 000,000).
  • Information about two executives and stockholders.
  • Legal Practitioner’s Statutory Declaration of Compliance with CAMA Requirements

The following papers must be submitted in order to complete the legal formalities with CAC and go on to stage two:

  • Copies of the Articles of Association and Memorandum that have been approved and certified
  • Authentic documentation, if necessary, approving registration
  • a duplicate of each director’s or shareholder’s identity document from their passport or national identification card.

How much does it cost to start a fintech company?

Starting a Fintech company may seem to cost a lot, given the size and structure.

  • There must first be the Fintech company’s incorporation with the Corporate Affairs Commission
  • As per class attorneys, a “switching and processing company”  must have a minimal preferred stock of N2,000,000,000.
  • The CBN must receive a proposal and all supporting documentation.
  •  license charge is N1,000,000.
  •  the cost of starting up a Fintech company is N100,000

How much is a Fintech license in Nigeria?

Establishing a Fintech(financial technology) company also comes with a license. A FinTech company’s license is based on the classification of the business. Digital banks, payment service banks (PSBs), and payment service providers( ) are the three types of fintech companies.

The person intending to establish this company has to pay a sum of N1,000,000, according to classicattorneys

How do I start my own fintech company?

In this slide, we will show you how to start up your own Fintech company by explaining the legal requirements.

According to the newly published CBN regulations, a fintech company shall be incorporated with the Corporate Affairs Commission (CAC) with a stringent Memorandum and Articles of Association to properly function in Nigeria. Then, it had to have received a valid license from the Central Bank of Nigeria following the submission of the vital requirements and paperwork.

A Financial Technology(Fintech) company must be licensed by the Corporate Affairs Commission and established as a distinct organization to function properly and lawfully in Nigeria.

Here’s what you need to start up your Fintech company.

  • Two ideas for the company’s names
  • the company’s address.
  • The Fintech company’s capitalization of common shares
  • the board, secretaries, and investors’ information
  • The stockholders’ ownership hierarchy in terms of shares
  • the Fintech company’s objectives
  • “government-issued documentation”  for the stockholders, secretaries, and the board.

In Nigeria, there existed more than 100 Fintech businesses operating in digital payments, and finance, “e-payment, and e-collection sectors”  as of 2018. There were 23 financial institutions overall and 940 microfinance institutions throughout the same time frame.

Financial institutions and FinTech companies are working together more frequently to enhance user experience and offer a quicker, more convenient availability of their banking solutions. This partnership has improved the efficiency of the business as a whole and does have a huge amount of potential.

Are fintech companies regulated in Nigeria?

Yes, Fintech companies are massively regulated by statutes and governmental bodies in Nigeria.

The regulation of fintech businesses is not handled by a specific body. Depending on the type of trade the fintech company is involved in, different organizations may regulate different types of fintech businesses.

Nevertheless, the CBN has major regulatory authority regarding fintech activities and goods. It provides licenses and sets rules to control banking firms.

According to www.mondaq.com, additional regulatory bodies include the 

  • National Communication Commission (NCC), 
  • Nigerian Deposit Insurance Corporation (NDIC),
  •  Securities and Exchange Commission (SEC),
  •  National Insurance Commission (NAICOM), 
  • National Information Technology Development Agency (NITDA),
  •  Corporate Affairs Commission (CAC), 
  • Federal Competition and Consumer Protection Commission (FCCPC), 
  • Nigeria Securities & Exchange Commission, and the National Office of Technology and Acquisition Promotion (NOTAP)

Fintech is not also regulated by a particular piece of a statute in Nigeria. Consequently, there are several laws and rules already in place that is relevant to the fintech business. Osama Obasoyo of the Marcus-okoko & Co. Chamber outlined several statues.

  • “Nigeria’s 2015 CBN Guidelines for Mobile Money Services
  • The 2018 CBN Guidelines for Licensing and Regulation of Nigerian Payment Service Banks
  • Guidelines for Deposit Money Banks and Payment Service Providers from the CBN on Risk-Based Cybersecurity, 2018.
  • Regulatory and Supervisory Framework for CBN Microfinance, 2011.
  • The CBN’s 2016 guidelines on how electronic payment channels operate in Nigeria.
  • Nigeria’s 2018 CBN Regulation for Bill Payments
  • Nigerian Financial Services: The CBN Regulatory Framework for the Use of Unstructured Supplementary Service Data (USSD), 2018.
  • The 2015 CBN Guidelines on Nigeria’s International Mobile Money Remittance Service.
  • The 2018 CBN Regulation for Nigeria’s Direct Debit Scheme
  • Nigerian international money transfer services are governed by the 2014 CBN Guidelines.”

How many Fintech startups are in Nigeria?

According to several sources, Nigeria is home to an estimated 150 fintech startups. According to statistics, there were 144 fintech companies as of 2021, and in 2020, McKinsey research estimates that there were approximately 200 independent fintech startups. 

According to an ongoing study conducted by Techpoint Africa, Nigeria is home to approximately 270 current Fintech companies. The majority of such firms, as per the McKinsey analysis, are concentrated in loans and transactions.

 There was formal recognition of Interswitch as Nigeria’s inaugural FinTech startup, with a capitalization of $1,000,000,000 predicated on a $200,000,000 acquisition from Visa in 2019.  When Paystack had been established, Stripe, a US-based investment bank, offered to purchase it in a 200 billion dollar contract. This transaction will take place soon in 2020.

It is impossible to overstate the effect of the Covid-19 pandemic on FinTech companies given the rise in the use of internet banking systems and digitized money transfers for monetary operations.

The percentage of fintech companies in each nation’s demographics is shown below by Techpoint Africa.

  • One fintech company employs 210,970 individuals in India
  • One fintech company for 148,686 individuals in Brazil
  • America has one fintech company for every 38,131 individuals.
  • One fintech company employs 27,200 individuals in the United Kingdom
  • One fintech company for 740,740 individuals in Nigeria

A PWC inquiry revealed that as of 2018, over one-third (36.8%) of Nigeria’s adult population of over 99 million was economically marginalized. This figure represents almost 30,000,000 adult Nigerians.

Fintech startups have leveraged a financial inclusion approach to deliver banking assistance down to the final minute, which ultimately creates employment for these intermediaries.

 The Fintech startups with the most intermediaries are OPay, TeamApt, Paga, and CrowdForce; in total, they have a minimum of 434,000 intermediaries.

Startups in the fintech sector also drive related sectors: A well-known instance is PiggyVest, which was introduced in 2016 to assist people with digitizing their funds. PiggyVest was launched, following Paystack, which was a major determinant of their performance. Customers might probably have had fewer possibilities to transfer payments if they had opened sooner, which might have caused the company to fail.

top PTSP companies in Nigeria.

A PTSP is a company operating in the Nigerian payments sector that has been granted a permit by the CBN. PTSP is in control of ensuring the efficiency of Point of Sale (POS) services and a suitable assistance network.

As an unrestricted industry, PTSP was reliant on the switches and operators that already processed credit and debit cards. Since the company stated they were exposed to the unjust regulations of the prevailing switching companies and payment issuers, the majority of the station suppliers faltered throughout this time and several of them shut down.

Paymaster is one of Nigeria’s top five PTSP providers. The others include

  • Etop.
  • Citiserve
  • Valucard
  • ITEX.

Only these top companies received licenses from CBN, allowing the PTSPs to expand and become more effective. The CBN shall specify the requirements for PTSPs, and the operation of registered PTSPSs shall be assessed periodically to ensure compliance with specified desired outcomes. If PTSPs don’t work as intended, their licenses may be revoked and new permits may be granted to qualified companies/businesses.

How to obtain a PTSP license in Nigeria.

The qualifying requirements for each license classification for PTSP in the nation were disclosed in a report submitted by the central bank on May 24, 2021, as per nairametrics.

Here are the following steps to obtain. PTSP license in Nigeria.

  • The shareholders’ money, N100,000,000.00, is unaffected by losses.
  • Production of the previous three years’ worth of the company’s certified banking statements.
  • Payment of N100 million in escrow to the CBN PSP Share Capital Deposit Account No. 1000014009.
  • The whole escrow payment is required.
  • The payment needs to be implemented in the logo of the company that is requesting a license.
  • If treasury assets are available, escrowed funds are deposited in treasury bills, which will then be reimbursed following the investment.

Conclusion

There are significant potential possibilities for fintech companies because over 50% of elderly Nigerians are now estimated to be unbanked.

To correctly steer the company, it is recommended that new and seasoned fintech entrepreneurs seek counseling counsel from the very beginning of their enterprises.