By Babajide Komolafe
WHAT is the appropriate legislation for Nigeria’s Payment System, which would facilitate the achievement of the Payment System Vision 2020? Presently, the nation’s lawmakers are battling with two proposed legislations namely: the National Payment System Bill (NPSB) 2017 and the Payment System Management Bill (PSMB) 2017.
Payment System Vision (PSV) 2020: Launched in 2007, the goal of PSV 2020 is stated as follows: “By the year 2020, our children will laugh at us when we try and pay by cash”.
This is to be achieved by creating a payment system infrastructure that is locally utilised and internationally recognised.
Consequently, the PSV 2020 seeks: To facilitate economic activities by providing safe and efficient mechanisms for making and receiving payments, with minimum risks to the Central Bank, payment service providers and end users, extending the availability and usage to all sectors and geographies, banked and unbanked, and conforming to internationally accepted regulatory, technical and operational standards.
The implementation of the PSV 2020 has led to several developments and improvements in the manner of payment for goods and services in Nigeria, mostly the increasing adoption of electronic channels, like PoS, mobile money, internet, and instant transfer, for payments of goods and services, as well as the emergence of many non-bank organisations offering various payment related services, giving rise to a bourgeoning fintech (financial technology) industry in Nigeria.
However, these developments have led to the emergence of regulatory challenges and risks to consumers and players, which are not captured in the various existing laws governing the banking system.
Hence the need for drafting and enacting of a law that holistically provide legal framework for the operation and administration of the nation’s payment system.
PSMB or NPSB
The two proposed legislations though seek to address the challenge of administration and operation of the National Payment System, however differ in two critical areas. Governance: This has to do with who governs the country’s payment system.
The PSMB recommends that the CBN should be the sole authority for management, regulation and oversight of the Payment System with Payment Scheme Boards and a Strategy Committee (with membership drawn from other regulatory agencies and relevant stakeholders) providing support services to the apex bank.
The Bill was so structured because the key infrastructure, systems and participants in the Payment Systems are statutorily under the purview of the CBN. Therefore, the arrangement ensures that there is no gap between the management of Payment Systems and the monetary policy transmission mechanism.
However, the NPSB recommends the creation of an association of payment system participants as regulators of the members. In other words, most regulatory and oversight of the Payment System under the NPSB is through the instrumentality of self-regulation by system participants through their association or associations. NPSB also placed a role on the Minister of Finance thereby introducing another governance structure.
Authorisation: Another point of difference has to do with who should grant authority to payment system operators.
The PSMB recommends that the CBN should have the power to provide for authorisation to operate system, application for authorisation, status inquiries on application by the Bank, conditions for authorisation, refusal, revocation of authorisation and conditions for change in the payment system. These are extensive provisions for entry and exit of the Payment System which ensure that only the most technically viable and sound entities are allowed to participate in the Payment System.
However, the CBN is given no similar power under the NPSB. Rather, there are only provisions for an association (named “Payment System Management Body”), to be recognised by the CBN, saddled with the responsibility of organizing, managing and regulating the participation of its members in the payment system. This means that, the CBN is not in the position to determine who should or should not participate in the payment system.
Global best practice
Global best practices necessitate the enactment of a National Payment System law which provides legal framework for the administration and operations of the payment system. Thus many countries, both developed and developing have enacted National Payment System Act.
Also, in terms of which body should have power to govern and authorise in the payment system, the global trend supports the provisions of the PSMB, which makes the CBN the governing body for the nation’s payment system and also gave it the power to authorise payment system operators.
In Tanzania for example, the payment system is regulated via The National Payment System Act, 2015. Under the Act, the Bank of Tanzania ( BoT), which is the apex bank, regulates national payment systems in Tanzania.
It is vested with the power to grant or refuse the prescribed licences, approvals, and basically has the mandate to regulate, supervise, investigate and oversee operations of payment systems in Tanzania.
The Act allows companies, other than banks and financial institutions, to operate payment systems in Tanzania by obtaining a licence from the Bank of Tanzania (the BoT).
The above scenario is the same in Kenya via the National Payment System Act, 2011; in Zambia via National Payment Systems Act 2007 and in Ghana via the National Payment Systems Act, 2003 (Act 662),
Furthermore, the Committee on Payment and Market Infrastructure (CPMI), which stipulates international best practices on payment systems, places the responsibility of oversight of payment systems on central banks. The Core Principles of Systemically Important Payment Systems (CPSS) principles in placing the responsibility of oversight of the Payment System on central banks require them to ensure compliance with the core principles by payment and settlement systems.
The CPSS also require the central bank to cooperate with other central banks and any other foreign or domestic entity for promotion of payment systems’ safety and efficiency. Furthermore, most payment systems settle in central bank for safety, availability efficiency, neutrality and finality.
In addition to the above, the PSMB is the product of collaboration between payment service providers and payment system related agencies as constituted by the Legal Special Interest Group of PSV2020, which was charged with the responsibility of coming up with the Bill.
Payment service providers
The membership of the Group is drawn from the CBN, Deposit Money Banks (DMBs), payment system service providers, National Identity Management Commission (NIMC) and the Federal Ministry of Justice.
In preparing the PMSB, the Group studied legislations on payment systems of some countries including India, Namibia, Ghana, South Africa, Croatia, Australia, the European Union and Malaysia in carrying out its task.
The Group originally came up with a Bill titled “Payment System Bill, 2016”. The Bill was approved by the Federal Executive Council for presentation to the National Assembly as an executive Bill.
The PSB 2016 was subsequently harmonised with a similar bill titled, “Payment System Management Bill, 2016” sponsored by Senator John Owan Enoh, Chairman, Senate Committee on Finance. The harmonisation produced the “Payment System Management Bill, 2017”, which was then submitted for adoption by the CBN to the Senate Committee on Finance.