Paystack’s consumer product, Zap, reportedly triggers CBN’s ₦250M fine

The Central Bank of Nigeria (CBN) has reportedly imposed a ₦250 million fine on Paystack, a leading Nigerian fintech company, for allegedly operating its consumer product, Zap by Paystack, beyond the scope of its regulatory license.

The CBN contends that Zap functions as a deposit-taking service, an activity reserved for institutions with specific licences such as microfinance or banking licences.

Paystack holds a switching and processing licence, which permits it to route financial transactions but not to hold customer funds.

The CBN’s regulatory framework stipulates that entities with switching and processing licences are prohibited from accepting deposits or holding customer funds. This restriction is detailed in the CBN Rule Book Volume 1, which outlines the limitations and obligations of licensed financial service providers.

Violations of these provisions can result in monetary penalties or suspension of services.

Specifically, according to the regulatory framework, organisations providing infrastructure that enables switching, processing, and settlement facilities for mobile money services are classified as Infrastructure Providers.

These entities are responsible for facilitating the technical and operational aspects of mobile money transactions, ensuring interoperability among different mobile money schemes.

Importantly, these providers are distinct from Mobile Money Operators (MMOs) and are not authorised to hold customer funds or engage in deposit-taking activities.

This delineation is outlined in the CBN’s Regulatory Framework for Mobile Money Services in Nigeria (July 2021), which specifies the roles and responsibilities of various participants in the mobile money ecosystem.

The framework emphasises that only entities with appropriate licensing, such as MMOS or deposit-taking financial institutions, are permitted to hold customer funds. Infrastructure Providers, while essential to the mobile money infrastructure, must operate within the confines of their designated functions.

To understand how the CBN Rule Book Volume 1 and the Regulatory Framework for Mobile Money Operators (MMOS) intertwine in Paystack’s case, it’s helpful to view them as complementary regulations that define boundaries and responsibilities in Nigeria’s payment system.

The CBN Rule Book Volume 1 (Payment System Guidelines) is the foundational guide for all payment system participants — banks, fintech platforms, switches, processors, etc. It defines licensing categories and operational boundaries. Under this rule book:

• A Switching and Processing Licence, which Paystack holds, does not permit customer fund custody or wallet services.
• Such licensees are restricted to routing transactions between banks and institutions, enabling payments and ensuring interconnectivity.

Regulatory Framework for Mobile Money Services (2021)

This framework goes further to define mobile money business structures, especially the role of MMOS. Under this framework, only MMOS or deposit-taking institutions (banks or licensed microfinance institutions) are permitted to offer wallet services or any deposit-taking function.

Section 4.0 of the framework distinguishes Infrastructure Providers from MMOS: infrastructure providers like Paystack may support transactions, but cannot onboard customers or hold their funds.

If a product like Zap mimics wallet features (e.g., receives funds, holds balances, initiates disbursements), it must be under an MMO licence or bank partnership where the licensed institution is the actual custodian of funds and consumer KYC is compliant.

Paystack has not responded to a request for comment as of the time of filing this report.

Paystack embroiled in trademark dispute

Meanwhile, Paystack is still entangled in a trademark dispute involving the crypto company, Zap Africa.

Paystack has said it conducted the necessary pre-registration checks and applied thereafter, but Zap Africa presented documentation to claim the name ‘Zap’ is exclusive to them, considering it has registered under the required categories, especially financial services.