This article is presented in two parts. In this first part, the focus is on understanding the conceptual foundations of the Central Bank of Nigeria’s (“CBN”) new payments framework, including its possible implications for market structure and the emerging notion of functional separation within the payments ecosystem. It examines the key provisions of the circular, explores how “consumer issuing” and “merchant acquiring” activities might be interpreted, and highlights the critical question of market definition that underpins the framework’s application.
The CBN’s (“CBN”) recent circular introducing market structure restrictions within the payments ecosystem may represent one of the most significant regulatory interventions in the sector in recent years. While the circular also introduces data localisation and ultimate beneficial ownership disclosure requirements, among its most consequential features are the provisions restricting the extent to which a participant with significant market share in consumer issuing activities may also participate in merchant acquiring activities, and vice versa.
At first glance, the requirements appear relatively straightforward. Institutions with more than 25% market share in one segment may not exceed 15% market share in the other. However, beneath those thresholds lie a number of complex regulatory, commercial and competition-related questions that may ultimately determine the practical impact of the framework.
The broader significance of the circular may lie in what it reveals about the CBN’s evolving regulatory approach. Rather than regulating individual payment products or services in isolation, the CBN appears increasingly concerned with the overall structure of the payments ecosystem and the concentration of influence across different layers of that ecosystem.
A Form of Functional Separation?
The circular bears some resemblance to functional separation models that have emerged in sectors such as telecommunications and critical infrastructure regulation.
The underlying concern in such frameworks is not necessarily that a participant has become dominant in a particular market segment. Rather, it is that dominance in one layer of a value chain may allow that participant to exert disproportionate influence over adjacent layers.
Historically, payment businesses have sought to build integrated ecosystems. A provider may issue payment instruments to consumers, operate wallets, acquire merchants, provide payment gateways, process transactions and offer a range of ancillary services. The commercial logic is obvious: the more touchpoints a provider controls within the payments chain, the greater the opportunities for growth, customer retention and network effects.
The circular appears to reflect a different concern. By limiting the extent to which a participant with significant market share on the consumer side may also hold a substantial position on the merchant side, the CBN may be signalling that concentration at both ends of the payments transaction creates risks that warrant regulatory intervention.
If this interpretation is correct, the circular is not simply about market share. It is about market structure.
The Critical Question: What Are the Relevant Functions?
The practical impact of the framework will depend largely on what constitutes “consumer issuing” and “merchant acquiring”.
Notably, the Electronic Payment Channels Guidelines do not appear to contain standalone definitions of those concepts. Instead, the Guidelines regulate various payment channels and identify the roles performed by issuers, merchant acquirers, merchants, cardholders, switches and other participants within those channels.
As a result, the relevant concepts may ultimately be determined not by formal labels but by the nature of the services being provided.
What Constitutes Consumer Issuing Activities?
The Electronic Payment Channels Guidelines do not appear to provide a standalone definition of “consumer issuing activities”. Instead, the concept must be inferred from the roles and functions recognised within the payments ecosystem.
This raises an important interpretative question: for purposes of the circular, is the focus on the legal form of the service, the regulatory licence under which it is provided, or the economic function being performed?
The policy objective underlying the circular suggests that the latter may be the more relevant consideration.
Consumer issuing activities may be understood by reference to the provision of payment instruments, payment accounts or payment interfaces through which consumers initiate transactions. The common thread is not the form of the product itself, but control of the consumer payment relationship and the origination of payment instructions.
If this broader functional approach is adopted, the circular could have implications for a wide range of business models, including digital banks, mobile money operators, wallet providers and other fintechs that occupy the consumer-facing side of the payments ecosystem.
What Constitutes Merchant Acquiring Activities?
The same interpretative challenge arises in relation to merchant acquiring activities.
The concept is well understood within the payments ecosystem. However, the circular does not specify the precise boundaries of the activity for purposes of market share measurement. As a result, questions may arise regarding the treatment of integrated payment businesses that provide a range of merchant-facing services across multiple channels.
The Guidelines contemplate merchant acquirers as institutions that contract with merchants, onboard merchants, conduct merchant due diligence, facilitate payment acceptance and participate in settlement processes.
This suggests that the relevant inquiry may be less about particular products or channels and more about the broader function of enabling merchants to accept and receive electronic payments.
The breadth of that function may become particularly important when assessing business models that combine merchant onboarding, payment acceptance, gateway services, settlement services and other merchant-facing activities.
Market Share Without Market Definition?
Perhaps the most significant unanswered question is one that naturally arises whenever market share thresholds are introduced:
What market is being measured?
Under conventional competition law analysis, market share is rarely assessed in isolation. The exercise typically begins with identifying the relevant product market and the relevant geographic market. Only after those markets have been defined can market shares be calculated and interpreted.
If a similar framework were introduced by the Federal Competition and Consumer Protection Commission (FCCPC), questions regarding market definition would likely be among the first issues requiring analysis.
This is important because market shares can vary significantly depending on how the market is defined.
If the principles reflected in the FCCPC’s Notice on Market Definition were applied in this context, the analysis would likely begin by identifying the products or services that are reasonably interchangeable or substitutable from the perspective of users and merchants, as well as the geographic scope within which competitive constraints operate.
For consumer issuing activities, this could raise questions such as whether the relevant market comprises:
- all consumer payment instruments;
- all account-based payment services;
- all wallet services;
- all card-based payment products; or
- some narrower category of consumer-facing payment solutions.
Similarly, for merchant acquiring activities, questions may arise as to whether the relevant market consists of:
• merchant acquiring generally;
• merchant payment acceptance services;
• online acquiring services;
• POS acquiring services; or
• some broader category of merchant-facing payment solutions.
The answer matters because an institution’s market share may differ considerably depending on the market definition adopted.
The geographic dimension may be equally important. While payments services are often provided nationally, some services may be constrained by licensing, infrastructure, distribution channels, commercial arrangements or other factors that could influence the scope of the relevant geographic market.
The circular does not presently prescribe a market definition methodology. However, if market share restrictions are to be applied consistently across the industry, some framework for defining the relevant market may ultimately be required. In practice, this may involve many of the same analytical considerations that competition regulators routinely apply when assessing market power and concentration.
Having examined the conceptual and interpretative issues raised by the framework in this part, the concluding part (which will be published next week) will consider how market share may be measured, the potential implications of applying the rules to related entities, and the operational challenges associated with a rolling compliance framework. It will also explore the broader impact of the circular on investment, transactions and strategic decision-making within Nigeria’s payments ecosystem.
Tiwalola Osazuwa and Peretimi Akinmodun are Partner and Senior Associate, respectively, in AELEX’s Technology, Media, and Telecommunications (TMT) Practice. Tiwalola Osazuwa leads the TMT Practice.
AELEX is a full service commercial & dispute resolution Law Firm with offices in Nigeria and Ghana. Contact us @Aelexpartners on LinkedIn, Twitter, Instagram and Facebook.
AELEX NOTES is a dedicated column, managed by AELEX Legal Practitioners and Arbitrators, featuring Legal Developments and Insights.
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