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OVERVIEW OF THE EXPOSURE GUIDELINES FOR CONTACTLESS PAYMENT IN NIGERIA, 2022

The Covid-19 pandemic and the resultant lockdown triggered significant changes in the payment industry. Specifically, it amplified the need for contactless payment and ushered in a wave of unprecedented innovation and product development in the payment industry globally.

Given the record traction in the Nigerian payment market; the Central Bank of Nigeria (CBN), recognizing the need for a tailored regulatory framework to support the burgeoning sector growth, in January 2021, issued the Framework for Quick Response (QR) Code Payment; and more recently, in October 2022, released the Exposure Draft of the CBN Guidelines for Contactless Payment in Nigeria.

The Guideline defines contactless payment as: “the consummation of financial transaction without physical contact between payer and the acquiring device(s)”. This means that secure payments can be made with tags, debit/credit cards, smart cards, mobile and other devices that use Near-Field Communication (NFC), Radio Frequency or QR Codes.

In a bid to preserve the integrity, safety and stability of the Nigerian financial system and to facilitate the safe and secure use of Contactless payment, the Guideline amongst other things provides for:
i. the roles and responsibilities of various stakeholders within the contactless payment eco- system;
ii. the minimum standard/specification for all contactless payment terminals, applications, and processing systems;
iii. guidelines for the provision of Value-Added Services; and
iv. the power of the CBN to prescribe and enforce sanctions and penalties for breach of the Guideline.

KEY STAKEHOLDERS IN THE CONTACTLESS PAYMENT ECOSYSTEM

The Guideline clearly articulates the role and responsibilities of the various stakeholders in the contactless payment eco-system, prescribing standards and specification for all forms of market technology and systems whilst also prescribing processes and principles that will govern their relationship with each other.

A.  Acquirers
An Acquirer is a CBN-licensed institution that facilitates the acceptance of payments from customers to merchants through contactless payment devices such as Point of Sale Terminals (POS), Mobile Applications, and QR Codes amongst others. An Acquirer will typically be the account bank of a merchant who is utilizing the contactless payment system for fee collection from its customers.
The guideline requires all Acquirers to:
i. ensure that all deployed contactless payment devices deployed are certified by CBN and meet prescribed specifications/standards.
ii. operate an agnostic acceptance policy such that all cards, capable of contactless payment, issued in Nigeria shall be accepted irrespective of the issuer.
iii. conduct customer KYC (Know Your Customer) and train Customers compliance with applicable Regulations.
iv. take measures to prevent the use of their networks and devices in violation of Anti-Money Laundering Laws.
v. execute a Contactless Payment Agreement with all Customers prior to granting access to the Acquirer’s contactless payment platform.

In a bid to protect unwary or naive customers from the perpetuation of fraud, the guideline restricts Acquirers from admitting or profiling agent banking terminals operators to its Platform or facilitating contactless transactions on their behalf.

B. Issuers
Like the Acquirers, only CBN-licensed institutions are permitted to act as Issuers for contactless payments. An Issuer is responsible for issuing contactless payment enabled cards, tags, or mobile applications to consumers (consumers being people who procure cards, tags, tokens or contactless payment enabled mobile apps to facilitate payments to merchants or other service providers. Examples of CBN-licenced institutions in Nigeria that already issue contactless payment enabled cards and devices include the First Bank of Nigeria, United Bank for Africa, and Providus bank. These cards have embedded Radio Frequency Identification (RFID) technology which communicates with card readers to enable payment transfers. Issuers are required to ensure, that all tokens and devices issued by them for payment by Customers meet prescribed standards and specifications. Furthermore, Issuers are required to obtain and properly document Customer’s consent prior to enabling Customer’s device for contactless payment. Specifically, the guideline prohibits unsolicited activation of contactless payment service on any payment enabled device owned by any Customer. Relatedly, prior to activating contactless payment service for any Customer, an Issuer is required to verify and identify such Customers by his/her Bank Verification Number (BVN).

C. Payment System and Card System Administrators
Payment/Card System Administrators are operators of card and payment systems (such as Mastercard, Visa, Remita, and Flutterwave). Whilst Issuers are responsible for issuing cards and other enabled devices to Customers, the Payment/Card System Administrators oversees the administration and use of issued cards for payment. Payment System and Card System Administrators are required to comply with the Guideline generally and act in accordance with prescribed processing specifications whilst ensuring that their systems and schemes are interoperable.

D. Switching Companies
Switching Companies are CBN-licensed institutions that oversee the routing of transaction data, interbank payment clearing and settlement, payment authentication and authorisation and risk management. The Nigeria Interbank Settlement System (NIBSS) is the Central Switch for the Nigerian Financial Market. Other than the NIBSS; Interswitch, eTranzact, and Flutterwave are some of the other licensed Switching Companies. The Guideline mandates Switching Companies to ensure that contactless transactions via approved payment instruments issued in Nigeria are successfully switched and to undertake periodic risk assessment to mitigate against money laundering and financing terrorism within the system.

E. Payment Terminal Services Providers
Payment Terminal Service Providers are CBN-licenced institutions that deploy contactless payment enabled Payment Terminals (Point of Sale Terminals) for use within the financial ecosystem. Payment Terminal Services Providers are by the Guideline, required to assure the quality and functionality of all contactless payment enabled terminals issued by them through optimal maintenance, availability of a 24/7 support infrastructure. It is recommended that response time for repair or replacement should not exceed 48 hours from the time of escalation.

F. Payment Terminal Service Aggregator
A Payment Terminal Service Aggregator (“PTSA”) oversees the interconnectivity of all payment terminals deployed with the Nigerian Payment Ecosystem. The Nigeria Interbank Settlement Scheme is the sole PTSA in Nigeria. It ensures that all terminals used in the e-payment ecosystem and all devices deployed in Nigeria are brand-agnostic and would accept all cards issued by any bank or other licensed card schemes without discrimination. NIBSS ensures the standardization of technical and operational specifications of all devices deployed within the Nigerian financial system. The Guideline requires the PTSA to certify that all Point-of-Sale terminals used for contactless payment meet required standard for the payment industry. It is also required to implement a documented risk management process to identify threats before, during and after all payment transactions.

G. Merchants
These include businesses (large institutions or SMEs), that employ contactless payment devices as a means of receiving payment from customers. Merchants are by the Guideline, required to ensure that devices deployed for contactless payments are of the required specification, they are also required to exercise due diligence in effecting all payment transactions as they remain liable for any fraud resulting from negligence or connivance during a contactless payment transaction.

The Guideline further, requires all merchants who accept contactless payments to display the contactless payment symbol visibly in their location. They are also required to undertake second level authentication for transactions of a value which is higher than the stipulated limit per day via the customer’s Personal Identification Number (PIN) OR token code.

H. Customers
A customer is anyone making payment through a Contactless payment method. The Guideline requires Customers to exercise due diligence during contactless payment transactions whilst leaving them in full control to opt-in or out of any contactless payment service.

BENEFITS AND CHALLENGES
Prior to the release of the Draft Guideline, the only existing regulation in the contactless payment ecosystem was the Framework for Quick Response (QR) Code Payment in Nigeria, January 2021 (“Framework”). The Exposure Guideline is therefore a solid improvement on the hitherto QR Code Framework as it specifically sets out market requirements for the use and operation of all forms of contactless payment technology.

Apart from the wider scope of the Guideline, the general adoption of contactless payment will have an overall far-reaching effect on the economy as it will create a smarter, faster, more efficient and easy-to-use mode of payment which requires less manpower. It will also promote health and safety and reduce potential disease transmission at points of sale.

It is also necessary to mention that the posture of the Guideline is generally User-Centric, as the CBN mandates that use of contactless payment service must be elective whilst holding all participants within the value chain to regulatory service levels.

Without doubt, the benefit of the Guideline is enormous, yet a big impediment remains the introduction of transaction limit for contactless transactions, the Exposure Draft specifically provides for a NGN5000 (five thousand naira) transaction limit for a single transaction and a cumulative daily transaction limit of NGN30,000 (thirty thousand naira) per User. Transactions that fall outside this limit require an additional layer of authentication. Whilst the intention of the limit is noble and driven by the need to protect Users from significant impact should fraud, theft, impersonation, funds misappropriation occur; the threshold seems too low considering commercial realities in present day Nigeria. To guarantee that the contactless payment system remains a viable alternative for users therefore, it is imperative for the CBN to consider an upward review of the prescribed limit.

Finally, the Guideline envisages growth and innovation in the contactless payment ecosystem and therefore provides a protocol for innovative use cases. Where any stakeholder intends to offer novel or value-added service falling within the contactless payment niche, it is required to procure and obtain the prior approval of the CBN.

CONCLUSION

Contactless payment is fast becoming a preferred mode of payment across the Globe. UK Finance magazine reports that contactless payments accounted for over a quarter of all payment transactions in the United Kingdom in 2021. It is therefore expected that the introduction and implementation of the Guideline, shall in days to come foster public trust, deepen the contactless payment eco-system and consequently accelerate the speed of its adoption in Nigeria.

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Season 1 Episode 10 – Anniversary Special: DealHQ Partners 4 years of enabling Businesses in Africa

Simply is a sponsored podcast of DealHQ Partners, where we engage thought leaders on trending issues around law and business in the most simplistic manner.

On Episode 10, we are joined by our Lead Advisor and founding partner – Tosin Ajose who takes us on a journey down memory lane. She shares insights on the Firms values, foundational goals, the challenges of starting up and building a sustainable legal enterprise, and the Firm’s unique winning culture.

 

Listen here:   linktr.ee/DealHQ

 

 

Mergers & Acquisitions – Practice Guide(Nigeria)

Over the past two years, the M&A landscape has experienced unprecedented levels of uncertainty. The period will undoubtedly be recognized as a reference point, much like the 2008 financial crisis. The 2022 Nigeria M&A Practice Guide is an outlook on the global and local M&A landscape since the outbreak of the Covid-19 pandemic in 2020. It discusses the reaction of the market during the heat of the pandemic and after. It also highlights hot-spot sectors for M&A in 2022 whilst mapping investor behavior and how this will influence investment decisions in 2022.

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HOW TO SERIES: HOW TO REGISTER A PATENT (NIGERIA), JULY 2020

HOW TO REGISTER A PATENT IN NIGERIA

  1. A. What is a Patent?
    A patent is a right granted to an inventor, which allows the inventor to exploit the full rights and benefits from
    their invention/work (including the right to use, sell, produce, mass-produce) to the exclusion of all other users
    for a period of about 20 years. A registered patent gives protection against third party exploitation within the
    country where the right is obtained. B. What law guides the registration of patents and where do I apply for the
    registration of a patent? The registration of Patents in Nigeria is governed by the Patents and Design Acts Cap.
    344, Laws of the Federation of Nigeria 1990 (Act of 1970) administered by the Registrar of Trademarks, Patents
    and Designs, Trademarks Registry, Federal Ministry of Industry, Trade and Investment, FCT, Nigeria.
  2. B. What law guides the registration of patents and where do I apply for the registration of a patent?
    The registration of Patents in Nigeria is governed by the Patents and Design Acts Cap. 344, Laws
    of the Federation of Nigeria 1990 (Act of 1970) administered by the Registrar of Trademarks, Patents and
    Designs, Trademarks Registry, Federal Ministry of Industry, Trade and Investment, FCT, Nigeria.
  3. C. How do I know if my work/invention qualifies for registration of a patent?
    A patent may be granted for any work/invention that:

    1. is new (novel); the invention must be substantially different from anything else that is within public knowledge
    2. involves an inventive step; must not be obvious to a person skilled in the art of the invention and must not make reference to any matter that forms part of the prior existing invention
    3. is capable of industrial application; (useful)
    4. is not specifically excluded in the Act; (e.g. inventions which encourage immoral and offensive behavior)
    5. has an address for service in Nigeria (if the applicant’s address is outside Nigeria arrangement must be made for a verifiable delivery address in Nigeria).

    NOTE: Each application must relate only to one invention but may cover claims for multiple numbers of products or processes i.e. an invention can be a modification or novation of one or more existing inventions in the market

  4. D. What are the practical steps for registering a patent in Nigeria?Step 1: Fill Application Form together with written declaration
    There are two classes of application forms available for patent registration;

    1. Form 1A: being the application form for the registration of a conventional/local patent; and
    2. Form 1B: being application form for the registration of a non-conventional/international patent.

    I. Filling of Form 1A (Local Application)

    Form 1A is the applicable form for local applications for works created and originating in
    Nigeria. The name, address, email address and contact number of the applicant is required to
    be provided and in cases of multiple/joint inventors or inventors under the employ of a
    company, the name, address, email and contact number of a representative of the company
    or the joint inventors will be appropriate.

    A declaration by the true inventor will be required to be submitted alongside the application
    form and Form 3. The true inventor is the individual responsible for the ideation of the
    invention.

    II. Filling of Form 1B (Foreign Application)

    Form 1B is the applicable form for applicant seeking foreign priority for works or inventions
    which did not originate from Nigeria and which is already registered in another foreign
    jurisdiction. The application will be accompanied by a written declaration consisting of:

    1. The date and the number of the earlier application:
    2. The country in which such application was made; and
    3. The name of the inventor who made it.

    The applicant will also fill a Form 3 as detailed below, to accompany the Form 1B and the
    written declaration. Not more than 3 months after filing the application, the applicant will be
    required to furnish the Registrar with a copy of the earlier application certified by the
    appropriate industrial property office of the foreign convention country.

    Step 2: Fill the Specification Form (Form 3)

    All Applicants (Local or Foreign) are required to fill Form 3 – Complete Specification Form.
    Form 3 is very crucial to any Patent application; it contains a detailed description of the
    invention and its claims (a claim is any information detailing the innovation of the invention
    provided by the applicant in hopes of creating an extent/scope of protection for the said
    invention from infringement by a subsequent invention). The applicant would have to explain
    in the technical terms what makes the invention different from what already exists in the
    market in hopes to protect it from subsequent inventions.

    The contents of Form 3 would include;
    1. The title of the invention;
    2. An abstract on the functionality of the invention;
    3. Background and History of the Invention;
    4. Detailed description of the invention supported with diagrams and illustrations;
    5. Claims (starting from general claims to specific ones):
    6. Summary of what society/ mankind stands to gain from the invention

    Step 3: Submit application to the Registry and pay of application fees

    The Applicant will pay the application fee as may from time to time be advised by the Registrar
    and submit application forms together with evidence of payment of the prescribed fees.

    Step 4: Application is granted and patent is valid for 20 years

    After submission, the patent application is examined by the Registrar merely to ascertain
    formal compliance, the Registrar assumes regularity. Once the application satisfies the
    statutory requirements as to the completion of form, payment of appropriate fees amongst
    others, the Registrar is likely to grant the patent without enquiries into its novelty,
    inventiveness and industrial applicability or sufficiency of disclosures in Form 3.

    Patents are granted at the risk of the patentee and without guarantee as to their validity. Once
    granted, a patent is valid for 20 years.

  5. E. Can a foreigner register a patent in Nigeria?
    A foreigner or a foreign corporation can seek foreign priority in Nigeria if it has a subsisting
    local application which has been admitted for registration by the approving authority in its
    own home country. Upon application for foreign registration such will be admitted for
    registration by virtue of the Nigeria Patent and Designs Convention Order 1971. The Convention
    provides that if a Nigerian application is made within 12 months of the making of the earlier
    application in the foreign country, such application will be treated as having been made on
    the same date on which the foreign application was made.
  6. F. What Legal Rights do I have as Patent holder?
    As a patent holder under Nigerian Law:

    • You have a valid cause of action against anyone who infringes on your right to the
      Patent during its subsistence;
    • You have the legal and beneficial right over the patent which may be sold, assigned
      or granted for the use of others in the form of a license.

    HOW TO GET STARTED

    Are you interested in registering a patent for your invention? Our corporate services team is
    available to provide registration and start up support to you. You may contact our team on:
    Email: info@dealhqpartners.com Telephone: +234 1 4536427 or +234 9087107575

    A patent holder may consider the option of applying to have his patent registered under the
    World International Property Organization (WIPO) which currently has over 189 member
    states including Nigeria.

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