Nigeria’s Payment Ecosystem Part 3: Why Banks Control More Than They Process

Paystack and Flutterwave process millions of transactions. But when December 2023 arrived, NIBSS ordered banks to disconnect them from receiving direct fund transfers.

Here’s why: PSSPs don't hold deposit licenses. They cannot legally receive customer funds directly. Only banks can.

It was a reminder of the hierarchy of power in Nigeria's financial services industry.

Volume vs. Control

In 2024, Nigeria’s electronic payment transactions rose to ₦1 quadrillion, an all-time high in the history of financial services. From instant transfers to mobile and web payments.

In 2024, Nigeria's instant payments via mobile and web hit an all-time high of N1 quadrillion.

Fintech processors like Paystack, Moniepoint, and Opay handled ₦71.5 trillion of these transactions, powering everything from everyday transfers to enterprise collections.

Yet despite processing this volume, banks control settlement.

Only entities with deposit-taking licenses—DMBs (Deposit Money Banks), MMOs (Mobile Money Operators), and Payment Service Banks—can legally receive and hold customer funds.

This creates a structural dependency: Every PSSP needs banking relationships to function. Without banks, PSSPs cannot settle merchant payments. The license hierarchy determines power.

What This Means for Settlement Speed

When a merchant asks why settlement takes 2-3 days, the answer sits in this license structure.

Customer pays → PSSP processes transaction → Funds land in partner bank account → Bank clears funds internally → Bank releases to PSSP → PSSP settles to merchant.

Each step adds time. The PSSP cannot accelerate bank settlement because they don't control that infrastructure.

Some PSSPs claim "instant settlement." They're advancing funds from their own capital before bank settlement clears, not actually accelerating the banking layer. This works at a small scale. It doesn't work when processing billions monthly without massive capital reserves.

Banking Partnerships Determine Performance

When evaluating payment providers, ask which banks they partner with. A PSSP's settlement speed depends entirely on its banking relationships.

Strong partnerships with multiple banks mean:

• Faster settlement (banks prioritize key partners)
• Better liquidity management (distribute across multiple accounts)
• Redundancy when one bank has issues

Weak banking relationships mean:

• Standard 2-3 day settlement
• Single point of failure
• No negotiating power on settlement terms

The PSSP's technology matters but their banking relationships matter more.

Why This Structure Won't Change Soon

The CBN maintains deposit-taking restrictions for systemic stability. Banks must undergo capital requirements, stress testing, and regulatory oversight that PSSPs don't face.

Allowing PSSPs to hold customer deposits without banking regulations would create risk. The 2023 NIBSS directive reinforced this boundary after seeing PSSPs blur the lines by receiving direct transfers.

Mobile Money Operators who want deposit-taking capability must obtain MMO licenses and meet capital requirements. Regular PSSPs operate within processing boundaries.

This structure protects the financial system. It also entrenches bank control over settlement.

Navigate the Dependency Without Managing It

At Spotflow, we architect payment infrastructure that connects across multiple banking partners. When one bank delays settlement, transactions route through alternatives. When banking relationships shift, merchant integrations don't break.

This works because orchestration treats banking partnerships as infrastructure layers merchant never touch directly. You integrate once. We manage the complexity of multiple settlement partners, ensuring you get paid regardless of which bank clears faster on any given day.

Banks control settlement. Your integration shouldn't depend on any single bank controlling your cash flow. Especially in an ecosystem shaped by layered licensing rules and fragmented card networks.