The Central Bank of Nigeria has released a draft of its new Payments System Framework, proposing rules that would require major payments companies to separate their switching and processing functions. The framework, published for stakeholder review, is designed to manage systemic risk and promote competition by preventing a single entity from dominating multiple critical layers of the payments infrastructure.

According to the draft, a payment system operator that also functions as a payment service provider must establish a separate legal entity for its switching and processing activities. This proposed 'functional separation' would apply to companies that have reached a scale deemed systemically important by the regulator. The framework states that such an entity 'shall incorporate a separate company for the switching and processing business,' and that the new company 'shall not be a subsidiary of the payment service provider.'

Analysts suggest the move could reshape the landscape for Nigeria's largest fintech players, some of which have built vertically integrated platforms that handle transactions from initiation to settlement. 'The CBN appears to be introducing a form of functional separation into the Nigerian payments ecosystem,' wrote legal and business analysts in a review of the framework for Businessday. They noted the policy aims to address potential conflicts of interest and anti-competitive behavior that could arise from controlling both the 'pipes' and the services that flow through them.

The proposed rules arrive alongside another significant CBN directive concerning data localization. In a separate circular, the bank has mandated that all payments system data must be stored exclusively within Nigeria, with a compliance deadline set for the end of 2026. This order is expected to test the capacity of the country's data centre industry, which must rapidly scale to meet the new demand from financial institutions.

Together, the data mandate and the structural proposals for payments firms represent a concerted regulatory push to assert greater sovereignty and control over the nation's fast-growing digital financial infrastructure. The payments framework, in particular, draws from international models where separation has been used to foster innovation and lower barriers for new entrants.

The CBN has opened the draft framework for comments from industry participants. The final version, once adopted, will guide the licensing and operations of all payment system providers in Africa's most populous nation, setting a precedent for how other major markets on the continent might approach the regulation of increasingly complex and dominant fintech ecosystems.