National Payment Systems Act 2020: What Fintechs Need to Know

Uganda's National Payment Systems Act, 2020 (the NPS Act) ushered in a new regulatory era for payment services in Uganda. The Act, together with the National Payment Systems Regulations, 2021 (the Regulations), transferred oversight of payment systems from the Uganda Communications Commission to the Bank of Uganda (BOU) and established a comprehensive licensing framework for all payment service providers (PSPs) operating in the country.

For fintech companies—both domestic and international—navigating this framework is essential to lawfully offering payment services in Uganda. This article breaks down the key licensing categories, application requirements, and ongoing compliance obligations under the NPS Act.

Licensing Categories

The NPS Act creates four distinct licensing tiers, each corresponding to the nature and scale of payment services offered:

• Payment Service Provider (PSP) Licence: For entities that operate payment systems, process payment transactions, or issue payment instruments. This is the most common licence category for fintechs offering digital wallets, payment gateways, and remittance services. The minimum capital requirement is UGX 2 billion (approximately USD 540,000).
• Payment Instrument Issuer (PII) Licence: For entities that issue payment instruments such as prepaid cards, stored-value cards, or electronic vouchers. Minimum capital requirement is UGX 1 billion.
• Payment Service Provider (Small) Licence: A reduced-scope licence for smaller PSPs with lower transaction volumes. Minimum capital requirement is UGX 500 million. This category is intended to encourage innovation and financial inclusion without imposing prohibitive capital requirements.
• Payment System Operator (PSO) Licence: For entities that operate clearing, settlement, or automated clearing house systems. This licence typically applies to infrastructure providers rather than retail-facing fintechs.

Application Process

The BOU has established a structured application process for all licence categories. Key steps include:

• Pre-application engagement: The BOU encourages prospective applicants to schedule a pre-application meeting to discuss the proposed business model, technology architecture, and regulatory approach. This informal engagement can significantly reduce processing times.
• Formal application: The application must be submitted in hard copy and electronic format, accompanied by a business plan, financial projections for at least three years, a description of the payment system or service to be offered, the system's operational and technical architecture, a risk management framework, and policies for anti-money laundering (AML) and combating the financing of terrorism (CFT).
• Review and assessment: The BOU reviews the application within 90 days of receipt. The assessment includes fit-and-proper evaluation of directors and senior management, technical system audit, andAML/CFT programme review. The BOU may request additional information or impose conditions on the licence.

Ongoing Compliance Obligations

Once licensed, PSPs face a range of ongoing obligations under the NPS Act and Regulations:

• Prudential requirements: PSPs must maintain minimum capital adequacy ratios, liquidity buffers, and submit quarterly financial returns to the BOU. The BOU has the authority to conduct on-site inspections at any time.
• Consumer protection: PSPs must implement transparent fee disclosure, complaint handling mechanisms, and liability rules for unauthorised transactions. The BOU has issued consumer protection guidelines that require PSPs to resolve complaints within 14 days.
• Operational resilience: PSPs must maintain business continuity and disaster recovery plans, conduct annual system audits, and report any material service disruptions to the BOU within 24 hours.
• AML/CFT compliance: PSPs must implement customer due diligence (CDD) measures, transaction monitoring systems, and report suspicious transactions to the Financial Intelligence Authority (FIA). The BOU and the FIA conduct joint AML/CFT inspections.
• Data protection: PSPs must comply with the Data Protection and Privacy Act, 2019, including registration with the National Information Technology Authority-Uganda (NITA-U) and implementation of data protection impact assessments for high-risk processing activities.

Practical Considerations for Fintechs

Based on our experience guiding fintech clients through the BOU licensing process, we recommend the following practical steps:

• Engage legal counsel early: The BOU licensing process is document-intensive and technically demanding. Engaging experienced counsel at the pre-application stage can help structure the application to avoid common pitfalls.
• Plan for a 6-9 month process: While the BOU's stated review period is 90 days, the full licensing process—including pre-application engagement, document preparation, system audit, and fit-and-proper clearance—typically takes 6 to 9 months.
• Structure for Ugandan residency: Ensure that the board includes at least one director ordinarily resident in Uganda and that local management has sufficient authority to make day-to-day operational decisions.
• Prepare for ongoing supervision: The BOU's supervisory approach is becoming increasingly proactive. Licensed PSPs should maintain robust compliance functions and expect regular engagement with BOU examiners.

Uganda's fintech sector continues to grow rapidly, with increasing interest from international payment platforms, mobile money operators, and digital lending providers. The NPS Act provides a clear and predictable regulatory framework that, when properly navigated, offers licensed PSPs a solid foundation for scaling their operations across Uganda and the broader East African region.

Our Financial Services practice at Jamani Advocates has extensive experience advising fintechs, payment service providers, and financial institutions on BOU licensing, regulatory compliance, and transactional matters. Contact our team for tailored guidance on your specific licensing or compliance needs.