By Omodele Adigun
As the growth of electronic payment continues to spiral upward across the country, there is no gainsaying the fact that cash usage still remains high. According to Mr Dipo Fatokun, the Director, Banking and Payments System Department of the Central Bank of Nigeria (CBN), many factors are responsible for this. Apart from technical hitches, many people still have the notion that seeing is believing. “Cash usage remains high despite the adoption of digital payment because many people still want to see and feel the money,” he said.
At a public forum recently, Fatokun gave the scorecard of e-payment system in the country and efforts of his department to depeen e-payment culture. He also explained what banks should do to stem the wave of e-fraud in the country. Excerpts:
The Nigerian electronic payments industry has been evolving in line with the evolution in global payments in both wholesale and retail systems. Banks, payment service providers (PSPs), and the CBN have played various roles in developing the payments system and creating products and channels for electronic payments. To start with, as you know, electronics payment is any form of payment where an electronic system is used to initiate, authorise and confirm the transfer of money between two parties. This could be for various reasons, such as payment for goods and services, settlement of obligations, gifts and so on.
Electronic payments are enabled by a network of interconnected systems, which make it possible for exchanges of value between payer and payee, sender and receivers or donor and donee. Banks, PSPs, financial authorities and central bank play various roles in developing the payments system infrastructure to drive electronic payments, that is nationally utilised.
The electronic payment industry refers to all stakeholders, operators, regulators, infrastructure, merchants, retailers and the final consumers of the payments products and services. Payment technologies and platforms bind the industry together in a tight ecosystem.
Cards have been the fastest growing payments instrument since 2010, as cheque use has declined consistently and significantly. Debit cards accounted for the highest share 45.7 per cent of global e-payment transactions and were also the fastest growing at 12.8 per cent of payment instrument in 2014. In the past, it used to be credit card because people were not really aware that when they used credit card to make payment , they were actually spending into the future. Over time, people got to know that the use of credit card often comes at a cost. It is like taking a loan. You dont only have to pay on what you do not have, you have to pay interest.
Cash is king
Cash usage remained high despite increased adoption of digital payments And it is also postulated that instant payments would replace cheques and cash.
Cash usage remains high despite the adoption of digital payment because many people still want to see and feel the money. Apart from that, there are many other problems, such as low financial inclusion, illiteracy, huge informal market/informal sector, that have made cash the king, particularly in Nigeria. In many countries of the world, you would be surprised that , even in some advanced countries, cash is still the king. So it means that just as we have a lot to do in Nigeria, other countries also has a lot to do. But our own work is higher than theirs for obvious reasons.
How are we doing in Nigeria?
The Nigerian electronic payments industry has been evolving in line with the evolution in global payments in both wholesale and retail systems. Banks, PSPs and the CBN have played various roles in developing the payments system and creating products and channels for electronic payments.
As we all know, payments can be broken down into many types, including retail and wholesale . When you talk of retail payment, you talk of payments that involve individuals mostly; consumers, personal payments and so on. And the channels that are used for such payments are different from the wholesale payments which are called bulk or large value payments. For large value payments, the channels that are used is Real Time Gross Settlement (RTGS) .
The Retail Payments Transformation Programme of the CBN has led to the introduction of various electronic payments products and services by operators in the industry. The electronic products are gradually reducing the usage of cheques and cash, as noticed consistently in the annual performance report since the inception of the cashless policy in 2012. The volume and value of transactions based on cheques and NEFT have been consistently reducing annually since 2013, while same data for NIP, ATM, and mobile money channels have been on the increase. This is an indication of users’ preference for instant value channels over non-instant payment channels. I dont think if there is anybody in Nigeria now, let’s say a merchant, who would want to collect a cheque for settlement of goods.
NEFT vs NIP
NEFT means NIBSS Electronic Fund Transfer while NIP means NIBSS Instant Payment. Both products are for payment, but they are different in terms of processing time. While NIP is instant,within 10minutes, maximum, of making the transacton, NEFT has up to the next day value. Why will somebody still have to use NEFT instead of NIP? It all depends on what you want to achieve. For example, an organisation may like to make payment for staff salaries on a particular day of the month. Usually, you find out that many corporate organisations use NEFT to make such payments, either for staff salaries, contractors or vendors, while NIP is very popular among individuals to make donations, instant payments, particularly to those working for you that you need to pay immediately. There are also differences in pricing that may make one consider whether to use NEFT or NIP. I think the charge used to be N50 for NIP as opposed to what we have for NEFT. So there may be different reasons for using NEFT or NIP or to even use cheque. The reason why all these are there is for you to have options. The more options that you have, the better.
NEFT can be used for bulk transactions, that is from single individual to many recipients. while NIP is usually one to one. And it is not only NIP, there are other products that are instant payment as well. As you all know, you can go to your ATM and do a transfer.It is going to be instant.That may not necessarily be through NIP. In addition, there is also limit on what you can transfer on NIP. It is N5million limit for individual, and for corporates ,it is N10 million limit. But as for NEFT, you can go as high as N100 million. And there is regulation that anything beyond N100 million has to go to the full wholesale channel.
Recall that when electronic payment system was first introduced in Nigeria, what we had was NEFT. And then whenever you made electronic fund transfer to another person, it would tell you that the payment you were doing, if it is between 8am and 12 noon, the beneficiary would get the money the same day. But if you do it any time after 12, the beneficiary would get the money the following day. That was because it had to move from what we called the clearing system’. Of course we have got to a situation now that people doing transfers would always prefer to use the NIP. That is why the volume of NEFT continues to go down while that of NIP continues to go up.
The electronic products are gradually reducing the usage of cheques and cash, as noticed consistently in the annual performance report since the inception of the cash-less policy in 2012. In fact, the 2016 World Payments Report shows that global non-cash or electronic payment transaction volumes grew at 8.9 per cent to reach 387.3 billion in 2014. The increase was mainly driven by accelerated growth in developing markets. The global non-cash volumes are estimated to have grown by 10.1 per cent to reach 426.3 billion in 2015, aided by high growth in emerging economies across the world, including Africa.
In Nigeria, the ATM channel accounts for the highest volume of transactions, while the NIP accounts for the highest value of transactions annually. This is because ATM is usually the e-payment channel that new and lower value account holders always interface with, while corporates and upwardly mobile middle class customers make transfers using NIP.
There is also a steep growth observable in mobile money, web payments and PoS. The growth trajectory in electronic payments system in Nigeria is positive and encouraging. Banks and other electronic payment service providers operate in a highly regulated environment. Regulation is necessary to ensure that operators focus on delivering products and services that enable compliance, efficiency, financial stability and a positive customer experience.
The attempt to regulate electronic payments in Nigeria started with the CBN Electronic Banking Guidelines, issued in August 2003. In furtherance of its effort to promote and facilitate the development of efficient and effective systems for the settlement of transactions, including the development of electronic payments system; the CBN had issued and reviewed several e-payment related framework, guidelines and circulars since 2008 to date. In developing regulation for the payments system, the bank pays attention to some critical elements, with consumer concerns as a top consideration: The regulatory landscape remains complex for operators; they not only need to comply with existing regulations but also adhere to new regulatory initiatives, some of which affect established operating or business models.
The increased complexity in the regulatory landscape sometimes creates a need for banks to leverage new technology for compliance purposes. Required rate of policy review is increasing due to technology changes and innovations. This creates disruption in the smooth flow of implementation, where a policy becomes ineffective as a result of better technology.
Banks and other e-payments service providers should develop a holistic vision and programs for compliance with regulations. Operators should inculcate a proactive and collaborative compliance mindset in their people and processes, to achieve efficient adoption of regulatory practices requirements into day-to-day operations, while collaboration between regulators and operators is a key strategy to achieving an effective policy formulation and regulation.
Holistic approach, anticipation of regulatory actions, industry collaboration and dialogue are the best ways for the industry stakeholders to maximize returns on investment in compliance efforts.
Multiple factors drive the growth of global electronic payments transactions; improve economic and infrastructural growth, stronger security measures and conscious move by governments to encourage digital payments system. In tapping growth, banks and other service providers must navigate the evolving and increasing complex regulatory environment, to avoid penalty. As in many other areas of financial services, cooperation and collaboration between the regulator and operator is critical to the development of the electronic payment industry’s security and level of confidence.