Tag: Cash-less banking

Telecoms technology and banking services are creating a new growth in the financial services sector via mobile money. This payment module has grown beyond its initial concept and is expected to bridge the gap between the banked and unbanked, writes COLLINS NWEZE.

The dream of getting finan-cial services to the nooks and crannies of the country is being realised by banks, the Central Bank of Nigeria (CBN), telecoms operators and the Nigeria Communications Commission (NCC) via money.

That vision, many analysts said, would be driven by mobile money. This refers to payment services operated under financial regulation and performed from or via a mobile device.

Mobile money system refers to the various components required to deliver mobile money to the banking and non-banking community. The providers of these services and solutions are required to operate within the defined regulatory framework specified in this document and any other regulation/guideline issued by the CBN.

The CBN is responsible for defining and monitoring the mobile money systems in Nigeria.

With mobile money, instead of paying with cash, cheque, or credit cards, a  consumer can use a mobile phone to pay for many goods and services.

In 2008, the global market for various mobile payments was projected to reach more than $600 billion by 2013. In developing countries, including Nigeria, mobile payment solutions are deployed as a means of extending financial services to the unbanked or under-banked. These groups constitute about 50 per cent of the world’s population, according to Financial Access’ Report.

Analysts insist that financial exclusion persists because of the inaccessibility of the unbanked mostly people in the lower strata of the economy, by the financial services providers.

The unbanked are often far removed from the centre of commerce, which tends to lower their participation in economic transactions.

Thus, a combination of low demand for financial services and prohibitive costs without commensurate returns dissuades financial services providers such as banks, insurance, and pension administrators from establishing its presence in these locations.

However, mobile technology and innovations in the financial services industry, coupled with the phenomenal growth in telecoms’ subscriber numbers, have altered this situation.

However, financial services providers continue to leverage the reach of telecoms networks to provide mobile money services to otherwise inaccessible locations.

The spate of agreements on mobile money services among financial institutions and telecoms networks, MTN and Diamond Bank, UBA and Airtel, Stanbic IBTC Bank, FirstBank, Ecobank and Globacom, will, doubtless, ramp up the synergy that should lead to further growth in mobile money.

 

NIBSS Network

The CBN insists that Mobile Money Operators (MMO) are required to, henceforth, connect to the Nigeria Interbank Settlement System (NIBSS) otherwise called the National Central Switch (NCS) to ensure ease of communication for schemes in the system.

In a guideline for the sector, the apex bank said a scheme operator can either be a bank or a licensed corporate organisation.

It said the NIBSS is responsible for connecting the various players in the financial system using various players, such as banks, MMOs, non-banking financial institutions, payment terminal providers, card acquirers, government institutions and their customers to send, receive and process funds, documents and other instruments electronically through its platform.

The apex bank said MMOs are the lead initiators for the mobile scheme and shall be responsible for ensuring that the various solutions and services within an approved mobile payment scheme meets the entire regulatory requirements as defined in this framework and as may be specified from time to time.

The regulator said the MMOs shall be ccountable to the CBN and the end users. The CBN recognises that, with the evolution of the mobile money system, spin-off services would be identified by MMOs, which can be outsourced to entities with specialised skills and resources to support such services in a more efficient and effective manner. The service providers may employ the infrastructures of the MMOs to provide services to the end users.

“The MMOs shall provide a detailed payments management process that covers the entire solution delivery, from user registration and management, Agent recruitment and management, Consumer protection/dispute resolution procedures, Risk management process to transaction settlement. These processes shall cover the scope of the value chain across all the participants in the mobile money ecosystem,” it said.

 

The M-Pesa example

The poster boy of the successful integration of the rural/informal populace into banking system via mobile money services is usually Kenya. M-PESA, Kenya’s mobile money system, has been hugely popular and successful in that country. It has over 40,000 agents and 17 million users (“equivalent to more than two-thirds of the country’s adult population, conducting more than two million transactions daily.

In 2010, Kenya had just 840 bank branches and 1,510 ATMs to serve a population of 47 million. M-PESA, with its 40,000 agents, helped to plug the supply hole and provide access to financial services to ordinary Kenyans.

Micro finance institutions piggybacked on M-PESA to penetrate remote areas quickly without increase in costs.

In other countries, some financial institutions seemed to have found the right mix to ensure the successful deployment of mobile money. Standard Bank (parent bank of Nigeria’s Stanbic IBTC Bank), for instance, has been successful with mobile money in Uganda, Tanzania, and South Africa.

 

Bank-led model

The bank-led mobile money model adopted by Nigeria may be slightly different from Kenya’s telecoms-driven model but the underlying peculiarities are broadly similar.

Access, costs, lower economic activities, and partnerships are common threads. The lessons of M-PESA are not lost though as mobile operators like MTN Nigeria is beginning to play more significant roles in mobile money.

 

CBN Vs telco-led model

The CBN said it avoided the implementation of the telco-led model in the mobile money operation to have control of monetary policy operations. The policy, it said will also enable it minimise risks and ensure that the offering of financial services are driven by organisations it licensed.

In new guidelines, the CBN said the telco-led model, where the lead initiator is Mobile Network Operator (MNO), shall not be operational in the country. The apex bank said the overriding vision of achieving a nationally utilised and internationally recognised payments system necessitates strategies to bring informal payment transactions into the formal system.

This framework has identified two models for the implementation of mobile money services namely; Bank Led – Financial Institution(s) and/or its Consortium as Lead Initiator and Non-Bank Led- A corporate organisation licensed by the CBN as Lead Initiator.

“The CBN recognises the importance of Mobile Network Operator (MNOs) in the operations of mobile money and appreciates the criticality of the infrastructure they provide,” it said.

The CBN said a robust payments system is vital for effective monetary policy implementation and the promotion of economic efficiency. “The introduction of mobile telephony in Nigeria, its rapid growth and adoption and the identification of person to person payments as a practical strategy for financial inclusion, has made it imperative to adopt the mobile channel as a means of driving financial inclusion of the unbanked,” it said.

Chief Excutive Officer (CEO), MTN Nigeria, Michael Ikpoki, said the network would focus on meeting the significant market demand for financial services and mobile content with an expected positive impact on data revenue.

“The success of Diamond Y’ello Account and other basic mobile money services is expected to lead to the adoption of more sophisticated mobile payment solutions such as bulk mobile payment designed for corporate organisations. This service makes it easier for organisations to send money in bulk to their suppliers, employees or other business partners without the beneficiaries necessarily having to own a bank account,” he said.

Mobile money providers are also expected not be shy to adapt and replicate what works in other places but continue to innovate and develop bespoke products and services to excite consumers and boost conversion rate.

 

Benefits to consumers

Some of the benefits to the consumer include security, convenience, accessibility, speed and ease of transaction, competitive charges, access to quality advisory services, and integrity of transactions; the customer literally carries his bank in his pocket or bag wherever he goes.

Other not-so-obvious benefits, which are nonetheless important, are better cash flow management, enhanced financial planning, and inculcation of sustainable savings habit, which boost financial security and comfort in retirement.

“Mobile payments, which I perform on my phone, help to reduce my travelling costs,” a farmer in the rural area who uses mobile payment services said.

Mobile money also has the potential to galvanise economic activities, leading to higher socio-economic development, lower cost of transactions and reduction of cash handling costs, among other benefits.

 

Role of regulators

CBN Director, Payment Systems Unit, ‘Dipo Fatokun, said apex bank believes that mobile money and agent framework is the frontier of cashless boom.

“Mobile money is the next thing expected to transform CBN’s cash-less policy. The apex bank believes that such initiative will aid both telecommunications and banking industries to further serve Nigerians better,” he said.

Nigeria’s telecoms subscriber base, put at 131 million as of September, last year by the Nigerian Communications Commission (NCC) should play a major role in bringing the unbanked into the formal banking system.

With over 50 per cent of Nigeria’s unbanked adult population, mobile banking could be the catalyst that will help quicken the adoption of banking services by this critical segment of the population.

Offshore portfolio managers appear to be similarly persuaded and they are already positioning to take advantage of the expected growth in mobile money.

For instance, Carlyle Group, a United States-based global alternative asset manager with $203 billion of assets under management across 129 funds and 141 fund of funds vehicles, recently acquired a $147 million (about N27 billion) minority stake in Diamond Bank, partly on the strength that the bank’s new mobile banking service “will help rapidly boost the lender’s customers and profits.”

Also strengthening mobile money is the Nigerian Deposit Insurance Commission (NDIC’s) extension of deposit insurance cover of up to N500,000 to mobile money account holders.

 

How has  cash-less banking fared three years after its introduction? It has not done well says Central Bank of Nigeria (CBN) Governor, Godwin Emefiele who has tasked stakeholders to ensure the payment system meets global standard.

Emefiele, who inaugurated members of the Payment System Strategy (PSS) Board, Payment Scheme Boards and Initiatives Working Groups of the Nigerian Payment System, meant to drive the restructured Payments System Vision 2020 (PSV2020), said despite growing the mobile payment channel by 8,400 per  cent to N296.9 billion in 2014 from N3.5 billion in 2012, there are still gaps to be filled.

He said Point of Sale (PoS) transactions also rose to N312 billion last year from N48 billion in 2012, representing about 550 per cent increase; the Nigeria Interbank Settlement System (NIBSS) Instant Payment (NIP), increased by 423 per cent to 19.9 trillion last year from N3.8 trillion in 2012.

The web channel grew by 108 per cent from N31.5 billion in 2012 to N65.6 billion last year, while Nigerian Electronic Fund Transfer (NEFT), rose by 7.5 per cent  to N14.6 trillion from N13.6 trillion.

“There is no doubt that we have indeed, recorded many successes along the way; however, we do not intend to rest on our oars. In that sense, looking in retrospect, and interpreting the future of our payments system in the light of the present, we see our accomplishments as a stepping stone, bearing in mind that there’s  still a great deal of work to be done,” Emefiele said.

He listed agriculture, smart cities, government flows, hotels and entertainment, transport, education, health, bill payment and direct debits, as areas that need strengthening in the payment system to improve results in the years ahead.

He described the PSV2020 as part of the CBN’s efforts to transform the nation’s payment system, adding that a  functional national payment system is essential for an efficient financial sector.

Emefiele listed some of the achievements made in the electronic payment to include implementation of the Nigeria Uniform Bank Account Number (NUBAN), deployment of a new Real Time  Gross Settlement system (RTGS) built on the Society for Worldwide Interbank Financial Telecommunication (SWIFT), messaging standards and Introduction of the cash-less policy, among others.

He said the PSV2020, was created to make the Payments System ‘Nationally Utilised and Internationally Recognised’. “It is gratifying to note that our country is acknowledged as a major economic force within Africa, but also increasingly becoming an active player in the global economy. To participate actively, our payments system must be successfully benchmarked against the global best practices, as in most developed nations of the world. We have made some significant achievements so far  in this journey, but a lot still remains to be done,” he said.

The Board, he said, shall be   chaired by the CBN Governor. It has the Honourable Minister of Communications & Technology; the Accountant-General of the Federation; the four Deputy  Governors of the CBN; the Chairmen of the four Payment Scheme Boards, among others as members.

“The PSV2020 initiative is intended to benchmark the existing core payments infrastructure in Nigeria against international best practices.  The primary reference point was the Core Principles produced by the then Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS),” he said.

He, however, said through the implementation of the original PSV2020 initiatives by the CBN, in association with the banking community, the country has witnessed an impressive growth of electronic payments and a shift from the overwhelming dominance of cash as a means of payment.

It came with a lot of promise, but two-and-a-half years after, cash-less banking is yet to fly. It is faced with erratic Automated Teller Machines (ATMs), Point of Sale (PoS) and internet banking downtime challenges. These, among others, have eroded customers’ confidence in the scheme, writes COLLINS NWEZE.

Cash-less banking is two-and-a-half years old today, but the challenges confron-ting it are still there. The policy was meant to change the cash-driven economy and reduce operational costs usually passed on to customers through other means. The policy’s implementation began nationwide yesterday.

The policy is designed to promote financial intermediation, financial inclusion, minimise revenue leakages, eliminate robbery and high cash payment and encourage electronic payment. However, feedback from customers shows that these objectives are far from being met.

From non-working Automated Teller Machines (ATMs), debiting of customers’ accounts without payment, and poor network in the use of Point of Sale (PoS) terminals, customers have stories to tell.

Analysts said aside campaigning for the use of alternative channels, such as the PoS and ATMs, in settling bills, the banks and CBN need to get the platforms in good working condition.

They said Nigerians were being denied the convenience and efficiency experienced by other countries in bills payment using alternative banking channels.

 

Banks react

In an emailed statement to its customers, GTBank said the policy would drive the development and modernisation of Nigeria’s payments system. It said all individuals and corporate outfits will be encouraged to adopt electronic payment and other banking options.

The policy, it added, is aimed at promoting the use of electronic-based transactions instead of cash for payments for goods, services, transfers, among other services.

Skye Bank Plc has underscored the importance of deploying innovative technology to provide a secured and more convenient direct banking solution to its customers. In a statement, the bank said such action is to promote the cash-less policy.

The lender has also unveiled its ‘SkyePLus’ to support the initiative.

Speaking at the unveiling of the product, the Chairman, Skye Bank Plc, Olatunde Ayeni, said the bank had remained ahead in the area of deploying the right technology to engender seamless and flexible banking transactions for Nigerians.

His words:“We deploy technology as best as we can as available, because we believe that banking today and tomorrow will continue to be dependent on technology. It is our belief that we need to deploy technology to be able to grow our economy as part of member of Information and Communication Technology-driven global economy.

Also, Heritage Bank introduced the first transparent MasterCard in Nigeria to demonstrate its commitment to offering innovative e-payment services to its customers.

Its Managing Director/Chief Executive, Ifie Sekibo said the Heritage Bank transparent MasterCard  was borne out of the bank’s commitment to offering innovative banking services in a more convenient and efficient manner to customers.

Sekibo said: “This is the philosophy behind our e-payment services. There is more to e-payment than Nigerians are currently enjoying. We are determined to take Nigerians to new heights of e-payment services that deliver unparalleled convenience and security. That is why we introduced the first transparent MasterCard in Nigeria.”

Group Head, e-Bank, Heritage Bank, Mr. Tobe Nnadozie, said the  MasterCard is available to new and existing customers of the bank.  “To own a Heritage Bank Transparent MasterCard is easy,” he said, adding that the card comes with no additional cost beyond the cost of applying for the average MasterCard.

 

e-payment operators’

position

Visa’s Group Executive, Central and Eastern Europe, Middle East and Africa, Kamran Siddiqi, said the cash-less banking initiative is modernising the payment system and creating economic development for the country. He was in Nigeria last year to support Visa’s financial literacy and cashless payments drive.

“Nigeria is a very important market for us. It is exciting for me to be here to support the progress Visa has made in driving financial inclusion and making electronic payments more accessible to everyone everywhere,” he said.

He said Visa is dedicated to increasing financial literacy among the unbanked through strategic partnerships and educational programmes.

“This was the motivation behind the recent highly successful Financial Literacy Challenge with the Co-Creation Hub. It was geared at stimulating the development of innovative web and mobile applications to teach money management skills and support the advancement of financial literacy in Nigeria,” he said.

He noted that another of Visa’s focus areas in Nigeria and the West African region is to continue to boost tourism and cross border spend. Nigeria enjoyed a 25 per cent increase in spending by international travellers using their Visa cards in 2012.

Also, international Visa cardholders increased tourism spending from $95.2 million in 2011 to $119.5 million in 2012. Total transactions rose 31.1 per cent from 553 747 to 727 113.

Interswitch said the direct cost of handling, processing and managing cash across the nation as at 2009, stood at N114 billion and could have increased if the cashless policy had not been introduced.

“The good thing we have also done as stakeholders in the e-payment industry are to also introduce solutions that would drive adoption of the cash-less policy. These solutions have been designed to address the specific needs of the ordinary Nigerian towards the adoption of e-payment,” it said.

 

Default charges on

deposits

The CBN has ended the charges on excess deposits imposed by the cash-less policy. CBN Governor, Godwin Emefiele said many bank customers device means to avoid the charges, such as opening multiple accounts, a move he described as detrimental to the cashless policy.

Consequently, he had directed that all charges on excess deposits be stopped with immediate effect, while charges on withdrawals in view of their elimination will remain sustained at the current three per cent for individual transactions exceeding N500,000 and five per cent for corporate transactions exceeding N3 million.

 

Stakeholders’ stand

The Association of Bureaux De Change Operators of Nigeria (ABCON) has said the removal of three percent charge  on cash deposits above N500,000 for individuals and  N3 million for corporate customers will boost depositors’ confidence on the banking sector.

ABCON President, Aminu Gwadabe, said the CBN governor, Godwin Emefiele did the right thing by abolishing the charges during the World Press Conference on his Agenda last week.

“The cancelation of the charges is good for the economy, will boost customers’ confidence and also enhance the achievement of the objectives of the cashless policy,” Gwadabe said.

Under the cashless policy, the CBN imposed three percent charge  on cash deposits above N500,000 for individuals and  cash deposit above N3 million for corporate customers. However, Governor Emefiele on Thursday ordered the stoppage of the charges.

“We have become aware of complaints by customers particularly regarding the charges being imposed for cash deposits. This has resulted in customers devising various means to avoid the charges through opening of multiplicity of accounts and other disingenuous behavior all aimed at undermining the objective of this policy. Given these outcomes and to better reflect our goal of having more cash under our control, all charges on deposits are hereby stopped with immediate effect,” Emefiele said.

Also, banks and the Nigeria Interbank Settlement System (NIBSS) have urged Nigerians to embrace e-payment platform as the best option for settlement of business transactions.

The NIBSS said the e-payment platforms – PoS and Instant Payment platforms have benefits of convenience safety and receipt of instant value to enable people make payments for their transactions.

It said such transactions can be carried out using the ATMs, mobile phones, Laptops, desktops, notebooks, I-Pads, among others.

The banks and NIBSS have also commenced a communication awareness campaign to enlighten Nigerians on the benefits of these e-payment platforms, encourage usage and adoption of these payment options.

“Nigerians are enjoined to embrace the e-payment platforms due to their safety, reliability and efficiency. This is also coupled with the attendant security issues with making payments through cash transactions. These e-payment platforms have become globally acceptable means for financial transactions and encouraged Nigerians to adopt same for their transactions,” it said.