Despite being a leader in telecom adoption in Africa, Nigeria’s digital payment system has been hindered by a lack of collaboration, poor infrastructure, and regulatory framework, writes FELIX OLOYEDE
The Central Bank of Nigeria’s decision last year to reduce the volume of cash in circulation exposed vulnerabilities in the digital payment system. In October last year, the apex bank announced plans to redesign the three highest naira notes to enable it to mop up cash outside the banking system.
So, it decided to limit Automated Teller Machine and point of sales withdrawals to N20,000 and N10,000 per day respectively, for an individual who would only be able to withdraw N100,000 in a week. It pegged individuals’ and corporate organisations’ over-the-counter withdrawal limits at N100,000 and N500,000 respectively.
The CBN ordered banks to commence the implementation of the cash withdrawal limit policy on January 9 this year and pegged January 31 as the deadline for the swapping of the old naira notes.
Most Nigerians were compelled to adopt digital payment systems for their daily transactions as the country grappled with the scarcity of naira notes. Banks were overwhelmed with people trying to get cash and ATMs experienced a drought of cash. The only options available to Nigeria were the digital payment platforms – mobile and internet banking and fintech payment platforms.
In a short period of time, these platforms became overwhelmed by the high volume of traffic they received. They had never received such volumes of traffic. There were a lot of failed transactions and a breakdown of banks’ digital platforms. It was so much that Nigerians were using naira to buy naira notes.
The apex bank was forced by the Supreme Court to suspend the cash withdrawal limit and redesign its policies.
Although Nigerians had put the unpleasant experience behind them, the Financial Correspondents Association of Nigeria decided to x-ray the challenges facing the country’s digital payment system by making it the focus of its 2023 conference, which was held September 16-17 in Lagos. It brought together operators and regulators in the digital payment space to consider the theme “Strengthening Digital Infrastructure for Efficient Innovative Payment Systems in Nigeria”.
The World Bank, in its report, ‘Nigeria Development Update (June 2023)’, stated that the country’s digital and financial infrastructure was incapable of supporting a swift transition to a cashless economy.
“The lack of adequate digital and financial infrastructure and processes to support a swift transition to a cashless economy—coupled with the fact that only 40 per cent of adults have a bank account—further exacerbated the situation. The cash shortage resulted in a black market for new notes, inflating overall transaction costs,” the multilateral bank noted.
Similarly, Phillips Consulting said its 2023 banking channels survey indicated that about 60 per cent of respondents were unsatisfied with the challenges associated with ATM debit without cash dispensed, and the corresponding transaction reversal waiting period.
The survey identified that the challenge with the ATM debit without cash dispensed had always been a technical glitch in technology infrastructure along the value chain.
Cybercrime also poses a major challenge to the development of Nigeria’s digital payment system.
The Financial Institutions Training Centre reported that the country’s banks lost N9.75bn to cybercrime and other frauds in the first six months of this year.
According to FITC in its “Report of Fraud and Forgeries in Nigerian Banks”, this was a 278 per cent rise from N2.58bn reported in the same period of last year.
“It was followed by the Computer/Web fraud category at N1.47bn (15.10 per cent). Mobile Fraud came next at N751m (7.7 per cent), and fraudulent withdrawals amounted to N663m (6.79 per cent),” the institute remarked.
ATMs, online platforms such as web and mobile banking, bank branches, and point-of-sale terminals were the channels for fraudulent activities in Q2 2023.
FITC explained, “Additionally, the amount lost also saw a substantial rise, increasing from N472m in Q1 2023 to N5.79bn in Q2 2023, which corresponds to a 1125.03 per cent increase. This increase might be attributed to the fact that banks were liable for the losses incurred and had to make refunds to customers.”
Setting the tone for discussion at the FICAN conference, the Chairman of the association, Chima Nwokoji, declared that the cash scarcity witnessed in the country in the first quarter of this year mirrored the state of digital infrastructure in Nigeria’s banking and finance space.
According to Nwokoji, available data shows that over 90 per cent of consumers are forced to make payments using debit cards and online funds transfers.
“Others use the Internet/web, ATM, bank branches, mobile banking, and PoS terminals. But there are hardly any of these channels that do not have issues as we speak.
“We all are witnesses to the fact that the quantum of electronic transactions that happened in the first quarter overwhelmed existing payment infrastructure and led to massive transaction failures and frustration amongst the banking public,” Nwokoji said.
He raised the issue of cybercrime, which is one of the challenges plaguing the country’s digital payment system.
“Aside from transaction and network failures, findings show that as more Nigerians are embracing e-transactions daily, so is the surge in cybercrimes. Cybercriminals are getting adept at the clean sweep of bank accounts of unsuspecting users. There are some fearful revelations that threaten customers’ trust in the banks’ ability to protect their hard-earned money.
“For example, in March 2023, the Lagos State Police Command arraigned a fraud syndicate comprising eight men before the Federal High Court in Lagos for allegedly hacking the server of an electronic platform, ( ITEX Integrated Services Limited), and stealingN435.3m,” Nwokoji elucidated.
He also stated the instance of a coordinated cyber-attack carried out on Saturday, April 23, till the early hours of Monday, April 25, 2022.
“Suspected fraudsters, during a three-day cyber-attack, hacked a customer’s account domiciled in an old-generation bank and transferred N523.337m from the account to 18 different accounts in the same bank,” he narrated.
Also, the Head of Digital Banking at United Bank for Africa, Olukayode Olubiyi, stated cyber threats were one of the most prevalent threats facing digital payment technology. He mentioned that Nigerian banks lost a total of N9.5bn to electronic fraud within the first eight months of 2023.
Olubiyi said, “Lack of proper or insufficient regulatory oversight over the digital payments systems can result in major and systemic loss of business. The regulations covering digital payments should be robust and designed to enable a secure and competitive landscape for digital payments players to run seamlessly.
“Cybercrime poses a huge challenge for the firms in the digital banking space. Hence, it becomes imperative that institutions secure the data that the criminals are after.”
According to Olubiyi, banks will have to invest heavily in systems and processes to defend their customers’ data.
“Partnerships between banks and fintechs may be required in the use of machine-learning technology systems and artificial Intelligence to proactively prevent potential breaches and data loss.
“Cybercrime can be curbed by ensuring efficient cybersecurity through combined security, multi-factor authentication, cyber insurance, consumer awareness, antivirus and anti-malware application,” he opined.
The Chief Finance Officer of Parthian Partners, Mr Olayinka Arewa, argued that despite the huge revenue being generated from the digital payment space, a mirage of challenges hasdwarfed its growth potential.
According to Arewa, in 2022, Nigeria unlocked $3.2bn in additional economic output through the development and utilisation of electronic payments, particularly real-time payment services.
He noted that currently, payment solutions constituted approximately 15 per cent of banking revenue polls in the country, a testament to the growing popularity of electronic transactions.
“Electronic Payments continue to attract substantial global investments and have anticipated the highest growth return within the sector by the past decade. As one of Africa’s largest economies, Nigeria is well-positioned to harness the potential within this sector.
“Indeed, Nigeria has witnessed a remarkable digital transformation with over a hundred million active mobile phone users as of 2023. This statistic signals the advent of a fully digitised financial services sector,” he remarked.
He mentioned that the lack of collaboration among stakeholders in the digital payment ecosystem had stunted its growth.
“An increased collaboration is required among the central bank, telcos, commercial banks and fintech companies to expand internet connectivity and seamless electronic transfers across the country.
The uniformity of banking applications across the industry could significantly reduce the occurrence of failed or delayed payments. However, it will require robust technology, stringent security measures and seamless integration with various payment platforms, financial institutions, and collaboration among stakeholders, including financial institutions, fintech companies, government entities and regulatory bodies play a pivotal role in ensuring the success of innovative solutions,” the Parthian Partners CFO asserted.
Also speaking at the FICAN conference, the Vice Chairman of the Nigerian Communications Commission, Prof. Umar Danbatta, who was represented by Deputy Director, Anthony Ikemefuna, mentioned that the country needed to invest in digital infrastructure.
According to the NCC boss, the country’s broadband and mobile network infrastructure needs expansion and upgrade, particularly in underserved and rural areas.
Danbatta added the lack of data centres and reliable power supply were also hampering the growth of the country’s digital payment systems.
He said other areas that should be looked into were digital literacy and inclusion.
He called on the government and other stakeholders to “launch nationwide digital literacy campaigns to educate citizens, especially those in rural areas, about digital payment systems.
“Encourage the adoption of mobile banking and agency banking to reach unbanked and under-banked populations.”
He also emphasised the need to strengthen regulatory frameworks regarding digital payment.
“Update and streamline regulatory frameworks to accommodate digital payment innovations while ensuring consumer protection, security, and financial stability. Collaborate with industry stakeholders to establish clear standards and interoperability requirements,” the NCC boss averred.
Meanwhile, Ralph Mupita, CEO of MTN Group, while speaking at the CEO Forum recently, disclosed that Nigeria needed between $12bn and $15bn of infrastructure investment in the next five years, to overcome the challenges of persistent poor network quality, to increase the speed of internet connectivity, and digital inclusion expansion.
In the same vein, the Managing Director of the Nigerian Inter-Bank Settlement Systems, Premier Oiwoh, who spoke through the Divisional Head of Enterprise Support, Bola Enigbokan, harped on the need for synergy among stakeholders to enable the country to harness the potential of its digital payment system.
According to Oiwoh, the partnership will, in addition to wider coverage, also help to check abuses, dispensing errors, and instant resolution of errors, as well as update the technological resources for delivering first-class e-payment across the country.
“Collaboration is mandatory; it is not a choice, as we have gathered here doing our workshop, the fraudsters are also doing their seminars and they strategise. Oftentimes, they are even ahead of us.”
Explaining the rationale behind failed transactions, the NIBSS boss said, “When you have a failed transaction, your money is not hanging on a mango tree; your money is somewhere in the bank. So, what you need to do in this case is update your app to address some issues with failed transactions.”
He added that the CBN was making frantic efforts to address the issue of failed transactions.
“I know there are technology issues and infrastructure issues, but one other thing is that if a customer’s money has been debited and he has not seen value, then he will get an instant reversal, which is a new policy that the CBN is going to come out with to ensure that you get your money instantly,” he disclosed.
He explained that the e-payment infrastructure challenge was unveiled by the emergence of COVID-19, which stressed the hitherto e-payment infrastructures.
“It started with COVID-19. It was a great opportunity to learn. We had existing infrastructure, but we didn’t check the resilience. It was overstressed and we now have to upgrade. There has been some progress, and you are beginning to see some improvements,” Oiwoh posited.
According to him, NIBSS has been building capacity and infrastructure to curtail phishing and e-payment fraud, devices of cyber criminals who steal people’s identities or clone their cards to defraud them electronically.
Collaboration was identified as a key factor by stakeholders to harness the potential of the digital payment system.
According to the NCC, collaborative efforts between it and financial regulators such as the CBN are essential for coordinating policies and regulations related to digital payments and telecommunications.
“This ensures that the regulatory environment is conducive for innovation and growth,” it maintained.
