payments system transformation in...

PAYMENTS SYSTEM TRANSFORMATION IN NIGERIA

Banking and Payments System Department

Central Bank of Nigeria

July 31, 2018

BY

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OUTLINE

Introduction

National Payments System

Recent Developments In the Payments System

Payments System Policies, Framework & Guidelines

Issues and Challenges

Way Forward

Conclusion

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The payments system has been defined by the Bank for International

Settlement as “ a specific set of instruments, banking procedures

and inter-bank funds transfer (e.g. clearing and settlement)

systems that ensure the circulation of money”.

Payments System is the entire arrangement of instruments,

procedures, regulations and laws governing institutions, inter-

connected networks of hardware/software and communications

technology facilitating transfer of monetary value between transacting

parties

INTRODUCTION

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INTRODUCTION

The CBN has been at the forefront in the transformation of the

payments system in the country. This has been amply demonstrated in

various ways including the development of the Payments System

Vision 2020 document in 2007 and its recent review in 2013. The PSV

2020 is aimed at providing a roadmap for efficient payments system

infrastructure that would be nationally utilized and internationally

recognized.

Essentially, there are three pivotal roles for the payments system,

namely;

Monetary Policy role,

Financial Stability role and

Economic role.

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NATIONAL PAYMENTS SYSTEM

The Nigerian Payments System consists of all the various institutions, payment

infrastructure and instruments used in facilitating exchange of funds from one party

to the other in exchange for goods and services.

The payment system infrastructure consists of the following major entities:

1. Banks – They issue and acquire payment cards and their transactions.

Facilitate clearing and settlement activities for e-payments.

2. Switches – They provide interconnectivity and enable interoperability among

payments service providers

3. Processors – They provide card processing services on behalf of the banks

4. NIBSS – It operates the Automated Clearing House (ACH) and the Nigerian

Central Switch (NCS). It is also the Payment Terminal Service Aggregator

(PTSA) for the Nigerian payments system

5. Mobile Money Operators- Facilitate mobile payments operations

6. Other Payment Service Providers – Provide payment services to the financial

institutions 5

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The Central Bank of Nigeria, in its role as the regulator of the Payments

System, has implemented various policies and initiatives towards the

development of the Nigerian Payments System. They include the

following:

• Migration to EMV cards: Took effect from October 1, 2010 and has

significant reduction in electronic card frauds leading to more

confidence in the utilization of cards as a means of payment

• N10 Million Maximum Cap on Cheque: The introduction of N10

million as maximum cap for cheque payment by the Bank in January

2010 increased the patronage of electronic payments in Nigeria

• PSV 2020 Vision- Transforming the payments landscape by reforming

payment initiatives and infrastructures

RECENT DEVELOPMENTS IN THE PAYMENTS SYSTEM

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• Mandatory directive for Setting up of Help Desks in Banks & CBN:

Has enhanced timely resolution of customer complaints

• Establishment of Payments System Policy & Oversight Office:

The office ensures compliance to regulations, licensed new and

reviewed old licenses, developed new and reviewed existing payments

policy, provides Management with information on risks associated with

electronic payments and trends in the payments space to enable better

policy decision making

• Establishment of Shared Services Office: Since its introduction, it

has significantly reduced the cost of operations for banks, leading to

greater efficiency and lower charges to customer for services

• Establishment of NeFF- Provision of a centralized information sharing

platform hosted by NIBSS, banks are now more open to providing

fraud related information and submit monthly fraud reports


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• Implementation of Nigeria Uniform Bank Account Number (NUBAN):Facilitation of straight through processing of clearing instruments

• Cheque Truncation: Has increased the efficiency of cheque clearing andsettlement with reduction of clearing cycle from T+2 to T+1

• Mobile Money Operations: Licensed 21 Mobile Money Operators.Cheapest means of accessing financial services with lower transactioncost, more accessible for less educated and the very poor and lessprivileged who might feel intimidated in branches. Benefits of greatereconomic development to isolated communities and facilitation of financialinclusion

• Introduction of Payment Terminal Service Providers (PTSPs) to thePayments Space: Enhanced the numbers of PoS terminals in the countryfrom 5,000 at inception to over 133,941 as at October 31, 2014. Nine (9)PTSPs licensed as at October 31, 2014

• Re-introduction of Remote-on-Us charges on ATM withdrawals (N65after three withdrawals) effective September 1, 2014


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• NIBSS Transformation: Reforms tailored around SIBS of Portugal toenhance efficiency. Establishment of Nigeria Central Switch (NCS),Appointment as a Payment Terminal Service Aggregator (PTSA),Introduction of NEFT, NIP & e-Bills Payments

• Cash-Less Policy: Aimed at reducing cost of cash management,increasing efficiency of the payments system and financial inclusion. Itencompasses withdrawal limits of N500,000 and N3million for individualsand corporates respectively, N150,000 limit on encashment of 3rd partycheques across the counter, Utilization of only CIT companies for cashpick ups, adoption of other e-payment channels etc.

• Agent Banking: Provision of agent banking as a delivery channel foroffering banking services in a cost effective manner to a wider geographyof consumers

• Deployment of New RTGS System: New RTGS system deployed toreplace the old version that was plagued with sub-optimal performance

• Introduction of Uniform Know-Your-Customer (KYC) regulation into asimplified Risk-based Tiered Framework that allows individuals thatcurrently do not have the required formal identification measure to enterthe banking system


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• Policy Directive for Adoption of Payment Card Industry Data SecurityStandards (PCIDSS): Global security standard targeted at allorganizations that process, transmit and store payment data. Its adoptionwould enhance the security of organizations in scope, improved reliabilityin the use of the payments system and garnered confidence in theNigerian by the local and international community

• Bank Verification Number (BVN): Aimed at providing bank customerswith unique identification. The policy would complement the role of theNational Identity Management Commission (NIMC) when its goes live withthe National Identity Card Project. DMBs are required to enroll at least40% of their customers on or before December 31, 2014.

• Card Fraud Prevention Strategies: The Bank in collaboration with keystakeholders had been developing strategies for the prevention of cardfraud and had issued some circulars covering the following:

Introduction of second level authentication for card not present paymentsBanks to have real-time online monitoring tools for PIN entry attemptsAutomatic blocking of card after three unsuccessful PIN attemptsSet limit for card to card transfers, POS and web paymentsBanks to segregate the process of PIN handling and card activation


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• Remita/GIFMIS Systems for MDAs Payments

Hosted in the Office of the Accountant General of the Federation

(OAGF)

Became operational in February, 2012

Networks the MDAs, OAGF and the CBN applications for funds transfer

Currently used to disburse payments by the MDAs (salaries,

overheads, capital payments, etc.)

According to recent government pronouncements, about N118bn has

been saved to government’s coffers since its implementation

• Introduction of National Financial Literacy Framework to increase

awareness and understanding of financial products and services with

the goal of increasing sustainable usage


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PAYMENT SYSTEM POLICIES, FRAMEWORK AND

GUIDELINES

Some of the Policies, Framework, Guidelines/Circulars on Electronic

Banking in Nigeria are as follows:

i. Regulatory Framework for Mobile Payments Services in Nigeria

ii. Standards and Guidelines on ATM Operations in Nigeria

iii. Guidelines on Transaction Switching Services

iv. Guidelines on Stored Value Prepaid Card Issuance and Operations

v. Operational Rules and Regulations for the Nigeria Central Switch

vi. Guidelines on e-Payments of Salaries, Pensions, Suppliers

vii. Standards for Electronic Payments to Government Suppliers

viii. Guidelines for Electronic Payments of all forms of Taxes

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PAYMENT SYSTEM POLICIES, FRAMEWORK AND

GUIDELINES

ix. Guidelines on Nigeria Direct Debit Scheme

x. Guidelines on Point-of-Sale (PoS) Card Acceptance Services

xi. Guidelines on Agent Banking & Agent Banking Relationships

xii. “Release 2.0” of the Payment System Vision 2020

xiii. Reviewed KYC Regulation

xiv. National Financial Literacy Framework

xv. Circular on Electronic Payments Incentive Scheme and Awareness

Campaign

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With every new system, there are bound to be challenges. Some of themajor obstacles are mentioned below. However, it is worthy to note thatCBN in collaboration with various stakeholders is working towardssurmounting them:

• Epileptic Power Supply

• Poor Telecommunication Connectivity

• Lack of Synergy between Mobile Payment Operators and Telcos

• Need for enhanced Customer Awareness

• Lack of capacity to oversee the entire industry at a stretch: The paymentindustry and its players have increased in size. It is becoming practicallyimpossible to conduct oversight on all the players as frequent as wewould have desired

ISSUES AND CHALLENGES

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• Lack of awareness and understanding of Policies:Misinterpretation of policy and adherence to policies andguidelines have been as a result of poor understanding andsometimes due to lack of awareness

• Lack of institutional collaboration on Payment SystemOversight and Policy Implementation: The regulatory bodies inthe country need to work more closely to ensure an all-roundoversight on the payments system and their operators.

• Rapidity of Technology Changes: Due to rapid changes intechnology, some of the policies and guidelines become quicklyirrelevant. Frequent changes in the policies and guidelines can beperceived, sometimes, as “Policy Summersault”

ISSUES AND CHALLENGES

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Continuous Public Awareness, Seminars , Consumer Education on the benefits of electronic payments

Improvement of security issues around the electronic payment option – boost public confidence

Implementation of incentive scheme for all electronic payment channels e.g. discounts, etc.

Complete implementation of Unique identifier for bank customers across the industry

Aggressive deployment of payments channels to increase availability

Adequate training on oversight functions on electronic payments schemes.

WAY FORWARD

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The current efforts of CBN management on shared services or common payment infrastructure will aid the effective management of fraud

The Payment System Policy & Oversight Office will intensify efforts in monitoring compliance to guidelines and regulations on payments system

The support of e-payment operators in complying with the laid down regulations will facilitate the realization of safety and efficiency of the system

Functional Customer complaint desk could help the banks reduce incidences of fraud and ensure timely resolution of customers related issues/complaints

Disclosure of fraud cases to the regulator will help the Bank have a proper perspective of the fraud trends and design policies that will address such lapses or vulnerability points

WAY FORWARD

Copyright © 2011 Accenture All Rights Reserved. 18

CONCLUSION

• By reducing the need for cash withdrawals, there is an increase in the

value amount of funds in bank accounts. Electronic payments contribute

significantly to the economic development of a country.

• Electronic payments can boost a country’s economy by stimulating

greater spending and GDP growth, growing the taxable revenue pool and

attracting foreign investment. It can also create payment transaction

efficiencies in the long run as the system reaches the necessary scale.

• Electronic payments represent more than just technology and innovation;

they are critical component of any country’s path to development and

maturity


CONCLUSION

• A lot has been done to achieve these successes and a lot more has to be

done to sustain and expand them

• For Nigeria to achieve its Vision 20:2020 aspiration, it must follow the

global trend and adopt best practices

• The Central Bank of Nigeria is at the forefront of ensuring electronic

payments is efficient, effective, timely, at reasonable cost , safe and

adopted by all. This is evidenced by the many policies and initiatives that

it has churned out to facilitate the development of the system

• As a staff of the Bank, it is expected that you will also become a change

champion for electronic payments by participating and campaigning for

adoption by the larger society


Thank You

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