Give us a sense of the governance and ownership arrangements within Nigeria’s payments systems. What governance arrangements apply to the usage of each relevant payment system?
In the Nigerian payment space, there is a regulation and a regulator, which is the Central Bank of Nigeria (CBN) that oversees the payment system. This role is enshrined in the CBN Act (as amended) of 2007 which contains a clause that gives the CBN powers to regulate the payment system. Under the Financial System Strategy 2010, we are trying to promote a payment system modernization bill, which will be much broader but in terms of oversight, the Central Bank will have that responsibility. Here is the kind of governance structure the Central Bank involves in the oversight and regulation of the payment system. First, we have the National Payment System Management Board, which has been in existence since the enactment of the act and is headed by the Governor of the Central Bank of Nigeria. The deputy governor and other relevant operators in the industry are members of the board. We have a number of subcommittees under the Payment System Vision 2020, which was launched over 10 years ago and was reviewed about two years ago. It was the first structured strategy document that has been successfully implemented because while it provides for a regulator it still allows for a large population of operators and quite a number of subgroups that have responsibility for captaining many of the initiatives and reforms we see in banking and payment under the Payment System Vision 2020. Also, within CBN, as part of the structure, we have the payment system oversight office, which was set up in my previous life when I was Deputy Governor, Operations. The governance structure has the Central Bank of Nigeria; has the National Payment System Management Board; has the payment system oversight office and has the Payment System Vision 2020 subgroups that are helping with strategy and implementation. Outside that we have ad hoc committees, which include the different operators and players within the industry.
How do those arrangements operate in practice?
In continuation of the implementation of the recommendations in the Payments System Vision 2020 (PSV 2020) Strategy document, the bank inaugurated the Payments System Strategy Board, the pinnacle body to provide strategic direction for the governance, management and operations of the Payments System in Nigeria. Also, four Payment Scheme Boards, namely; RTGS, Mobile Payments, ACH and Cards, for four payment infrastructures, were inaugurated. In addition, eight initiative working groups, each for the eight industry verticals identified, to offer particular opportunities for the adoption of electronic payments, were also inaugurated. The payments scheme boards were constituted to ensure that key payments infrastructure are governed appropriately towards compliance with the BIS/IOSCO Principles for Financial Market Infrastructure (PFMI). The scheme boards are responsible to the Payments Infrastructure Coordinating Committee which also gets its initiatives and intended reforms to payments infrastructure approved by the National Payments System Committee, the CBN and where applicable, the Bankers’ Committee. In a nutshell, the respective scheme boards provide the appropriate forum for overall scheme governance.
There is a massive change in consumer behaviour because of digitization. User feedback allows people to know which services are good without a government regulation having to have an authority check on whether that service is good or not. How do stakeholders’ views and experiences with payment systems impact current governance arrangements on innovation?
This a very important question. We are already involving user feedback but we want to do it in a more structured way. We recently advertised for bids into the operations and feedback from the sources of cashless. What we want to do is to assess the success of the cashless policy, including payment digitization; to see how far we have gone and to get feedback from the users who form the customers for electronic payment operators. We want to know the things that we are supposed to do that we did not do and the things that we need to do in light of changing technology and other realities. That is the structured feedback that we want to put in place. Outside that, we have the payment system subcommittee in the Bankers Committee as part of the governance structure, which is headed by the managing director of the United Bank for Africa and we take reports from them at the Bankers Committee. There we get a lot of feedback and that feedback has helped the committee and indeed the Central Bank in evolving the innovation we see in the payment system. Feedback is gotten from consumers through the payment system committee, which aggregates feedback from banks; which are in touch with consumers through structured interface under the Payment System Vision 2020 subcommittees. We also get feedback through the different roadshows that we organize, through interactions with the customers and through media reports. Such feedback has helped us immensely. Recently, I attended a high-level digitization roundtable at Oxford University. It involved regulators, market participants, academics, and officials from multilateral organisations assessing and sharing experiences on how to consolidate electronic payment in Africa. Digitization of financial services was discussed and one of the takeaways from the programme is that in many jurisdictions in Africa, policies come from the regulator but in our [Nigeria] own case, it is the reverse. Most of the regulatory policies for the payment system we see in Nigeria actually come from the operators themselves. They come from the market rather than enforced from the regulator. It was a major takeaway at the roundtable. If you look at the composition of the 12 major subcommittees we have under the payment system, they are largely populated by the operators. That way we get the input of consumers from the operators because they are the people directly interfacing with the consumers. Such input is important and so far, it has helped in shaping what we have on the ground now.
The tech-driven innovation in financial services is already underway. We have new technology players getting increasingly more involved, and we’re seeing movement from pioneering business players but on the reverse, small businesses are still struggling with innovation and change. How do you see digitization going from theory to practice for them?
I will like to look at that in the context of lack of infrastructure and the lack of willingness to change on the part of the people. I have always believed that the regulator has to provide the enabling infrastructure and reforms for a lot of people to key into the innovation in the payment system.Our reforms are meant to deepen the financial system. Honestly, we are not reinventing the wheel; everything that we want to do have been done somewhere before. Typically, reforms and change are disruptive forces; people don’t like to accept change in the way they are used to doing things. It is left for us to let them know that this change is important; that is what leadership is all about. The way we are doing that involves three things: provide the infrastructure, force the new system and incentivize people to use it. First is that digitization particularly relating to the mobile payment space and internet-based payment relies essentially on telecommunication infrastructure. We are working with the telecommunications regulator and the telecom companies to ensure that they key into what we are doing by providing the infrastructure. We have licensed super agents and all the telcos have indicated interest to be super agents and once we have them on board then the infrastructure challenge will hopefully be addressed because as it is now they are not stakeholders in the payment system. So, they are bound to gravitate towards where they will make profit. In terms of the geographical distribution of their infrastructure and facilities, they tend to focus on where they can make money rather than focus on providing service across the entire geographical space. We are working with the Nigerian Communications Commission (NCC) to see how we can bring the telcos into the system so that the infrastructure challenge will be addressed. Many businesses are not seriously leveraging the payment system to enhance their operations because they do not have reliable network and we want to address that. We also do know that even when the infrastructure is there most people do not want to change and that is why we then have to force it through regulation. We had to introduce regulations like charges on cash withdrawals in order to encourage people to use alternative means of payment. The one that has been in contention is charges for deposits, which is still being debated. But where we need to force it through regulation we will force it. We are incentivizing people through our incentive scheme that offers rewards and awards to people who have done something that would encourage others to use less of cash and to gravitate towards digital payment. E-PPAN is part of the organizers for the awards.
You mentioned the digital roundtable at Oxford University, which you attended and where you made a presentation. In the reports that I read about the programme, part of what dominated the discussion was MPESA whose success in Kenya has become a critical case study in mobile money; a success that has proved difficult though to repeat in other parts of Africa because it has distinct unusual features. Yet there is still the hope that mobile payment will play a significant part in bringing people into the formal financial system. How do you see mobile money and the difficulties of scaling it in an effective way? What is the impact of mobile money as a tool for financial inclusion in Nigeria?
We have seen substantial success with mobile payment in Nigeria but there is still a long way to go. I mentioned that we have advertised bids for the appraisal of the cashless initiative. Its purview will include measuring the impact of mobile payment so far In Nigeria. Studies that have been provided by the Bill and Melinda Gates Foundation and EFINA show that mobile payments have positively impacted on financial inclusion. For example, the level of exclusion that we had when we started was at over 45 percent but today it stands at about 39.5 percent. There are some reports that say that it is at 36 percent. So, we have made huge progress. The studies I am quoting specifically linked mobile digital payments with financial inclusion. At the Oxford University roundtable there was a major debate as regards whether digital payments and financial inclusion actually lead to poverty reduction, so that the target is not just inclusion but poverty reduction in the context of access to finance and not just access to payment. That is a different debate but in the area of inclusion we have seen much progress and the study we are about to commission will prove that. With regards to MPESA, the Kenyans have spoken substantially about its success but I think the telco model as implemented in Kenya has not proved that if replicated anywhere else it would work. It never worked in Tanzania and that is why there is a big debate whether you can take a system from somewhere and plant it somewhere else. I do think that our bank-led model, if we have a good handshake with the telcos by licensing them as superagents, is going to be the model that other countries will follow. That way the experience of Kenya where there was a telecom provider that had huge quantum of deposits that was not regulated by the banking system will be avoided. It may have worked in Kenya but in Nigeria where we have had a history of bank failures, we don’t want to take liquidity and give it to an entity that is not regulated. Deposits are very important to us. Again the success or failure of reforms, for example when you take Islamic Banking in Egypt, depends on whether all the necessary mitigants are there to cover the risk. We don’t want to risk losing confidence in the payment system simply because we didn’t manage the way it was implemented. If a few people lose deposits, we will lose the entire system completely because people will not go there. That is why we thought about it and agreed that its success is more important than how to go there. It may be slower but we will get there.
Still on financial inclusion, we have observed that its needs are as important as social inclusion, education and novel business models such as the ethical social enterprise culture. What are your views on that?
At the Oxford University roundtable, there was a debate on whether we should focus on digital payment or the impact of digital payment in terms of the kind of things that we are talking about. I do know that the debate is now on the next generation of reform; it is not just about inclusion but the extent inclusion deals with poverty and social inclusion. These are areas we are focusing on so that it is not just enough to say that so many people have access to finance but how many people who have access to finance have come out of their own position for better. They are calling it the second generation of payment reform. The first generation is inclusion and the second generation covers poverty and social inclusion.
What is it going to take to get local businesses into the equation so that they can see the value in the Point of Sale (PoS) and actually transform to the wonderful situation where people can pay with their mobile phones in Nigeria? What is going to ignite it at the merchant end?
We have provided the regulatory framework for mobile Point of Sale (mPOS) through the Nigeria Inter-Bank Settlement System Plc (NIBSS) so as to encourage people to use it and to deal with the challenge of network in some locations. Merchants need to be incentivized to make a crossover to digital payments. Many of the merchants are used to the traditional ways of doing things; they still want to collect cash and they don’t believe that the use of electronic payment means a faster way of their money ending up in their bank accounts. So, a lot of enlightenment still needs to be done to educate them on the benefits of digital payments. We need to launch fresh publicity that will emphasize the features of digital payment so as to help merchants see how it benefits them. Reforms usually face some resistance but we need to show them the benefits by incentivizing them and I think that’s one area that needs more work. Having said that, if you still go to some of these advanced countries, some people at the lower spectrum of the society still prefer to conduct their transactions in cash. I have gone to some foreign shops and have seen people prefer to make their payments in cash. We will still have that in Nigeria but we want to encourage merchants who do substantial volume of business to use digital payments. The way to do that is to show everyone the values and benefits that digitization holds for them. We want consumers and merchants to see the benefit in it for them because we don’t want to force them to use PoS or the MPOS.
When it comes to payment, the CBN as the regulator has so much work to do. But in the governance of the digital space, there is the concern about the narrowing of expertise on the side of the regulator because technology is usually ahead of the regulator. What type of knowledge and expertise should we have in governance and policymaking institutions like the CBN? Do we have all the people that are trying to be ahead of that technology to some extent?
Frankly, I think we do. We selected quite a number of the people who man our oversight office from within the industry. For the people that we have in our banking and payment offices, I am personally very satisfied with their competence, their ability and their vision to see the future for Nigeria. It is not just about us, it is about the industry itself. We need that handshake between the industry and the regulators, because it is very important. The crafting of regulation and the crafting of the vision is not something that is reserved for the Central Bank. We recognize that the industry will probably be ahead of us and we need to make effort to work together. On my own part and on the part of the management of CBN, what we have done and will continue to do is to expose our people to emerging trends in the payment industry. Like I said earlier, we are not going to reinvent the wheel, people are making progress and we will continue to see what the emerging trends are globally and we will continue to take advantage of it. I was at a conference in Singapore last year and it was pointed out that Nigeria is one of the five jurisdictions in the world where there is instant pay. Today, many of the countries of the world are trying to copy our NIBSS instant pay. There was a video presentation where people are being encouraged to use instant payment. I am satisfied with the level of our expertise in the bank and in the industry. What we will continue to do is to expose ourselves and our people to emerging trends so that we can follow the direction of payments system globally.
Is there any way we can incorporate more pluralism within the governance model?
Well, I think we may need to increasingly encourage self-regulatory organization in the payments space in Nigeria such as the Securities and Exchange Commission (SEC) and the Nigeria Deposit Insurance Corporation (NDIC). However, our ability to effectively coordinate stakeholders and carry them along has not made that a pressing demand of operators in the national payments system. The CBN is however very open to further ideas on strengthening governance through greater participation of stakeholders. A good example of this is our inclusion of NCC as a co-regulator of mobile money in Nigeria. On a broader perspective, the proposed Payment System Management Bill lays the foundation for greater governance responsibility.
Considering a wide range of measures and indicators, can you give us an assessment of the payment industry’s performance in 2015?
Based on the numbers, we have done much better. Incidentally when talking about the governance structure, I didn’t mention NIBSS. NIBSS, whose board I chair, holds a lot of information regarding the performance of the industry in terms of product and new licensing for operators. I think we have done much better; we have licensed more mobile operators and we have seen bigger numbers compared to 2013 and 2014 in all products and across all channels. In fact, the area that I have big concern is the mobile payment but the numbers that I have seen are encouraging. Today, we have 21 mobile operators and the numbers are just ratcheting up. With respect to Internet payments, we are seeing massive number. With respect to NIBSS instant pay and NEFT, we have seen the numbers ratcheting up. In terms of merchants and providers coming into the space, we are seeing larger numbers. In terms of patronage by consumers and the value of transactions the numbers are substantial and are increasing. I think that is the direction we see things going, particularly the internet based payment and we are also pushing for mobile payments provision and numbers to go up substantially.
You mentioned that FSS 2020 has the vision to improve digital payment in Nigeria, what are the key technology that you think will change the industry in the next 5 to 10 years?
Let me just distinguish between Financial System Strategy 2020 and Payment System Vision 2020. The Payment System Vision 2020 started before the Financial System Strategy 2020, but the then Governor of the CBN, Chukwuma Soludo felt that payment reform should be part of the wider Financial System 2020 and so the Payment System Vision 2020 was subsumed into the Financial System Strategy 2020 vision. Now the Financial System Strategy 2020 intends to develop an internally coherent set of reforms that will make the financial system to evolve as one integrated powerhouse to help Nigeria’s mission to become one of the top 20 economies in the world by the year 2020. In that we also have the IT reform group which is working in providing the infrastructure for the success of this vision. Now, the Payment System Vision 2020 is the one that has actually moved faster than the Financial System Strategy 2020 in the way it has operated, in the way that things have worked and in the types of regulations that have been churned out and we have made progress. So, in terms of technology for payment going forward, I think we have basically what we need. In terms of gross, large value payments, we have a real time settlement system that went live two years ago. So, for gross settlement and payments I think we have what it takes today; it is swift and enabled as well. With respect to smaller payments that’s where we are working. We have quite a number of providers that are very good in the areas of providing the software and the framework for digital payments. I think that as a country, we are well-positioned in the technological space given all the providers we have, given the regulatory space we have and given all that we have on the wholesale side to make sure that we move forward, that we become one of the reference destinations, at least in Africa, for payments innovation.
Talking about moving forward. What are the regulations currently in the pipeline and when will they be announced?
Regulations will continue to come as long as there are new innovations in technology or fresh ways of doing payment. As I said, the payment vision committees churn out the regulations. There are two broad sets of regulation that we will continue to do. One is in terms of shaping the direction with new regulations in areas that we are not playing in that we want to play. Those committees will come out with regulations that will make them possible. The other is that there will be regulations to fine-tune what we have. Every day, we are doing that fine-tuning. For instance, the payment system management bill is being crafted and we will continue to put in new things that we notice in the bill to ensure that we have a very robust legal framework for payment systems. It is based on that that other regulations will flow. Right now we don’t have next generation regulatory framework, we have what we need today but the payment system management bill, if passed, will help us in crafting regulation for the future. We will continue to fine-tune regulations in terms of the kind of capital operators should have, the kind of persons that should run mobile payment systems, the kind of cushions they should have in place and even the number of operators we should have.
In view of the current economic situation in the country, what will be your expectations in the performance of the Nigerian payment industry in 2016?
It is not going to be anything radical. I expect the industry to do much better this year because digital payment has nothing to with the downturn in the global economy and in Nigeria. It is not going to affect the payment space negatively. Don’t forget that what we want to do is to make people to gravitate towards digital payment. People are migrating from cheques and cash transactions into the digital space. If we continue to drive what we are doing, we will see more numbers. It has nothing to do with what is happening within the economy. We may see slower numbers because everything is tied to the national economy. But having said that, it is important to point out that this year’s budget is an expansionary budget, as soon as it begins with its spending we will see a lot of velocity; a lot of numbers and values that are much larger than what we have seen in the previous year.
What are the key things that you think are going to change the payments landscape, the payments industry in the next five to ten years?
Innovation in the payments system in the past decade has been rapid because everyone was seeking that disruptive technology or service that will make payments more convenient, efficient and safe to use. But fintech entrants into the payments landscape will transform the kind of services we may be having in the next few years. Also, the emergence of cloud computing and access to cheaper computing resources, would lead to achieving low cost and financial-inclusion-centric payments products. Similarly, mobility technology will further enhance access to payments services, and with the increasing level of miniaturization, payments services would further penetrate hitherto neglected areas. The simplicity of these innovations will also enhance acceptance. I believe the winning technology would combine these phenomena to deliver services to the financially excluded. Like I mentioned earlier, the cash-less policy of the Bank has opened a new vista for card usage and acceptance in the country, especially debit cards. As at end of March 2016 about 101,287,855 debit and credit cards were issued and used in Nigeria. However, the future of credit cards looks very bright, more so that a lot of progress has been made on channel capabilities as a means of consumer engagement and communication. The CBN, towards achieving international recognition of the Nigerian payments system, had preliminary discussions with Deposit Money Banks (DMBs) on the possibility of having the naira as a settlement currency on Continuous Linked Settlement (CLS). In addition, a stakeholder engagement with the Bank for International Settlement (BIS) was held on the possibility of Nigeria becoming a BIS member country, and playing a more active role. A team, led by the Governor, attended the Annual General Meeting of the BIS, as observers.
What is the next step forward for Nigeria and the local payment industry?
We are looking forward to the effective take-off of super agents network in Nigeria. We deem it a veritable channel to further penetrating the hitherto unreached areas. The banks are equally re-launching their mobile banking services with a new vigour, leveraging USSD, and this seems to be catching on rapidly. We are however very focused on ensuring that the safety of payments system is prioritized even as cybercrime has become rife. The challenge which the payments system in Nigeria is tackling is therefore to strengthen public confidence despite some reported cases of electronic payments fraud. In a no distant future, we may see a Nigerian payments system that will be very liberal towards fostering innovation while ensuring safety, with the ultimate goal of national utilization and international recognition.
Is there anything you may want to add, may be something we did not ask you but which you may consider to be important?
I will like to say that for me personally and for the bank, the key space we can all play in is the payment space and that has been recognized since 2012 with the launch of the cashless policy. Bank regulation and supervision of monetary policy are our piece of cake; what is unfinished business is impacting the payment system. The success of financial system regulation and supervision; the success of monetary policy formulation and implementation are hinged on a very safe and active payment system. The transmission has to work with the payment system and the monitoring of the transmission has to go through the payment system. Our success in financial system regulation and our success in monetary policy implementation would rely heavily on the success within the payment space. That is why we think that in that space we still have a lot of work to do and management will continue to focus on it. I, personally, will continue to focus on it so that we will have a payment system that seeks to achieve the object of Payment System Vision 2020. But more importantly, we need to provide the infrastructure for us to have success in the financial policy and monetary stability space.