By Okwu Onwuka
Electronic banking has long been recognised to play an important role in economic development on the basis of their ability to create liquidity in the economy through financial intermediation between savers and borrowers.
It also offers financial services and products that accelerate settlement of transactions and in the process reduce cash intensity in the financial system, encourage banking culture, and catalyses economic growth.
However analysts say for the effective functioning of the financial system, the payment systems must be safe and efficient, and devoid of other abuses to deliver the desired objectives.
According to Director Banking and Payments System Department, Central Bank of Nigeria, CBN, Mr. Dipo Fatokun, this is why central bank has been active in promoting sound and efficient payments system and in seeking the means to reduce risks associated with the system.
Nigeria historically operated a cash-driven economy particularly in the consumer sector, however the system has witnessed improvements over the years, and particular in recent times has moved from its rudimentary level of the early years of banking business to the current state of sophistication comparable to other economies at the same level of development.
Fatokun said Payments and Settlement system refers to the entirety of instruments, technology and processes, laws, rules and regulations based on which value is exchanged by economic agents within an economy and across borders for the facilitation of trade and other economic activities.
“From cash to wire transfers, no matter the sophistication, the reason d’etre is the exchange of value and facilitation of trade, a function so central to the social and economic interaction of people and cultures.
“In view of the importance of the payments system to the economic wellbeing of the nation and its people, the CBN has been consistently formulating and executing strategies and policy to ease exchange.
“The extensive role of the payments system for effective monetary policy, stable and sound financial system and by extension, economic growth and development is well documented.
“Sustainable economic growth requires a well-functioning, efficient and reliable clearing and payments system to lubricate local and international business transactions by providing liquidity in the financial system,” he said.
Former President, Chartered Institute of Bankers of Nigeria, CIBN, and Managing Director, Maxifund Finance and Securities Limited, Mazi Okechukwu Unegbu said a national payments system ,NPS, is one of the principal components of a country’s monetary and financial system and therefore, crucial to a country’s economic development.
Unegbu said there was a time in this country when cheques presented for clearing in a different state from where the issuing account is domiciled took 21 working days to clear.
“Today, cheques clear nationwide, next day”, he said.
According to Fatokun in no distant time cheques would begin to clear same day, adding that the time and human resource saved could translate into millions of naira
“You may bear witness with me that approaching the millennium, we were counting the total number of ATMs in the country in tens, today they are in their thousands. Just three years ago, we barely have 5000 active POS but today, there are over 100,000 installed in various merchants across Nigeria. The last decade indeed has been revolutionary for the national payments system”, he said.
Fatokun said efforts at entrenching robust payments system commenced with the establishment of the Lagos clearinghouse in 1961 by the Central which itself started operations in 1959.
“Over the years, the bank created clearing houses in all the states of the Federation including the FCT. It will be interesting to note how nimble the clearing structure has become. Banks introduced cards and ATMs in the nineties while the Magnetic Ink Character Recognition, MICR, Technology was adopted in 1991 for enhanced processing of cheques.
“Sequel to the establishment of the Nigeria Inter-Bank Settlement System ,NIBSS, plc in 1994 and a number of private switches ten years later, cards, ATMs and POS transactions started gaining traction while cheque clearing cycle improved to T+2 and T+5 for local and upcountry cheques respectively in 2002. The CBN issued the first guidelines on electronic banking in 2003 which covers a whole spectrum of electronic payments,” Fatokun said.
Following the realisation by the CBN that the payments system, especially through the settlement process usually indicates the initial distress signals among banks and the potential impact on the Bank’s role of lender of last resort and by extension monetary policy implementation, deliberate attention were given to the need to effectively manage payments system risks.
In the first instance, the Bank introduced the settlement framework for cheque clearing in 2004 and implemented the Real Time Gross Settlement, RTGS, system which went into operation in 2006. The RTGS is a critical infrastructure which largely addressed credit and settlement risk in the payments system. Large value payments were therefore transited from the cheque clearing system into the RTGS which settles the transactions on gross basis instantaneously. This eliminated substantial risk from the payments system and maximum transaction limit of N10m was imposed on cheque transactions along with the Cheque Standard of 2006. Thereafter, the upcountry and local cheques clearing cycle was harmonised in 2008 at T+2.
The CBN in the mid-2000s saw the opportunity in the use of electronic payments system to achieve rapid inclusion of the financially excluded while also promoting efficiency of monetary policy through an enlarged base within the formal financial system. The Bank therefore developed and launched the first version of the National Payments System Vision 2020 in 2007. The focus was to have a nationally utilised payments system which is internationally recognised for its compliance with standards and internationally accepted best practices.
“The successes recorded so far have been encouraging. Electronic payments channels have been broadened with several options as online web payments, electronic funds transfer, various forms of cards, POS, ATM non-cash transactions etc.
“The channels are recording enormous growth. As an instance, the NIBSS Instant Payments ,NIP, used for online transfers has grown at an annual growth rate of 199 per cent and 190 per cent in volume and value respectively with total transfers on the platform in 2013 grossing N10.85trn. The development goes beyond electronic payments growth; even jobs have been created with over 21 MMOs licensed with each employing not less than 20 staff along with about 66,930 agents.
“Electronic payments companies both indigenous and foreign have come into the market with positive impact on investment and employment. Furthermore, the impact on financial inclusion has been significant with banks physical channel density growth, through POS, ATMs and branches, at an annual compounded growth rate of 59.6 per cent between 2009 and 2013. Access to finance is CBN Governor, Godwin Emefiele has said to facilitate economic activities the apex bank is providing safe and efficient mechanisms by making and receiving payments with minimum risks to the central banks, payments service.
In order for bank customers to get quality service as in other climes the CBN recently banned all forms discriminatory in the provision of electronic payment service.
This was one of the highlights of two revised guidelines relating to e-payment services issued by the apex bank.
The guidelines are: Guidelines on Transactions Switching in Nigeria; and Guidelines on Operations of Electronic Payment Channels in Nigeria.
The CBN circular read in part “No parties to Switching Services shall abuse its dominant position by directly or indirectly imposing unfair or discriminatory condition and fees in the provision of its services; Equally, no parties to Switching Services shall limit or restrict the provision of switching services or market thereof or technical or scientific development relating to switching services to the prejudice of consumers; No parties shall indulge in practice or practices resulting in denial of market access.
The guidelines also banned Nigeria Interbank Settlement System, NIBSS, from competing with any e-payment service firm in the country. It stated, “Nigeria Inter-Bank Settlement System Plc ,NIBSS, the Nigeria Central Switch, NCS and any company, person or group of persons performing the roles, duties or functions of the Nigeria Central Switch shall not under any circumstance whatsoever or howsoever engage in competition with any Payment Card Industry Scheme, Operator or Service Provider.
Accordingly, Nigeria Inter-Bank Settlement System Plc (NIBSS), the Nigeria Central Switch (NCS) and any company, person or group of persons performing the roles, duties or functions of the Nigeria Central Switch shall not: be or engage in any business as: Card Scheme, Issuer of Payment Cards, Issuer-Processor, Acquirer, Acquirer-Processor.”
According to a Lagos based financial Consultant, Mr. Victor Ikechi, One important reason for financial liberalisation and deregulation is the need to develop a good payment system which promotes an appropriate mechanism for efficiency in mobilising and allocating financial resources in the economy. He said the payment system occupies an important place in the development of a country economy, adding that the level of development of a countries payment system is a reflection of the state or condition of the country’s economy.