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 Niyi Ajao
One of the apostles of using less cash in all transactions in Nigeria is the Ag. Managing Director of the Nigerian Interbank Settlement System (NIBSS), Mr. Niyi Ajao. He is optimistic that in the next two years, e-payment infrastructure in Nigeria would be among the best in the world. According to him: 'The cards we use today in our ATMs are more secure than what they use in the United States of America.

Their debit and credit cards don't have that golden emblem called magnetic stripe, which is why they lose a lot of money to fraudsters.'

Ajao opines that the success of the on-going Cash-lite Lagos, which is the springboard for cashless economy in Nigeria, can be measured among other parameters, by the decrease in volume of cheque clearance and increase in value of Electronic Funds Transfer (EFT).

'In 2008, the value of EFT was N688 billion, as against N11.56 trillion in 2011. This 16 times increase is evidence that people are not only getting more and more aware of the policy, they are widely embracing e-Payment,' Ajao told Daily Sun in an exclusive interview.

He also spoke on the role of NIBSS in ensuring smooth interbank settlement for the past 19 years among other issues that center around electronic payment.

I studied Computer Science and Economics at the University of Ife, now called Obafemi Awolowo University, Ile-Ife. I have had up to 10 years' experience in banking before joining NIBSS. In this organization, I have equally worked up to 10 years, concentrating on electronic payment, interbank settlement, and different non-cash payment channels that involve banks. You are aware that the Managing Director of NIBSS retired last year. At the moment, I am acting in that capacity, overseeing NIBSS's eight operating offices located in Lagos, Abuja, Port Harcourt, Kano, Benin, Ibadan, Enugu and Ilorin, pending when a new appointment is made.

The NIBSS to a layman
NIBSS is an intermediary between banks. Any kind of transaction that takes place between banks will involve clearing, and the body that does this clearing is NIBSS. For instance, if I have an account with First Bank and I give someone a cheque. The person pays the cheque into Fidelity Bank. A layman may begin to wonder how the money came out of Fidelity Bank. How did the money move? That is the role of NIBSS because every cheque that is given from one bank to another, must come to NIBSS, which is the intermediary that we call bankers' clearing house. At NIBSS, it is a standing rule that all the banks come to us everyday. We have a big hall down there where all the clearing officers of banks come every day. In some cases they come twice daily.

They come with cheques of other banks that they have collected from their own customers. First Bank will give its cheques that belong to Fidelity Bank to Fidelity Bank and vice versa. We have the facility that allows banks to exchange the instruments. Beyond that, we do what is called settlement, where we now calculate the cheques and say 'First Bank you brought N6 million cheques, and Fidelity brought your cheques worth N10 million'. We will now net them off. That means First Bank owes Fidelity N4 million. So, we will advise the Central Bank to credit Fidelity Bank with N4 million. That will enable Fidelity to pay its own customers that deposited the cheques.

As for POS terminals, we have the record of all the locations. If there is any problem and we receive the complaint, we at NIBSS will call the POS terminal provider to rectify it. In our system, we monitor all of them. Anyone that is not doing transaction, we call the owners to find out what the problem could be. We are like a back office to the banks, that is why most people don't seem to know about us. The banks and the Central Bank of Nigeria agreed to set up this company way back in 1993. Since then, we have been doing cheque clearing, interbank money transfers, and anything that has to do with interbank exchange, you find NIBSS there.

Why cheque clearing takes three days
The clearing system involved is the reason why cheques stay three days. If you draw a cheque on Monday, on Tuesday that cheque has to come to the Nigeria Interbank Settlement office for clearing, so that on Wednesday, it can be cashed. This is the process where the bank verifies the genuineness of the instrument. If it is discovered to be fake, or there is insufficient fund, it is on Wednesday that the bank, which collected the cheque can return it to the owner bank.

Possibility of reducing clearing days
It will be possible to reduce the number of days for cheque clearing because we have a new technology in place. It is our responsibility to continue to improve the overall clearing system. In August, last year, we introduced a new technology called 'cheque truncation'. Under cheque truncation, that cheque of First Bank that Fidelity Bank collected, for instance, instead of coming to NIBSS the following day, they will scan the cheques back and front on dedicated machine right from their office.

They will then convert the picture to electronic file, which is now sent through NIBSS to First Bank. There would be no need to assemble here for exchange of paper cheques again. As I speak, that technology is going through pilot phase. So, since it is still being tested, banks still come here for clearing. Am sure by April latest, we will go live and stop paper cheques coming here. When you truncate the cheque, you don't let paper move anymore, but scanned image. Once that is done, we will reduce clearing days by one day. The net-off that we do will now be done using the cheque image.

So Fidelity Bank that collected the First Bank cheque will be the one that will keep that paper cheque forever. When First Bank sees the cheque, they will cheque the signature and confirm that it is either fake or genuine. If it is fake, they will return it to us and we will send it back to Fidelity all through the computer the same day. All they need do is just click the computer and we will receive it. We will keep a copy while the bank concerned keeps a copy as well.

This means that the cheque you take to a bank on Monday will be sent to us on Tuesday morning and before close of work on that Tuesday, the cheque will clear and drop into your account. So instead of Thursday, you can cash it on Wednesday. So far, we have not had any challenges since August last year. Once the CBN releases new rules and guidelines, we will tell the banks to stop bringing paper cheques and that will save them a lot of cost and time.

Achieving NIBSS mandate
I believe we have achieved our mandate to an extent. Why I cannot say we have achieved our mandate 100 per cent is because every day new things evolve. The face of banking is changing with the influx of new instruments. Banking is getting more sophisticated. So, it is an ongoing mandate in which we continue to look for ways of improving interbank settlement or payment. We do a lot of research and development to be able to discover areas we can improve on. For instance before 2002, it was CBN that does the settlement.

It was in 2002 that the bankers committee decided that the responsibility be given to an independent body called NIBSS. From that time up till last year we have been doing automated clearing. If you look at a cheque leaf you will see a code line written at the bottom of the cheque. That is what we use to clear cheques, but because of research and development and observation of what happens in other parts of the world, we came up with cheque truncation, CBN approved it and we brought the technology. So, our mandate is a continuous thing: trying to make electronic payment more and more efficient, convenient and cheaper for everybody.

Role in ATM transaction
Yes, we do settlement. Apart from this interbank settlement, we got approval from the central bank to do settlement for all service providers like Inter-switch, Value card, e-transact and even CSCS of the capital market. Any operation that requires one bank to pay another bank, you find NIBSS there. For instance, if you use your GTBank ATM card on UBA ATM, you have caused an interbank activity. The following morning, inter-switch will send the advice to us that Mr. A has used his GTB ATM to collect N20, 000 from UBA's ATM.

We will collate all that and pass to CBN, telling CBN to collect N20,000 from GTB's account and give it back to UBA to balance the equation. So, anything that has to do with card payment we are involved. Without us, all these cannot go on successfully but most people don't see us in the picture. Even NIBSS has a role to play in buying Airline tickets. If you use Unity Bank's account or card to buy DANA Air's ticket and their banker is Union bank, it means you have caused your banker to owe DANA Airline's banker. The following morning, we must collect that money from your bank and pay Union Bank so that they can credit DANA Air's account with the amount of the ticket you bought.

Why banks must have cash reserve with CBN
Yes, CBN requires banks to keep certain amount with it for this kind of settlements and other unforeseen contingencies. Otherwise we will have a situation where NIBSS will require CBN to settle a bank for money drawn on another bank by its customers and it happens that the bank has no money to meet its obligations. We call it settlement failure and that must never happen. So banks keep this clearing collateral with CBN to insure that the system is kept running.

Incidence of settlement failure
No. We have not experienced any such incidence. The way CBN is running the banks; it will be difficult to have that happen. CBN requires all banks to have clearing collateral locked-up in its vault.

Account-to-account money transfer
People are using the service. In fact today we have two products. There is the one we call NIBSS Electronic Funds Transfer. There is a second one called NIBSS Instant Payment and we have been advertising both of them. With NIBSSEFT you can send money from say GTB to Wema Bank. All you need do is fill a form and sign your signature for the bank to know you are the owner of that account. Once you fill the form, the teller will debit your account with the amount you are transferring.

Then the advice will be sent to NIBSS. We will now send it to Wema Bank so that in our clearing system Wema can credit the account of that person you are sending the money to. You can see that before the end of that day, we will settle the two banks by debiting GTB and crediting Wema so that they can settle their customers. NIBSSEFT has been running since 2004. Many banks offer it through internet banking and many others through their branches. If you travel outside your station and you want to send money to someone, all you need is to know the person's name, account number and bank. With this information, even if it is outside the country, you can use internet to transfer the money using any of these services.

With NIBSS Instant Payment, the recipient will get the money as soon as the sender clicks transfer. NIBSS and Banks have been advertising the two products. Some banks like Sterling Bank provide NIBSS instant payment through the mobile phone. To transfer money from your account to another person's account through a bank branch, all you need do is tell the teller on the counter. He or she will ask if you want it transferred immediately or any time before the end of the day. Based on your response, you will be given a form for either of the services. We provide the platform and leave the banks to determine the mode of deployment.

Some might not like customers coming to the banking hall, so they provide e-payment services through internet, ATMs or mobile phones. Some still prefer traditional banking where they will interact with customers. As for charges, we charge the banks and leave them to add their own markup and determine what they charge their customers. We do not check them but based on the bankers' tariff which is a general guideline, they do not charge arbitrarily. Again, because they are in competition, the banks try to provide the services at reasonable charges. The roles are properly defined with CBN acting as the watchdog.

Checking fraud/loan defaulters with e-payment
It is possible to checkmate bad borrowers. Through what we call Electronic Know Your Customer (KYC) principle, we are collaborating with the National Identity Management Agency such that there will be unique identification through biometric information from customers. The idea is that if you put your thumbprint while filling form with your bank, the bank will send such customer information to us. So if a customer borrows money from one bank and defaults, when he goes to another bank to open another account with another name or to borrow, our system will detect the person.

We will incorporate various credit bureaus in the country and the project will start soon. When it is fully operational, every account owner will be asked to go back to their banks for capturing of biometric data. Then you will be given an eleven -digit national identification number. The number will be attached to your thumbprint and both are stored in NIBSS data base. That will curb fraud and recalcitrant borrowing. Also, the system will be configured in such a way that a habitual issuer of dud cheques will be clearly identified. When the person attempts to open current account with another bank, we will warn that bank that the customer is not trustworthy and the person will be required to open savings account only.

The issue of cloning will also be confronted with this method. All banks have connected to the central switch from where we do all these shared services. Whatever we install in NIBSS is accessible to all banks. These are some of the things that make developed economies what they are. In the next two years, people will be surprised at the kind of e-payment infrastructure we will have in this country. The cards we use today in our ATMs are more secure than what they use in the United States of America.

Their debit and credit cards don't have that golden emblem called magnetic stripe that is why they lose a lot of money as a result of cloning. CBN mandated all the banks to change to chip and pin in 2008 to reduce ATM fraud. And as soon as that was done, the rate of fraud came down sharply. We have about 23 million cards in the country we are told, and about 100,000 should be credit cards. The credit card is like a bank overdraft. It is a 30-day loan given to trusted, credit worthy customers to a certain limit.

Progress of EFT and cash-less Lagos
E-payment is all about moving the country forward. In terms of percentage progress, I do not want to throw up figures anyhow but, one way to measure the progress of the cash lite policy is to look at available statistics. A four-year statistics shows that the volume of cheques we are clearing has reduced from 13.7 million in 2008 to 11.6 million in 2011. The value of cheques cleared has equally reduced from N24 trillion in 2008 to N7.46 trillion in 2011.

Meanwhile the volume of Electronic Fund Transfer using NEFT is going up; from 2 million in 2008 to 20.4 million with the value increasing from N688 billion in 2008 to N11.56 trillion in 2011. It has continued the upward trend till today. That is a clear evidence of the progress of cash lite economic policy in Nigeria. It means that people are becoming less and less inclined to using cash. The volume of electronic payment is increasing daily as people discover its advantages. I think from June this year, we will begin to experience greater volumes.

The CBN just released a circular on March 16 which says that: starting from April 1, 2012, a daily cumulative limit of N500,000 and N3,000,000 shall apply on free cash withdrawals and lodgments by individual and corporate customers respectively; that individuals and corporate organizations that make cash withdrawals above the limits will be charged a processing fee of 3 per cent and 5 per cent respectively for amounts above the cumulative limits:

individuals and corporate organizations that make cash lodgments above the limits will be charged a processing fee of 2 per cent and 3 per cent respectively for amounts above the cumulative limits. Furthermore, 3rd party cheques above N150,000 shall not be eligible for encashment over the counter. Value for such cheques shall be received through the clearing house. Nationwide roll-out commences in January 2013. Banks will cease cash in transit lodgement services rendered to churches and merchant-customers from June 1, 2012 (to be replaced by CBN licensed CIT providers).

Best approach to enlightenment.
There is a general assumption that CBN should do all the enlightenment. But I always tell people that as long as you make a living on electronic payment, you have a role to advertise and increase awareness in this policy. I have been using every available opportunity to sensitize people. I am aware that last year, the CBN engaged a group known as EPPAN, Electronic Payment Providers Association of Nigeria. They went to over 30 markets in Lagos; Daleko market, Ojuoye market, mile 12, Oshodi, Oke Arin. They went with PoS terminals and mobile phones to show market men and women how these things work. It was widely reported. My staff was among them so it is not hearsay. They made it a kind of roadshow and even went to some garages explaining the ABC of cashless economy. That approach is the best and we hope it should be done repeatedly.

e-Payment and Agriculture
Let me put it this way. Every buying and selling will always succeed with electronic payment, unlike cash transactions where challenges of balance (change) may arise. In the place where I come from, people used to carry farm produce to the city centre for sale. Most of the time, robbers rob them because they have the cash in their pockets. Supposing they use electronic payment channels, after sales, they go home happy because the money is intact in their accounts. That way, they will be encouraged to do more farming and that contributes to the economy. Growth of GDP is faster when people are able to do more of commerce. More commerce which e-payment encourages means more wealth creation. These things are all interwoven.

Managing people
My philosophy of managing people is to see them as people and not as machines. It is important to see workers as partners in the business. No matter the level of infrastructure you have put in place, if you don't love your staff, treat them well and care for them they will not put in their best. And if they don't give their best, there is no way you can fulfill your mandate. For us in NIBSS, our staff is our greatest assets. We do a lot of in-house training and even outside training. We send staff abroad for training because we are rendering unique type of service. We are the only company doing this kind of business in Nigeria. You can't find two of this type of company in a country. We look at other country like South Africa, Portugal etc. In the US you hear about NACHA. GIBBS has just started in Ghana. They call me from time to time to learn from us. Every country has this kind of company and we rub minds to improve payment system.

We have our five-year strategy in place already. There are a number of new services that we shall be launching in the coming months. There are many things other countries are doing which we intend to customize to suit our environment. For example, we are working on a facility that will make bill payment easy. It is called Electronic Bill Presentment and Payment (EBPP). Imagine where you have bills from PHCN, Multichoice, Water Corporation and many others at the end of every month.