Latest developments in ePayments technologies in Nigeria

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Latest developments in ePayments technologies in
Nigeria
A presentation made by MAC ATASIE, CEO Nextzon
Business Services Limited, at the African Banking
Technology Conference
7th 8th May 2008
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Presentation Outline

• Introduction
• ePayments definition
• 5 forces analysis
• Evolutionary cycles of technology development
• Components of ePayments technology
• Payments technologies so far
• Outlook for payment technologies

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ePayments definition

• Electronic payments can be defined as the
  exchange of value in an electronic form for goods
  or services traded between a Buyer and a Seller.
  
• In essence to overcome challenges in payments,
  ePayments places emphasis on improving the
  customer purchase experience by adding more
  transaction flexibility and efficiency thus
  creating new business models and leveraging on
  existing or new technology.

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ePayments value chain
ENABLERS Regulatory agencies, Telecommunications
companies, Logistics companies
ENABLERS Banks, other financial service
providers, IT companies
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5 forces analysis industry will remain
attractive for the forseeable future

• Threat of new entrants
• Threat of global players seeking to gain a
  foothold in the Nigerian market due to large
  population.
• Non-bank institutions willing to play a part in
  ePayments.
• A regulated industry.

• Bargaining power of suppliers
• Given the global marketplace, suppliers do not
  exert much bargaining power especially as there
  are usually several credible alternatives for
  each item in demand.

• Industry rivalry
• Large percentage of the market is untapped
  meaning excellent scope for growth of serious
  players. Competition will continue to heat up
  over time.

• Bargaining power of buyers
• A large number of ePayments platforms at
  different levels of implementation gives
  customers a wide variety of choice to switch
  service providers.

• Threat of substitutes
• Cash still remains the dominant means of
  conducting transactions and an effective
  substitute for most of the population.
• However, this is slowly losing its share of the
  payments market.

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The technology lifecycle
More innovations from the market players to
extend the product lifecycle
Most of the population becomes comfortable with
new technology

• New technologies follow the same lifecycle.

More players enter the market as consumer
interest begins to increase
The lifecycle of the product begins to decline

• ATMs
• POS
• ePurse

Cost reduces gradually over time
VALUE
2.5
13.5
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Innovators
Early adopters
Early majority
Late majority
Laggards
TIME
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Electronic payments components

• ePayments technology can be divided into five
  distinct layers.

Regulatory Framework- CBN, SCSN, NCC, ISO,
etc




EFT Switching -Switching Network linking all
players in the paymentspace
Transaction Channels- ATMs, POS, PDA,POS,
Mobile phone,PC, etc
Security / ControlInfrastructure- Credit
Bureau, Clearing, Security PKI,
CertificationAuthority, etc
Value AddedServices- Loyalty programs,SMS
Products, Electronic payments,etc
Major Technologies- Cards (Debit,
Credit,ePurse, etc), Online banking, mBanking,
SMS products, EBPP, etc
Elements of a typical ePayments System
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Payments technologies so far
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ePayments scope

• An embryonic industry with several gaps and
  opportunities

Other Switches

• Regulatory Framework/
• Standardisation Awareness
• CBN
• NCC
• ???

NIBSS
Inters- witch
eTranzact
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Some global trends

• Transaction channels
• Digital TV supporting electronic payments in
  Europe
• Major technologies
• Philippines mobile phones used on a regular
  basis for person-2-person payments
• US Pay-By-Touch biometric POS terminals
• US Contactless terminals
• Value added services
• US/Europe credit cards increasingly bundled
  with loyalty card schemes
• US/Europe consumer protection against fraud
  marketed heavily by credit card companies e.g.
  Capital One
• Regulatory framework
• SA ePayments stakeholders playing a part in
  industry regulation to encourage regular
  ePayments usage.

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EFT switching developments till date
Pre 1990s
1990s 2000s
2000s - 2006
2006
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EFT Switching latest developments

• NIBSS to operate a central switch where all
  current ePayment switches can plug in.
• NIBSS BASE24-es to support a seamless integration
  of the Nigeria retail payment system with the
  West African Monetary Zone retail payment
  platform
• This will create a more efficient central
  switching infrastructure in Nigeria

• NIBSS implementation of Nigeria Central Switch
  (NCS)

• The recent launch of a regional card by Ecobank
  has been heralded as Africas answer to the
  Single Euro Payments Area Imitative (SEPA)
• Ecobanks first multi-currency card enables card
  holders to travel with a single card and access
  local currencies across several countries in
  Africa.

2. Emerging single African payments area
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Security/Control Infrastructure till date
Pre 1990s
1990s 2000s
2000s - 2006
2006
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Security/Control Infrastructure latest
developments

• Collaborative efforts being made by regulators to
  create central credit bureau for Nigeria.
• CreditRegistry already has also managed to gain a
  large subscriber base for its private credit
  bureau
• This will allow for more objective assessment of
  credit worthiness with the aim of driving
  widespread credit card use.

• Central credit bureau

• Switches (e.g. SmartSwitch) turning to biometric
  verification as a means of protecting against
  fraud and building consumer trust.

2. Biometric verification
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Transaction channels till date
Pre 1990s
1990s 2000s
2000s - 2006
2006
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Transaction channels latest developments

• National Sports Lottery (NSL) is set to deploy a
  total of 50,000 POS terminals to agents, in
  collaboration with Valucard, 3Line and Ingenico.
• The terminals will be used to enable the public
  play the national lottery but will also support
  airtime vending, electricity bills payment,
  pension payment and a wide variety of public
  services.
• This initiative is widely predicted by analysts
  to act as the catalyst for widespread card use.

• Mass deployment of POS terminals to harness the
  unbanked

• Success of GSM networks has lead to high level of
  mobile phone penetration.
• Mobile phones ownership will facilitate
  Person-2-person (P2P) payments on a large-scale
  level.

• Increase in mobile phone penetration.

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Transaction channels latest developments
(contd)

• Enhancement of the GSM service platforms to
  support and provide GPRS/EDGE technologies.
• Provision of improved connectivity and access to
  ePayment channels.

3. GSM network providers launch 3G services

• Chams consortium to rollout 1000 ATMs following
  the signing of the pact with the National
  Information Technology Development Agency.
• This will also see the deployment of 5000
  electronic transaction booths across Nigeria
  ePayment, broadband internet access and rural
  telephony.

4. Rollout of ATMs
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Major technologies till date
Pre 1990s
1990s 2000s
2000s - 2006
2006
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Major technologies latest developments

• Payment cards are also being used for the
  provision of public services, with the aim of
  creating a card culture and encouraging card
  usage.
• For example, 3Line, AutoReg and the Lagos State
  government have embarked on a joint venture to
  develop the automated vehicle license
  registration for Lagos state deployed on a cash
  card.

• ePurses being bundled with other public services

• Nigerias own communication satellite, and
  Africas first geosynchronous communication
  satellite, NIGCOMSAT is poised to enable
  efficient and reliable communications.
• Communications costs are set to fall, reducing
  the cost internet communications and facilitating
  eCommerce.

2. Launch of NIGCOMSAT
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Major technologies latest developments (contd)

• Banks willing to take a global approach to card
  payments.
• Banks launching cards that offer their customers
  local currency but with international access e.g.
  Zenith bank dual currency card, which allows for
  payment in both Naira and dollars, and Ecobanks
  regional card.

3. Increasingly global approach to card payments

• Microfinance institutions to have the means issue
  credit cards to Small and Medium sized
  enterprises.
• This will facilitate easier access to payment
  cards increased usage of card payments.

4. MFBs to issue credit cards
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Value added services till date
Pre 1990s
1990s 2000s
2000s - 2006
2006
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Value added services latest development

• Payment companies developing new payment cards
  that support a variety of applications
• Payment cards bundled with health, education and
  loyalty schemes.

• Multi-application cards

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Regulatory framework till date
Pre 1990s
1990s 2000s
2000s - 2006
2006
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Regulatory framework latest developments

• Concentrated efforts by the CBN to on seven
  critical electronic payments initiatives. These
  include
• Government supplier payments
• Person-to-person payments
• Salary and pension payments
• Bill payments for consumers
• Taxes (businesses)
• Taxies and levies (individuals)
• Securities settlement and payments processing
• Will provide the market with a clear strategic
  direction

1. National Payments Systems Committee
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Business model impact
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Business model impact

• Shift in focus of the market towards wider
  adoption i.e. targeting the unbanked.
• Electronic payments in Nigeria now requires a
  global focus.
• Mobile payments the way forward to facilitating
  high frequency electronic transactions.
• Alliances and relationship management to become
  crucial for ePayments success.

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Outlook for payments technologies
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ePayments outlook

• The needs of the ePayments stakeholders as well
  as global developments in card technology will
  continue to drive change in the industry.

• Government
• Transparency
• Cost reduction
• Velocity of money/GDP growth

• Banks
• Competitive advantage
• Cost reduction
• Profitability

ePayments stakeholders

• Other Financial Institutions
• Cost
• Convenience
• Growth/new business opportunities

• Consumers/Merchants
• Convenience
• Cost
• Safety

Other Industry Players (ISOs, OEMs, etc) -
Business returns
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Government

• Globalization is increasingly compelling
  governments to deliver more effective means of
  delivering service to citizens. Governments will
  therefore seek to adopt eGovernment strategies as
  a means of increasing the convenience and
  simplicity of citizens interaction with
  government.
• The governments need for cost reduction and GDP
  growth as well as the need to be more transparent
  will see more joint ventures between card
  technology industry players and public sector
  organizations.
• This has been the case in Russia, where Visa and
  Bank of Moscow partnered with the Moscow city
  government to develop a multi-application card to
  provide a variety of services such as pension
  payments, access to medical insurance and
  government subsidies, and public transit.
• Governments are likely to gradually wean out
  other cash-based forms of transactions in favour
  of ePayments.

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Other Industry players

• Consumer and merchant demands for speed and
  convenience of transactions will see more
  innovation on the part of OEMs and ISOs to
  facilitate more transactions.
• This may result in the deployment of contact less
  terminals, such as in the US, which allow for
  transactions to be conducted quicker.

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Banks

• Significant cost reductions gained from the
  deployment of ATMs to service customers, as
  opposed to bank branch tellers.
• More emphasis will placed on customer self
  service as a means of driving down costs. ATMs
  will enable service provision for a host of new
  businesses and services. Deployment of
  self-service kiosks to increase.

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Other financial institutions

• Other financial institutions will be keen to
  harness the opportunities presented by card
  technology.
• Insurance, Pensions etc. will begin to form
  similar alliances with payments companies and
  switches as a means of reducing their costs and
  creating new markets.

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Consumers/merchants

• Card payments will continue to increase as the
  benefits in convenience, security begin to become
  more apparent. Consumers will therefore seek to
  utilize additional channels for paying for
  products such as mobile and internet.
• Consumers will also have increased demands for
  improved security. Card security may extend
  beyond PIN and towards biometric verification.
• Growing usage of mobile phones should see equal
  growth in mobile payments within the next 3 years.

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