PERSPECTIVES ON PAYMENT SYSTEMS IN NIGERIA BY JIM OVIA MD/CEO ZENITH BANK PLC AT THE CARDEXPO (WEST AFRICA) 2007 THE CIVIC CENTER, LAGOS JULY 9, 2007.

PERSPECTIVES ON PAYMENT SYSTEMS IN NIGERIA

BYJIM OVIAMD/CEO

ZENITH BANK PLC

AT THE CARDEXPO (WEST AFRICA) 2007

THE CIVIC CENTER, LAGOS JULY 9, 2007

OutlineOutline

• Introduction

• Payments System in Nigeria

• Existing Payment Instruments

• The E-payment System in Nigeria

• Gains of E-banking

• Current ICT push to E-payment

• Next Steps

• Conclusion

IntroductionIntroduction

• The emergence of the Information Age in the 20th century has succeeded in wiping off memories of the tortuous and cumbersome journey from trade by barter, through commodity money to fiat currency in the payment for goods and services

• Money, the medium of exchange, has now become mere Information; Currency notes converted to data, and transmitted through telephone lines and satellite transponders

• The creation of the e-payment system has led to the crashing of transaction cost; near-total extinction of all barriers to financial transactions

• The non-existence of barriers to the flow of information, capital, goods and financial services, now drives e-commerce and other innovations

• The payment system is still mainly cash-based, despite the entry of ICT-enabled methods (N272.4 billion, currency-in-circulation, March, 2007)

• Cheque payment (So much in use, despite abuses)

• E-payment system – Interswitch, Smartpay, Valucard

• There is still a lot of risk aversion to e-payment

PAYMENTS SYSTEM IN NIGERIAPAYMENTS SYSTEM IN NIGERIA

• Many people still prefer to hold and touch payment instrument like coins, bank notes, etc

• There is still poor public perception, borne out of illiteracy and ignorance

• Number of electronic networks linking merchants to banks and payment switch centres still inadequate

EXISTING PAYMENT INSTRUMENTSEXISTING PAYMENT INSTRUMENTS

KEY PAYMENT INSTRUMENTS

PAYMENT INSTRUMENTS

1 CASH (coins and notes)

70 – 80% of transactions are carried out through this means.

2 CHEQUES Large value transactions are usually cheque based

3 ELECTRONIC FUNDS TRANSFER (EFT)

New product introduced to cater for electronic transactions which can be retail as in Nigerian Electronic Funds Transfer (NEFT) or wholesale as in Nigeria Interbank Settlement System (NIBSS) Fast Funds

4 PLASTIC MONEY

E-purse (Cash Card), debit (ATM cards) / credit cards (MasterCard)

Nigeria’s financial services market is growing even in the challenging IT environment. The following exotic services are now widely available:

•Internet banking/e-banking: Accessing bank accounts through a bank’s website using web browser software (Netscape, Internet Explorer)

•GSM/Mobile banking

•Electronic Money:

Debit Cards / Prepaid Cards – This is currently the most predominant in the market.

E-PAYMENT SYSTEM IN NIGERIAE-PAYMENT SYSTEM IN NIGERIA

Credit Card – Banks are currently issuing these cards in foreign and local denominated currencies.

Mobile/SMS Banking – Currently used for accessing bank accounts and low value transactions

ATM – Fast getting wide-spread for performing banking transactions, especially cash dispensing

Customers can sit in the comfort of their homes and offices and with a PC log onto their banks’ servers and transact limited banking activities.

Your bank will never close down, it will be open 24/7

You will never run out of cash because cash is available 24/7 via ATMs

Transactions are more efficient, more secure, more convenient

You can receive transaction notifications via your phone or PC

You can transfer or receive money via your phone or PC

GAINS OF E-BANKINGGAINS OF E-BANKING

E-PAYMENT: Current StatisticsE-PAYMENT: Current Statistics

E-transaction nationwide rose in 2years by 3,600%

from 445,000 (May 2005) to 16.5million (May

2007).

Total number of cards on interswitch platform: 13m

(May 2007)

Number of ATMs in use rose from 810 (June 2006)

to 2,300 (May 2007).

Number of POS terminals: 1,400 (June 2006) to over 3,900 (May 2007). Active number only 23%

Average number of transactions on POSs now over 18,000 monthly.

Number of merchants/websites accepting card payment grew from 45 (July 2006) to 80 (May 2007).

PAYMENTS SWITCH PAYMENTS SWITCH SCHEMATIC DIAGRAMSCHEMATIC DIAGRAM

PAYMENT SWITCH NETWORK

BANK A BANK BSWITCH

MOBILE PHONES POS

TERMINALSDEBIT/CREDIT

CARDSATMS INTERNET

WAP/SMS ONLINE DEBIT CARDS

OFFLINE EPURSE

TRANSACTIONS

EMV’S MAGSTRIPE

CARDS

CARD READERS ATTACHED TO

SYSTEMS

CURRENT ICT PUSH

• NIGCOMSAT-1 launched on May 13, 2007

• NIGERIASAT-1 launched in September, 2003

• These make for the following: Improved data traffic such as e-mail, sms, web

hosting,inter switching among banks for easier on-line

payments

Internet access to rural areas

Rural telephony

Improved broadband access to estates and residential

areas in major cities

Provision of Transponders for faster satellite signals

Convergence of networks between the traditional phones and modern telephony services

Drastic reduction in the cost of GSM and internet service as a result of the availability of cheaper satellite bandwidth

Creation of many IT–related jobs

Deepening of knowledge–based economy: enhancing economic reforms especially in the areas of e-learning, e-commerce, tele-education

More foreign exchange earning from the sale and leasing of active transponders

Etc.

• The payments landscape is evolving rapidly with mobile and contactless technology driving innovation

• Mobile now play significant role in areas such as cross-border remittances, direct person-to-person payments, mobile ticketing and transport

• It is estimated that the mobile payment market will officially rich $345 billion by 2008 in the US – June 2007 The Banker

• It is also forecast that global mobile commerce revenues will more than double between 2006 and 2008 to reach $55 billion

• Mobile represents a technology that could disintermediate the banks by utilizing its direct person-to-person abilities to by-pass the banks

MOBILE PAYMENTSMOBILE PAYMENTS

Voice Pay – Biometric payment scheme which enables people to authorize payment for online and cell phone-based purschases using only their voices

Multi-lingual ATMs – For faster spread of this cash dispensing technology to the hinterland – to exploit opportunities provided by the huge population of semi-literates and illiterates

Fast-tracking rural telephony and internet penetration initiatives

Intensive and extensive public education and awareness creation

NEXT STEPSNEXT STEPS

ConclusionConclusion

“The successful companies [countries] of the next decades will be the ones that use digital tools to re-invent the way they work. These companies will make decisions quickly, act efficiently and directly touch their customers in positive ways. Going digital will put you on the leading edge of a shock wave of change that will shatter the old ways of doing business”

Bill Gates – Business @ the speed of thought”

THANK YOU

www.zenithbank.com

…in your best interest