BANKING

Institutions Providing Payment Services
4.2.1 NIBSS
The Nigeria Inter-Bank Settlement System Plc (NIBSS) was set up by the decision of the Bankers Committee
in 1992, as a Banking Industry Shared-Service, to help streamline inter-bank payments and settlement
mechanisms, and to promote electronic payments in Nigeria. Incorporated in April 1993 it commenced
operations on 13th June 1994.
NIBSS is owned by all licensed banks in Nigeria, and the Central Bank of Nigeria. The Board consists of
representatives of banks, two Executive Directors and the Managing Director of NIBSS with Deputy
Governor (Operations), Central Bank of Nigeria, as the Chairman. The shareholding of NIBSS is
periodically realigned based on the volume of payments from participant organisations.
The scope of operations of NIBSS in the Nigerian financial sector is such that fulfils its mandate as enshrined
· in the company’s Memorandum and Articles of Association:
To carry on business as a service oriented institution that provides the mechanism for same day clearing and
· settlement of inter-bank transfers and payments;
To provide infrastructure for the automated processing and settlement of transactions between banks acting
on their own account as regards deposit placements, Treasury Bills transactions, Naira settlement on inter-
· bank foreign exchange transactions;
To initiate and develop an integrated nationwide network for the electronic or paperless payments, funds
· transfer and settlement of transactions.
To provide framework for elevating the level of efficiency in funds transfer services generally
NIBSS is responsible for the management and operation of much of the retail payments infrastructure, as well
as offering some value-add services to payment systems participants
4.2.1.1 NIBSS Electronic Funds Transfer (NEFT)
The NIBSS Electronic Funds Transfer (NEFT) service is widely used by all banks to process inter-bank
electronic funds transfer instructions of their respective customers.
4.2.1.2 Nigeria Automated Clearing System
NIBSS operates the central Nigeria Automated Clearing System (NACS) infrastructure that clears majority
of the deferred net settlement payment systems.
4.2.1.3 Nigeria Central Switch
The national Electronic Funds Transfer (EFT) switch ensures inter-connectivity / interoperability amongst
Banks and licensed EFT Switches in Nigeria, and serves as an international retail payments gateway for
Nigeria.
4.2.1.4 NIBSS Instant Payments
NIBSS developed and operates NIP (NIBSS Instant Payments), a real-time account-to-account payment
system
4.2.1.5 Settlement Services
Private switching companies and the Central Securities Clearing System Plc(the clearing and settlement
system of the Nigerian capital market) rely on NIBSS for the cash settlement of their operations.
4.2.1.6 e-Dividend
NIBSS secured the consent of the Securities and Exchange Commission (SEC) and other major stakeholders
of the Nigerian capital market in 2007 to be the sole processor of shareholders’ dividends.
4.2.1.7 Central Mandate Management System (CMMS)
Central Mandate Management System (CMMS) was introduced by NIBSS to address the problems and
challenges faced by Banks, Insurance, Leasing and Utility Service Providers when handling the
administration and validation of direct debit mandates.

4.2.1.8 NIBSS Intra-Day Exposure System (NIDES)
NIBSS enriches settlement operations, particularly in the banking system with the NIBSS Intra-day Exposure
System (NIDES). It enables all Bank Treasurers and Fund Managers to monitor settlement exposures of their
respective Banks
4.2.1.9 Automated Bulk Clearing Service
NIBSS leverages her expertise in payments service provision and credibility in the Nigeria financial system
to provide EFTservices to select corporate bodies and government agencies directly.
4.2.1.10 Payment Terminal Service Aggregator
NIBSS provides reliable data channel, effective interoperability and ensures higher POS availability.
4.2.1.11 NUBAN Account Verifier
NIBSS provides an online tool for verifying that a NUBAN is valid.

2 NIBSS e-BillsPay
NIBSS eBillPay is an account-number-based, online real-time Credit Transfer product that enables
customers to make payments by leveraging the security provided by the banks. The service also facilitates
electronic bill payments, collections, and purchases

Interswitch

Interswitch is a commercial organisation that offers payments processing services and a switching
infrastructure for payment routing. Itprovides online, real-time transaction switching that enable businesses
and individuals have access to their funds across the 22 banks in Nigeria and across a variety of payment
channels such as Automated Teller Machines (ATMS), Point of Sale (PoS) terminals, Mobile Phones, Kiosks,
Web and Bank Branches
Interswitch’s Electronic Funds Transfer (EFT) switching application, supports major networks including
Verve, MasterCard, and China Union Pay, besides other proprietary networks.
Interswitch also offers AutoPay, a scheme similar to NIP that uses the card/PAN for payment routing. This
scheme is run by Interswitch and uses the same settlement as Verve. The settlement scheme run by
Interswitch has not been formally reviewed as part of this release of PSV2020, but operates a settlement
process that requires collateral to be posted by scheme participants and processes inter-bank settlement on net
basis with the NIBSS settlement services.’.

SystemSpecs

SystemSpecs offers Remita e-Payment, e-Collection, Payroll and Biometrics end-to-end electronic payment
platform to government entities and corporate organizations.
Remita has been widely accepted and is connected online, to all Deposit Money Banks and a sizeable number
of Micro Finance Banks. Other MFBs and Primary Mortgage Institutions are supported in an off-line model
thereby enabling payment to all financial institutions in the country. In addition to the delivery of funds to
bank accounts, the platform simultaneously delivers reconciled associated schedules to relevant non-bank
bodies such as Tax offices, Pension Administrators, Cooperative Societies and Trade Unions.
Remita accepts single and bulk payment instructions and passes these through the predefined internal work
flow of the organisations. Upon final approval, the payer’s bank account is debited and funds transferred to the
credit of the beneficiary bank. The transaction does not create exposure for the beneficiary bank which would
have received funds before crediting the beneficiary’s account. The payers are able to monitor online, the
status of all their payment instructions which are typically closed between two to six hours.

Payment is considered final upon consummation by the final payment approver. Payment reversal function is
available on the platform as a separate process that can be initiated and authorised by the beneficiary bank
where necessary.
Remita Direct Debit – This module of the platform centrally manages direct debit mandates for fixed sum
debits and Variable amount debits as signed up by the service beneficiary. The mandate forms are approved
once by the paying bank and thereafter automatically processed for payment and credit into Collectors’
accounts on the due dates. Collectors are also able to monitor the status of all their due funds.

Remita is the central payment platform supporting the payments of Federal Government Ministries,
Departments and Agencies under the Treasury Single Account (TSA) programme.

Unified Payments
Unified Payment Services Limited otherwise known as Unified Payments® is a card-neutral and optionneutral Payments Service Provider founded in 1997 by a consortium of leading Nigerian banks. Unified
Payments operates as a shared infrastructure for the banking community in Nigeria and Payments Service
Provider within and outside Nigeria, with a mission to be the most preferred e-payment service provider in
Africa. Formerly known as ValuCard Nigeria Limited, the name of the Company was changed in 2012 to
reflect its new business, following a successful transformation from a domestic card scheme to a provider of
payment services supporting different payment options and schemes.
Unified Payments is a Principal & Plus Member of Visa and has contributed to the growth of electronic
· payments in Nigeria through the following business offerings:
Processing, Unified Payments provides a secure and reliable infrastructure that enables Issuers to provide
cards and other payment options to their accountholders or customers and for transactions across different
electronic channels – Internet, Physical Points of Sales, ATMs, Telephone Handsets, etc. Unified Payments
also provides the backbone infrastructure that enables Acquirers to acquire transactions at all acceptance
· channels including Points of Sale and at ATMs. They are thus Issuer-Processor and Acquirer-Processors.
Acquiring, Unified Payments provides acceptance services, enabling merchants to accept cards and other
electronic means of payment for goods and services. Unified Payments has the largest non-bank acceptance
· infrastructure in Nigeria.
PTSP (Payment Terminal Service Provider), Unified Payments has the privileged license of deploying,
monitoring and maintaining Points of Sale terminals to Merchant locations on behalf of other Merchant
· Acquirers.
Switching: Given their network of links with banks in Nigeria, Unified Payments is also able to provide
switching services between Issuers and Acquirers in Nigeria, thereby significantly reducing connectivity
costs between Issuers and Acquirers as well as increasing the throughput, through a significant reduction in
· potential points of failure.
Value Added Services: Unified Payments provides other value added services like settlement agents,
Dispute management agents, Bills payments, collections, Air time vending and various other solutions that
enables e-commerce

Other Local Switching Schemes
Other local switching schemes include VIZ Etranzact, UPSL, EMP& 3LINE

Payment Instruments in Nigeria
Nigeria offers the typical forms of payments used within most countries in the world

RTGS Payments
CBN has recently deployed a new infrastructure (NISS) to support RTGS payments. The new system uses
the SWIFT Y-copy methodology for transmission of payment instructions between NISS and Participant
Banks, allowing banks to support Straight-Through-Processing (STP)for high-value payments – a
significant improvement over the previous system that forced participating banks to manually enter
transaction on-line. In 2012, RTGS payments represented 0.6% by volume, but 75.1% by value of domestic
payments.
NISS also supports the Central Securities Depository (CSD) function for Government Securities, a critical
function for creating a flexible Collateral Management solution for payment system resilience.

2 ACH Credits and Debits
The high-volume batch payment method, NEFT, is a typical ACH system that supports both credit and debit
payments. NEFT transactions settle in two of the three daily settlement sessions of the national clearing
system (NACS) operated by NIBSS. Settlement 1 (10:00 hrs.) and Settlement 2 (15:00 hrs.) offers same day
value for ACH credits. There is no value limit (minimum or maximum) on NEFT payments. In 2012, NEFT
transactions continued their strong growth pattern and now represent 38.1% by volume and 9.1% by value of
all payments

Cheque Clearing
Cheque processing has been streamlined by the consolidation of the previous 37 clearing centres into one
national automated clearing centre and the introduction of cheque truncation to dematerialise the original
paper instrument into a secure electronic form. As a result of these changes, the cheque processing cycle has
been harmonised into a standard process regardless of branch location, and the cycle reduced from a 3-5 day
cycle to a 2-day cycle. In 2012, cheques represented 49.0% of transaction by volume and 13.1% by value.
The average cheque value has fallen by 48% to 529,000 Naira since 2009 reflecting the cheque limits imposed
by CBN.

NIBSS Instant Payments (NIP)
A new payment scheme was introduced in 2011, offering real-time inter-bank account-to-account electronic
funds transfers. The scheme, operated by NIBSS and offered by all major banks in Nigeria, has met with
overwhelming approval from the user community as witnessed by the impressive adoption rate.
NIP allows the payer to confirm the account holder name before sending funds. It uses the central switch to
pass the payment instructions real-time to beneficiary bank which applies funds on receipt. Settlement
rd
occurs once per day in the NIBSS 3 clearing cycle at 15:30 hrs.
In 2012, NIP represented 8.5% of all payment transactions by volume, and 15.5% by value, and in June 2013
NIPtransaction exceeded cheque payments by volume for the first time.
The monthly figures since June 2012 show the strong growth of NIP transactions (Note: the volumes below
reflect only the NIPpayments between different participating banks and so understate the total volume)

Mobile Payments
CBN has licenced 26 individual mobile money operators (MMO), allowing them to offer mobile
payment schemes. Nigeria has adopted a ‘bank-led’ model for mobile payments, requiring the mobile money
operator to work with a sponsoring bank. All client funds are held by the sponsoring bank in trust accounts
and customer funds are covered by a deposit insurance scheme of the Nigeria Deposit Insurance Corporation
(NDIC). All mobile money operators are required to provide interoperability to other mobile schemes,
enabled through connection to the Central Switch operated by NIBSS. Adoption has been strong, and in 2012
mobile payments represented 3.0% of payment transactions by volume, although only 0.02% by value
highlighting the usage of mobile money for small value person-to-person flows and mobile air-time top-up.
rd Settlement of inter-scheme flows occurs once per day in the NIBSS 3 clearing cycle at 15:30 hrs.
CBN has determined that sufficient MMOs now exist and has announced an increase in the capital
requirements for new and existing MMOs. It is likely that this will result in fewer new applications and a
potential consolidation amongst existing providers.

Card Payments
There are three card schemes in operation, the international schemes of MasterCard and Visa, alongside other
domestic card schemes such as Verve, Genesis and Freedom cards. Any organisation offering payment
switching services must, by policy, connect to the Nigeria Central Switch to ensure full interoperability across
different schemes.
The overwhelming use of cards in Nigeria is for ATM withdrawals, representing 99.3% of all card
transactions in 2012). ATM transactions are excluded from the overall payment volume analysis, since they
are not payments per se, merely a simpler way of obtaining cash to support cash transactions. However, the
strong growth in ATM transactions indicates a migration to the formal banking sector even though the
resulting payments may be cash.
Use of cards for payments is predominantly by debit card since there is a limited credit culture.
rd
Settlement of net flow from issuer to merchant occurs once per day in the NIBSS 3 clearing cycle at 15:30
hrs. Nigeria operates a non-standard process by remitting funds direct to merchant accounts rather than
through the industry standard approach of funds flowing through the merchant acquirer. This local regulation
was in response to a common complaint by merchants that payments from acquirers were being delayed.
NIBSS, as a neutral party in the card payment value chain, is responsible for remitting the funds to the bank
holding the merchant account.
In addition, CBN has imposed a maximum interchange fee of 125 basis points (1.25%) for all card
transactions (both debit and credit cards) subject to a maximum of N2,000 with the exception of the
hospitality industry where maximum cap of N5,000 is allowed. For ATM transactions, the cardholders pay
no charge which is absorbed by the issuer or paid to the acquirer depending on the nature of transactions (Onus or Not-On-Us) respectively
POS transactions are growing strongly (3.4% by volume and 0.03% by value) driven largely by a focus on
initiatives such as Cashless Lagos. Monthly statistics since July 2012 show a strong growth in POS
transactions

However, the deployment, availability and active usage of POS devices continues to be a challenge as highlighted in
the statistics from NIBSS. Many deployed POS devices are not connected or are inactive (no transactions over a one
month period). Several studies on usage of POS terminals have highlighted the numerous challenges such as
telecommunication and power issues, preference for cash by store staff due to the ‘no change’ culture, and lack of user
awareness and acceptance.

NIBSS Instant Payments – A new payment scheme, NIBSS Instant Payments (NIP), was launched in 2011. NIP enables real-time inter-bank account-to-account electronic fund transfers. All major banks in Nigeria · support this scheme, resulting in an impressive uptake by consumers Mobile Money – Following the development and release of a Mobile Payments Rules and Regulation framework, 26 mobile payments schemes have been licensed by CBN. The volume of mobile payments has grown rapidly since 2011 reflecting the natural appeal of mobile as a payment method. Nigeria has adopted a ‘bank-led’ model for mobile payments, thereby ensuring the financial resilience of all schemes and creating an open market to encourage innovation and competition.

Infrastructure enhancements · CSD for Government Securities – In August 2013, CBN successfully completed an ambitious project to deploy a new Real-Time Gross Settlement (RTGS) payments system plus a new Central Securities Depository (CSD) for Government debt instruments. A robust RTGS payment system underpins a sound Financial Markets Industry, and the inclusion of the CSD functionality supports greater flexibility in · Collateral Management for the payment systems EMV Cards – The Nigeria cards infrastructure successfully migrated to EMV Cards (Chip and PIN) to · significantly improve the security of plastic cards NUBAN – Astandardised bank account structure – Nigeria Uniform Bank Account Number (NUBAN) – has been implemented to improve the quality of payment validation and automation. Arrangements to extend the · NUBAN to non-bank financial institutions are nearly concluded Clearing Cycle Reduction – The Cheque Clearing Cycles were harmonized across the country, and clearing · cycles for ACH payments and cheques has been reduced from 3 days(T+2) to next day (T+1) Centralised Clearing – The Clearing centre infrastructure has been rationalized, reducing seven automated and thirty manual clearing centres to one national automated clearing centre that handles all ACH and cheque · payments. Nigeria Central Switch – NCS has become operational enabling interconnectivity and interoperability among deposit-taking institutions and licensed payment service providers. The NCS also facilitates inter- · scheme card and mobile payments. Payments Terminal Service Aggregation – this model has been put in place to facilitate seamless and interoperable card payments, clear regulatory visibility for the retail payment infrastructure, and reliable · industry retail payment system statistics for analysis and planning purses. Cheque Truncation – Cheque truncation has been introduced to dematerialise the physical cheque and hence · processing purely on the basis of secure electronic images Cheque amount cap – Acheque cap of N10 million was introduced to encourage higher value payments to be · made electronically. Mandate Processing for Direct Debits – A centralised Direct Debit Mandate Processing infrastructure has been created to streamline the administration of the mandate process, and banks have been required to · improve the validation of payment requests against the lodged mandates. Credit Bureaux – Three separate but interlinked credit bureaux have been launched, providing the first steps in creating a database of credit history which is essential as the financial community offer new banking · products ATM and POS Deployment – Under direction from CBN, banks and other financial service providers have been required or encouraged to increase the deployment of ATM and POS devices.

Discouraging the use of Cash The CBN adopted the following initiatives to reduce the cash intensity in the economy, encourage electronic · payments and enhance the Nigerian Payments System: Limit on Cash Deposits – Fixed a daily cumulative limit of N500,000 and N3,000,000 on free cash withdrawals and lodgements by individual and corporate customers of banks respectively, effective April 1, 2012, in Lagos. Individuals that make cash transactions above the aforementioned limits shall be charged a service fee of 2% and 3% on deposits and withdrawals respectively while the service charge for corporates are · 3% and 5% on deposits and withdrawals respectively. Limit on Cheque Encashment – Disallowed encashment of third party cheques above N150,000 over the · counter. Value for such cheques shall be received through the clearing house. Cash Lodgement restricted -Directed that Cash-in-transit lodgements services rendered to merchantcustomers by banks shall cease. However, customers could engage the services of CBN licensed CIT · companies to aid cash movement to and from their banks at mutually agreed terms and conditions. Public Awareness – Massive enlightenment campaign to increase adoption of electronic payments by the banking public’ 3.2.5 Momentum from Federal and State bodies · Government e-Payments – The drive to electronic payments was given a huge boost with the 2009 Presidential mandate that all payments from Federal Government entities must be made electronically. Work continues on the full automation of these flows, but this mandate was a key driver to the growth in electronic payments since 2007. ‘· Cashless Lagos’ – In 2012, a pilot scheme, ‘Cashless Lagos’, drove a significant ramp-up in the deployment of Point-of-Sale (POS) terminals. The program is now formally extended to five further states and Abuja FCT, increasing the availability of POS devices 3.2.6 Guidelines and Framework documents CBN embarked on an extensive update of all payment systems Rules and Regulations to ensure that they reflect the desired state for the respective system. The most significant guidelines to be revised or issued for · the first time include: · Mobile Payment Regulatory Framework · Guidelines on Transaction Switching Services ·

Guidelines on Stored Value/Prepaid Cards · Direct Debit Rules · Guidelines on ATM Operations · Operational Rules and Regulations of the Nigeria Central Switch · Revised Nigeria Bankers Clearing House Rules · Guidelines for Cheque Truncation Guidelines for Point of Sales (POS) Card Acceptance Services Most other CBN Rules and Guidelines have been updated and published on the CBN web-site.

Agriculture Vertical – an example of the catalyst role for CBN

The Agriculture Sector is key to the Nigerian economy and has a value chain that is ideally suited to integration and automation. The rational for promoting adoptionin the sector is compelling: ·Agriculture represents 43% of GDP and engages 70% of labour force ·The sector has a very high potential for employment generation, food security, poverty reduction and industrialisation ·There is already Strong Federal and State Government focus, and a huge Local Government potential for the sector ·The sector is the largest constituency for financial inclusion, with service opportunity for KYC Identity enrolment, basic transaction (“no frills”) account, mobile wallet, pre-paid cards and mobile commerce. ·The payment systems offerings fit in to the agenda for Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) to de-risk agricultural financing and facilitate low-interest credit ·This will facilitate efficient and transparent distribution of government grants and subsidies (e.g. Growth Enhancement Support Scheme of FMARD) So far, stakeholder meetings have been attended by representatives from government, deposit money banks, consumers, mobile money operators, identity management service providers, development partners, agriculture finance specialists and regulators. The current plan covers the following initial steps: ·Integrate the relevant activity plans for multiple stakeholder communities, including FMARD, BOA and Cellulant, National Identity Management System, Bankers Committee Identity Management project, Cashless Economy, Financial Inclusion initiative, appropriate State Government initiatives and the Government e-payments initiative. ·Plan to use the over 10 million farmer data to simultaneously provide Unique Identification, a “No frills” Savings Account, a Mobile Money Account and Prepaid Card ·Empower development institutions and agent networks to ease and broaden access to payment services by Agriculture communities ·Work with communication expertsto clearly define key stakeholder roles and profile stakeholders for proper coordination and effective communication. A consolidated masterplan, agreed with the Forum for Agriculture Finance Officers of commercial banks, CBN and the Bankers Committee will drive implementation.

Objectives of the review In March 2007, the Central Bank of Nigeria formally launched the Payment Systems Vision 2020 – a strategy that reflected four months of collaborative work with the leading banks in the country.

The objective was to drive the shift from a cash-based economy to one where electronic payment are at the centre of commercial activity the implementation of the strategy created an industry structure that has successfully instigated, promoted and implemented numerous successful initiatives. As a result of these impressive achievements, the Nigeria payments landscape looks very different from August 2007. Our starting point is now very different due to the successful implementation of much of the · original document and changes to international benchmarks: · The national payments infrastructure has substantially improved in both variety and efficiency since 2007 Consumers and Businesses are embracing innovative new technologies available today such as the use of · mobile technology, and the level of expectation is significantly higher New Core Principles for Financial Market Infrastructure have been defined by a joint working group drawn from the Bank for International Settlements Committee for Payment and Settlement Systems (BIS CPSS) · and the International Organisation of Securities Commissions (IOSCO) working group We have witnessed greater engagement in governance and direction of the payment systems from · Commercial Banks Other national initiatives such as Identity Management and Credit Bureaux are in the process of · implementation and wider adoption Payments infrastructure outside of Nigeria has progressed significantly Hence CBN has determined that a review of the PSV2020 strategy is appropriate. This document reflects a further six months of discussion, debate and analysis. Our overall objective remains consistent with the original PSV2020 document: However, the expectations are even higher in 2013 than when the first version of this document was released in 2007.
As a result, the PSV2020 Release 2.0 is much more than an update to the original vision. It is a complete re-write
based on new and aggressive objectives.

3.2 Progress since PSV2020 Release in 2007
The Nigeria Payments landscape is fundamentally different due to numerous initiatives, a summary of
which is given in the following sections.
3.2.1 Changes to the legal environment
A sound legal basis underpins the payments infrastructure, and several key changes to national statutes
· have been made, with further changes currently being progressed through the legislature
The CBN Act 2007was passed into law to further clarify the mandate of CBN in providing oversight of
the payment system.

The Evidence Act of 2011 ensured the legal admissibility of electronic records, essential for electronic
· payment systems
The Payment Systems Management Bill is currently being finalized, a bill that clarifies the structure and
· responsibilities within the payment systems industry
The Electronic Transaction Bill for an Act to facilitate the use of information in electronic form when
conducting transactions in Nigeria and for connected purposes.

New Payments Methods · NIBSS Instant Payments – Anew payment scheme, NIBSS Instant Payments (NIP), was launched in 2011.
NIP enables real-time inter-bank account-to-account electronic fund transfers. All major banks in Nigeria
· support this scheme, resulting in an impressive uptake by consumers
Mobile Money – Following the development and release of a Mobile Payments Rules and Regulation
framework, 26 mobile payments schemes have been licenced by CBN. The volume of mobile payments has
grown rapidly since 2011 reflecting the natural appeal of mobile as a payment method. Nigeria has adopted a
‘bank-led’ model for mobile payments, thereby ensuring the financial resilience of all schemes and creating
an open market to encourage innovation and competition
3.2.3 Infrastructure enhancements · CSD for Government Securities – In August 2013, CBN successfully completed an ambitious project to
deploy a new Real-Time Gross Settlement (RTGS) payments system plus a new Central Securities
Depository (CSD) for Government debt instruments. A robust RTGS payment system underpins a sound
Financial Markets Industry, and the inclusion of the CSD functionality supports greater flexibility in
· Collateral Management for the payment systems
EMV Cards – The Nigeria cards infrastructure successfully migrated to EMV Cards (Chip and PIN) to
· significantly improve the security of plastic cards
NUBAN – Astandardised bank account structure – Nigeria Uniform Bank Account Number (NUBAN) – has
been implemented to improve the quality of payment validation and automation. Arrangements to extend the
· NUBAN to non-bank financial institutions are nearly concluded
Clearing Cycle Reduction – The Cheque Clearing Cycles were harmonized across the country, and clearing
· cycles for ACH payments and cheques has been reduced from 3 days(T+2) to next day (T+1)
Centralised Clearing – The Clearing centre infrastructure has been rationalized, reducing seven automated
and thirty manual clearing centres to one national automated clearing centre that handles all ACH and cheque
· payments.
Nigeria Central Switch – NCS has become operational enabling interconnectivity and interoperability
among deposit-taking institutions and licensed payment service providers. The NCS also facilitates inter-
· scheme card and mobile payments.
Payments Terminal Service Aggregation – this model has been put in place to facilitate seamless and
interoperable card payments, clear regulatory visibility for the retail payment infrastructure, and reliable
· industry retail payment system statistics for analysis and planning purses.
Cheque Truncation – Cheque truncation has been introduced to dematerialise the physical cheque and hence
· processing purely on the basis of secure electronic images
Cheque amount cap – Acheque cap of N10 million was introduced to encourage higher value payments to be
· made electronically.
Mandate Processing for Direct Debits – A centralised Direct Debit Mandate Processing infrastructure has
been created to streamline the administration of the mandate process, and banks have been required to
· improve the validation of payment requests against the lodged mandates.
Credit Bureaux – Three separate but interlinked credit bureaux have been launched, providing the first steps
in creating a database of credit history which is essential as the financial community offer new banking
· products
ATM and POS Deployment – Under direction from CBN, banks and other financial service providers have
been required or encouraged to increase the deployment of ATM and POS devices.

Central Bank Nigeria launched the Payments System Vision 2020

Background to the Payments System Vision 2020 In March 2007, CBN launched the Payments System Vision 2020 (PSV2020). Through the implementation of the original PSV2020 and subsequent activities of CBN and the banking community, Nigeria has witnessed an impressive growth of electronic payments and a move from the dominance of cash as a means of payment. In 2013, CBN initiated a further formal assessment of the payments market, resulting in the PSV2020 Release 2.

Approach to the PSV2020 the original PSV2020 carried the overall objective to make the Nigeria payment systems ‘Internationally Recognized, Nationally Utilized’.

The existing infrastructure was assessed against the international best practice defined by the Bank for International Settlements, and to encourage usage of electronic payments, seven specific initiatives were identified to promote adoption.

The 2013 revision follows the same successful approach. The key recommendations result from key deficiencies when assessed against the current BIS IOSCO Principles for Financial Market Infrastructure (PFMI). It should be noted that the PSV2020 key recommendations result from a much higher target for compliance than was possible in 2007 due to the significant progress already achieved – we entered 2013 with a significantly more resilient structure than in 2007 and so can be more aggressive in future goals

Recommendations for the Payments System Infrastructure

• Following the detailed assessment of the current infrastructure against the PFMI, seven key recommendations emerged. The central theme of the recommendations is the linkage of scheme governance with scheme risk mitigation.
• The two core recommendations are interlinked and cannot effectively be implemented independently. The PFMI state that FMIs should be financially resilient against settlement risk (liquidity and credit) Currently CBN is ‘Lender of Last Resort’ for ultimate default of a participant in deferred net settlement systems – we need to move, at an appropriate time, to a model where the scheme itself mitigates the default
• Risk and exposures Hence the market must move to a model where defaulter pays initial debit position, but with any potential § shortfall covered by the Survivors (‘Survivor Pays’ model) Participants will then have risk of losses from actions of other participants and therefore have a clear benefit § from ensuring the likelihood of requiring survivors paying is kept to a minimum
• Participants should only accept this change if they are actively responsible, collectively and with a Board Management perspective, for scheme governance Hence scheme governance is critical to implementing an effective Payment Systems Risk Management model. It is stressed that CBN always has responsibility for Regulation and Oversight, as defined by its role as the apex organization for the integrity of the payment’s infrastructure. It should also be noted that the payment schemes have progressed significantly since the original review in 2007, most notably on the level of participant engagement in the payment scheme governance. The recommendations below are only feasible because of this progress.

Recommendation 1 It is strongly recommended that no national payment systems invoke the principle of unwinding. CBN should formally state that unwind must not be invoked in any national payment system. An implication of this recommendation is that each payment scheme must define and formally document the exact point at which payments are deemed to be ‘final and irrevocable’.

The PFMI calls for resilience in the payment system, concentrating on liquidity and settlement risk. The predicted net exposure of a participant bank is typically collateralized. Should a bank on any particular settlement cycle exceed its collateralized position, the simplest method to mitigate risk is to reverse all or some of the payment made by that bank – a process called unwind. Unwind has the very undesirable effects of undermining confidence in the payment system, and even more importantly can create systemic risk in the payment system. It is strongly recommended that CBN does not permit any payment system to invoke unwind.

Recommendation 2 – CBN should indicate an intention to remove its implicit role of ‘Lender of Last Resort’ for the RTGS payment system by December 2016 and Deferred Net Settlement systems by December 2019. An outline deployment plan must be published indicating interim steps to achieving this longer-term objective.

The current methods for collateralization of the payment systems does not confirm to the PFMI. Currently CBN is the de facto Lender of Last Resort for the key payment systems since it allows the banks to borrow, albeit at punitive rates, should the Settlement Account be in debit. All domestic payment systems should be required to adopt risk principles that are in accordance with the PFMI, and move to operate under the principle of ‘Survivor Pays’ – where it is the collective responsibility of the participating banks to operate with rules that minimize the risk of a bank failing to meet its position, but should any member fail, other participants are collectively responsible for any loss in excess of the loss-absorbing capacity of the failing participant.

If participating banks are collectively required to absorb losses of a failing member, they have a strong incentive for good governance of the scheme. CBN will always maintain is primary responsibility for regulation of the payment system as enshrined in the CBN Act 2007. However, scheme governance, management, and operation need not be a responsibility of the pinnacle organization.

A structure has been proposed (see Appendix 2), in line with the provisions of the Payment Systems Management Bill that is currently in the legislative process. The proposed payment scheme Boards will be given the mandate to run the schemes in accordance with the PFMI.

Recommendations 5 and 6 reflect the objective of greater international recognition. Adoption of Naira as a CLS Settlement Currency will position the Naira as an important world currency, although the practical relevance of CLS will only be felt should Naira be a more freely tradable currency – clearly a decision well outside the scope of the Pv2020.

Adopting the Sanctions Checking solution offered by SWIFT – a service that screens all payments and trade instruments against major sanctions databases – will increase the quality of international payments made by Nigerian banks creating a much more positive perception of Nigeria as a place to do business.

Payments Infrastructure is a critical part of the Securities Settlement process, but the overall compliance of the Financial Markets against the PFMI is much broader than the scope of the PSV2020. However, a formal industry assessment against the PFMI should be undertaken to assess current compliance.

CBN can be a strong catalyst for the adoption of electronic payments, and eight industry verticals have been identified as offering particular opportunities for adoption of electronic payments. The formation of Working Groups, comprising of the user community, banks and other service providers, will drive adoption. The groups will work on the principle of identifying quick wins and success transfer. The groups will be formed for a limited period only, two years maximum with the option to extend for one further term should all parties agree. Our initial engagement with the stakeholder community has received extremely positive feedback and a desire to work collaboratively to create a powerful voice for the industry. It is proposed that the Working Groups be formally constituted following the formal launch of the PSV2020 at the forthcoming Payments Conference.

The identified industry verticals are:

• Agriculture
• Smart Cities
• Government Flows
• Hotels and Entertainment
• Transport
• Education
• Health Bill Payment and Direct Debits.

A summary of the Agriculture Initiative is provided on the following page.

Implementation of the PSV2020 Release 2, driven by CBN and with the support and co-operation of the financial community will continue the momentum from the original strategy. The objectives are aggressive but achievable, and will position Nigeria as ‘Internationally Recognized’ in the global economy whilst serving all sectors of the domestic market by ensuring the electronic payment systems are ‘Nationally Utilized’.