Peter Opara, a 48-year Uber driver in Lagos, had to raise his voice when he saw the red figures on the cashier’s monitor. The bill for the items he had in his cart was racing above the N2,000 balance he had in his bank account.
“Don’t let it exceed N2,000. I won’t be able to pay more than that,” he said to the cashier. Other shoppers could hear his voice in the supermarket.
Five riders he had carried that day had all said they made a transfer to his account, and while they were debited, he was yet to receive the alerts on his phone. It was the same for most of the rides he had the day before. At that moment, he had over 15 passengers whose alerts had yet to reflect on his account balance. Earlier in the week, acting on a friend’s recommendation, he opened an account with PalmPay, which he had heard worked faster than some traditional banks. Nevertheless, his riders would not agree to transfer to the new account.
“They kept saying they don’t want anything to do with fintech. But these are the same digital banks whose accounts I am given by traders to send money when I buy things in the market. I have been calling them and some of them are no longer picking up my calls,” he said as his eyes brewed hot tears. He didn’t go home with half of the food items in the cart.
According to data from the Nigeria Inter-Bank Settlement Systems (NIBSS), transactions worth N38.9 trillion were performed electronically in November 2022 through the NIBSS Instant Payment (NIP) platform mostly controlled by banks. While the banks shared their usual profits, a few weeks down the line, thousands of their customers would find themselves spending hours, days, and weeks seeking to access the money they had in their bank accounts because some naira notes were no longer legal tender. They would be forced to download banks’ mobile apps, apply for tokens and ATM cards for Point of Sale (PoS) transactions, and learn to use and cram several USSD codes to be able to pay for what they buy.
While many Nigerians were unprepared for the hair-raising speed with which the Central Bank of Nigeria (CBN) enforced the new naira notes policy, the banks also appeared equally unprepared for the millions of users who turned to their digital channels for relief. The number of NIP users, for instance, jumped to 541 million in January 2023 from 348 million a year earlier. Generally, the usage of electronic channels for transactions grew by 45.50 percent year-on-year from 438.48 million to 638 million in the period under review. The usage figures across the channel are likely to increase in February.
Read also: Brazil’s 85% e-payment adoption rate shows what’s possible for Nigeria
But for users like Francis Adekunle, who spent three days trying to gain access to one of his bank’s branches to no avail, the cashless situation has been frustrating and he would trade anything to hold physical cash at least to feed his family. His employer paid the February salary in the first week of March. Although he has seen the alert, he has not been able to access the funds through any electronic banking channel. To keep his family of four from going hungry, he has been borrowing to buy food, pending when “the bank decides to have sense.” Going to the physical branch became a choice when one of the creditors started demanding he pays back the loan.
Before the Supreme Court judgment that ordered the CBN to revert to old notes until December 31, withdrawing money from bank ATMs took a whole day and in the end, a bank customer was only allowed to withdraw N5,000 with a N35 charge. The over-the-counter withdrawal was N5,000. Customers without a bank’s ATM cards can only withdraw N1000 with a N35 fee per transaction. For this category of customers, withdrawing N5,000 at N1,000 per ATM time amounts to N175 charge. Withdrawing the same N5,000 from a PoS agent will cost them N1,000.
After the CBN announced it would obey the Supreme Court judgment, customers of the bank can now withdraw N10,000 per ATM time but it is still N1,000 for non-customers. The queues have not reduced and the crowd outside the bank branches is growing. Last Thursday, the CBN reportedly said it plans to flood the banks with old naira notes and has also removed all withdrawal limits. This is aimed at dissuading the Nigerian Labour Congress from carrying out its threat of going on strike over the scarcity.
Digital banking experts who spoke to BusinessDay on condition of anonymity said the problem is more about the banks than with the payment infrastructure. The banks and the CBN trade blame on who is hoarding the new notes.
“At the moment, many banks are struggling with technical problems because there are more people using their electronic banking systems than they expected. Most of the time, it is the banks themselves that are having issues, not NIBSS. While NIBSS has experienced some problems, it hasn’t been as severe or as often as some of the larger banks,” one of the financial experts said.
Electronic money transfers in Nigeria involve a system where banks communicate with each other through a central go-between called a switch. For example, a customer from Bank A wants to send N100 to another customer in Bank B. Bank A takes the money from the sender’s account and then tells the switch to pass along the message. The switch sends the message to Bank B, which then adds the money to the receiver’s account. The following day, the switch helps the banks sort out and settle their transactions.
The main switch in Nigeria is called NIBSS, and it operates the most popular instant payment service, NIBSS Instant Payment (NIP). NIP was launched in 2011 by NIBSS to electronically facilitate real-time bank transfers. In that same year, the CBN directed all banks to adopt a standardised 10-digit account number format, known as Nigeria Uniform Bank Account Number. This makes it easier to validate electronic payments and routing. The apex bank also made it necessary for future categories of financial institutions such as mobile money operators and payment service banks to connect directly to NIP and were interoperable with the rest of the Nigerian financial system.
For NIP to work, each bank needs to connect its computer systems to a central hub called the Nigeria Central Switch (NCS). However, smaller financial institutions like microfinance banks and other financial organisations can’t connect directly to the NCS. So, they work with larger banks that are connected to the NCS to handle and settle their transactions.
A spokesperson for NIBSS told BusinessDay that they are working round the clock to ensure that the pains many Nigerians are experiencing become a thing of the past. However, there are several hoops that need to be addressed in payment.
Read also: Naira still scarce despite CBN’s new directive
The number of hoops to jump in payment could range from the visible to the invisible players. For instance, while banks, card schemes, and payment processors are visible on the chain, internet providers and technology providers are invisible but still a very important part of the chain. The PoS machines, for instance, are issued by banks but they need a technology provider to keep them working optimally; the same goes for most of the infrastructure that ought to keep the process seamless. However, every strand of the payment process ultimately requires a bank sign-off to be successful.
This leaves a huge responsibility on the part of the banks to ensure the process is working seamlessly. But the banks have not always held up their end of the process, which leaves the system vulnerable.
Several banks have reportedly lost many technical workers to the migration wave, also known in the local parlance as ‘Japa’. The tech talent drain in banks has led to new approaches in recruitment. Some banks, for example, are using outsourcing models, where they get tech employees who are not directly employed by them. This ensures that tech employees can be under contract with a particular bank and still be able to work remotely with other companies.
But experts say the banks are aware that they are losing the market they have painstakingly built over the years and are working to stop the bleeding.
Last year, Guaranty Trust Holding Company, the parent company of Guaranty Trust Bank, launched Squad Co, a digital payment company. According to sources, Squad is being run differently from the traditional bank. For example, the remuneration for staff of the payment company is different and in line with standards in the tech ecosystem.
Squad is also building a NIP alternative. GTBank is expected to use it once it hits scale.
“What will happen or I expect to happen is that Squad and all the other bank fintechs will start building tech for the banks,” a source told BusinessDay.
