Most Nigerians that have had the opportunity to travel outside the country and used their debit or credit cards to pay for goods at a mall or restaurant will notice how seamless the transaction goes. You rarely get the ‘Error’ or ‘Transaction declined’ message despite the customer’s originating bank only located in Nigeria.
Why does it become easy to make a successful card transaction outside the country with multiple hops involved and yet have issues when you do so in Nigeria with fewer points? What is responsible for the many PoS transaction declines Nigerians face?
Adoption is not the problem
The problem of PoS transaction declines is not lack of adoption. It used to be that merchants preferred taking cash because it made things easier for them with regards to having liquid cash to buy more goods and paying for logistics. Things have since changed according to data made available by the Nigeria Inter-bank Settlement System (NIBSS). The number of registered PoS terminals increased by 2 per cent between January (266,418) and February (272,272).
There was a little drop in March to 270,111 however the value at N217 billion was more than the value in February at N193 billion. The number of registered terminals in March 2019 also dwarfed what was recorded in March 2017 (137,047) and March 2018 (200,000).
The number of PoS terminals deployed in the first three months of 2019 also surpassed that of 2017 and 2018. In January 2019 the terminals deployed grew to 223,098 compared to 159,579 and 113,510 in 2018 and 2017 respectively. The terminals deployed rose to 225,924 in February 2019 compared to 164,607 and 115,044 in 2018 and 2017 respectively. March 2019 at 221,056 saw a little drop from the previous month, but nevertheless bigger than what was recorded in the same period in 2018 (170,306) and 2017 (109,916).
How does a PoS system work?
The PoS system is more than the portable hand-held machine that cashiers present to customers. It is a combination of devices and software programs for keeping track of transactions and completing sales. Retailers and online merchants use PoS systems to accept payments and manage their businesses. They can calculate and track order tickets, process credit and debit payment, print receipts and complete cash exchanges.
The way PoS systems setup could vary in look and functionality depending on your choice of technology. Modern PoS systems have a frontend interface for the point of sale and back-office or dashboard side behind-the-scenes analytics and management functions. The staff processing the transactions uses the frontend interface while the backend is accessed separately in a browser or application window either on the same device or separate computer. There are multiple points required to finally complete a PoS transaction.
In Nigeria where the PoS was introduced in 2012, these points may include the banks which issues the PoS; NIBSS is supposed to provide reliable data channel as well as services on terminal certification; Payment Terminal Service Aggregators (PTSA) which deploys, carry out maintenance and support of PoS terminals on behalf of the acquiring banks; and there is the internet provider. Most PoS terminals are provided with connectivity through GSM subscriber identity module (SIM).
Anyone of the points can fail at any time. The decline in the volume and value of transaction on PoS recorded in the months of February and March is largely due to increase in declines incidences. Failure rate on a daily basis can go as high as 14 to 15 per cent. The implication is that in every 100 attempts to process card payment on PoS terminals, 14 to 15 are likely to fail. The picture becomes clearer when compared with the 0.7 per cent failure rate of the NIBSS Instant Payments (NIP service), that means only about 7 NIP fund transfers fail out of 100 attempts.
Are the hops too many?
Considering that cards travel through more hops and yet are processed faster, it will be unfair to totally blame the high decline rate on too hops as Tayo Oviosu, CEO of Paga suggested on a recent Twitter post. Even Nigerian cards used on foreign PoS terminals are authorised faster than the same cards on local PoS.
There may also be point to reviewing the networks the transactions travel on. However as a payment expert who would not want to be named pointed out, the same MTN network which carries most of the PoS traffic in Lagos is also used to support WhatsApp calls and videos which are more network demanding.
Buck stops with NIBSS
Many experts have questioned the role of NIBSS in the entire chain and why it is difficult to replicate the success of the NIP fund transfer.
“The challenge is that NIBSS centralised infrastructure is not very efficient,” one expert told BusinessDay. “Being a monopoly, granted by the CBN and the banks, they have zero incentive to step up their games. When people complain, they tend to deflect and blame the banks.”
But the banks are not totally guilt-free. For instance, a report identified account selection during card payment as a major contributor to the failures. According to the report, the account selection feature which requires the salesperson to either punch in either current or savings can tricky. Often times the cardholder will choose current account but the salesperson would go ahead and select savings account. Secondly the reverse time for failed deductions is a major problem.
“A solution would be to license 2 more aggregators and force the POS to be able to talk to either of them depending on availability. After all, POS terminals in Nigeria are usually dual SIM, why can’t the aggregators be load balanced as well. Aggregators must then be forced to have similar prices so that competition can only be by performance and reliability. Banks, who own these terminals, will now be at liberty to switch between aggregators based on performance,” the expert said.