Unified identity to fix interoperability in financial services

Nigeria’s financial services sector is growing in many ways including the adoption of digital technologies, but interoperability remains a big challenge for the industry. One way to achieve this is to fix the national identity system.

Interoperability refers to the ability of different products to seamlessly interact. For payment systems, “interoperability” depends not only on the technical ability of two platforms to interact but also on the contractual relationships between the entities wanting to interact.

It has been very difficult to get operators in financial services to embrace interoperability partly because of the poor identification system in the country. In October, a report by Mastercard identified a paucity of formal identification as a hurdle to extending the reach of digital finance. In a survey, 53 percent of markets in the sub-Saharan Africa region indicated that they “urgently needed” more regulatory support for electronic Know Your Customers (eKYC).

There are different reasons why payment systems can be interoperable. One of these is that systems may use different technical standards, communication protocols, and supporting hardware and software infrastructure. Another challenge is around data and semantics. Payment systems often speak different languages. Translation can be used to allow systems to speak to each other, but poor translation can lead to data being lost or corrupted. A third challenge relates to how business rules govern payment systems. These rules deal with questions like who can access the payment platform and how obligations are settled. Differences in business rules between payment systems can undermine interoperability.

Solving these challenges in a society like Nigeria where the system of identification is fragmented is almost impossible.

Abolore Salami, founder and CEO of Riby Finance, a wealth management fintech company, estimates that billions of naira are lost in the financial services sector over the poor identity management system.

“I know a number of non-bank business operators who have lost billions to identity theft, charge-backs, fake loans, etc, all tied to a lack of deep KYC (identity) and lax enforcement system. GSI is still not in full effect (Global Standing Instruction) etc,” Salami said.

Esigie Aguele, Co-Founder and Chief Executive Officer of VerifyMe Nigeria, a company that has championed identity harmonisation, defines it as a regulation that allows functional identities to leverage an authoritative national identity as it provides other services to citizens and people. A goal of harmonisation is to power interoperability across government and private sector systems for faster deployment of data and intelligence while providing services to citizens.

“For instance, VerifyMe helps power the Edo State Government citizen identity scheme. The project is currently the most comprehensive of its kind across the country and has harmonized the Edo state ID framework with the National Identity Number, (NIN),” Aguele said.

In the early days of the Buhari administration, ministry departments and agencies were mandated to ensure harmonisation and achieve a national database as soon as possible by the President. While the mandate is yet to be carried out, Aguele is betting on the National Identity Management Commission (NIMC) to spearhead the drive to nationalize databases.

At least the mandatory National Identity Number exercise has so far delivered close to 93 million Nigerians with national identities. The next step should be uniting these identities with others being housed with other government agencies. Aguele says this may not be simple.

“One of the reasons harmonization has been hindered is that the collection standards during NIMC’s early days are different from what is present today. So, what you may find is that the collected data, or biometrics, may be unusable.

Of course, there’s the need for more political appetite to resolve any inter-agency or identity database rivalries which are delaying 100 percent transition to NIN,” he said.

There is a mindset problem that might need to be addressed, according to Abolore Salami. Nigerians are yet to see the collective wisdom in unifying the identity databases.

“When people know, see, feel and enjoy the benefits that come from an effective national ID and database, things become clearer. For example, imagine that NIN comes with food bank access for people that truly need it, and instead of subsidy, we spend money on that without stealing, then NIN will go from what it is today to say 150 million to 180 million registered persons in a short term. We will then need better border controls to ensure neighbouring countries don’t become automatic Nigerians,” Salami said.