Collaboration, Key to Tackling Challenges Facing e-Payment Systems In Nigeria - Olayinka Arewa, Group CFO, Parthian
As delivered
Good morning, ladies and Gentlemen. Please allow me to stand on existing protocols. It is a great privilege to address this distinguished audience today.
I would like to offer my commendations to FICAN for organizing this conference, which I believe will foster collaboration among key industry players aiming to enhance the effectiveness and efficiency of electronic payment systems in Nigeria.
We live in a digital era where market players constantly strive to deliver services swiftly and proficiently through digital solutions. In this rapidly evolving landscape, it is imperative to move with agility. Globally, financial technology has reshaped the consumer experience, with individuals seeking the convenience of conducting transactions anytime, anywhere. Take, for instance, Parthian Partners’ investment app, i-invest, which offers a secure platform for individuals to easily access investment opportunities such as Fixed Deposits, Treasury bills, Eurobonds and even stock purchases on the Nigerian Exchange in one breath. Once your i-invest wallet is funded, you can invest in any product of your choice from anywhere you are in the world and at any time of the day. This would usually not take you more than five minutes.
Electronic payments offer manifold benefits to our economy. According to a recent McKinsey report, FinTech activity in Nigeria, initially centered around payments, has expanded into various sectors. Presently, payment solutions constitute approximately 15% of banking revenue pools in the country, a testament to the growing popularity of electronic transactions.
In 2022, Nigeria unlocked $3.2 billion in additional economic output through the development and utilization of electronic payments, particularly real-time payment services. Electronic payments continue to attract substantial global investments and have exhibited the highest returns and growth within the sector over the past decade. As one of Africa’s largest economies, Nigeria is well-positioned to harness the potential within this sector.
Indeed, Nigeria has witnessed a remarkable digital transformation, with over 100 million active mobile phone users as of 2023. This statistic signals the advent of a fully digitized financial services sector. However, despite these advancements, Nigeria’s payment system predominantly relies on cash. Recent events, such as the implementation of the cashless policy following the Naira redesign late last year/early this year, highlighted the challenges associated with the country’s transition to a cashless economy. We understand that these challenges may appear formidable, but we are gathered here today because we believe these challenges are not insurmountable.
One of the significant challenges facing electronic payments in Nigeria is the inadequacy of infrastructure, including operational and telecommunications facilities, as well as reliable electricity supply. Many e-payment systems depend on stable power sources and robust IT infrastructure, such as laptops, mobile phones, POS terminals, and dependable internet connectivity. During the period of cash scarcity earlier this year, banks faced unprecedented e-payment failures, prompting the urgent need for technological infrastructure upgrades. The failure of e-payment channels on such a scale compelled customers to wait for banks’ networks to stabilize before completing their transactions. Furthermore, FinTech companies, initially considered a lifeline, also encountered challenges due to increased pressure. The issue of failed transactions has persistently affected numerous businesses reliant on electronic payment systems.
Another pressing issue is the risk of cybersecurity. While the rapid growth of Financial Technology has broken down geographical barriers, introduced innovative approaches, and ushered in numerous advancements, it has also exposed us to unprecedented risks, including cybercrime. Cybercrime poses severe societal and economic consequences, ranging from facilitating corruption, money laundering, military espionage to terrorism, all of which undermine technological and socio-economic development. Cybercrime’s impact on customers is substantial, as everyone desires the safety and security of their hard-earned money. Trust is the linchpin of finance, and no one wishes to witness their funds vanish. Security concerns stemming from electronic fraud and cyberattacks are real. The automated nature of payments without direct interaction between the payer and payee renders e-payments vulnerable and with the proliferation of digital financial activities, cyber threats are expected to rise.
Side note
Just last week, a relative of mine was telling me of a cybercrime that occurred in his house. As he was about to take an afternoon nap, his three year old son nudged him to unlock his i-phone so he could watch a cartoon on YouTube. He refused and asked the boy to sleep. The little boy didn’t argue and waited for his dad to doze off. Once the dad was asleep, the smart boy directed the screen of the i-phone at his dad’s face and the device was unlocked by facial recognition. The dad was startled from his sleep when he heard the noise from his phone. Necessity, they say is the mother of invention.
While digital payment systems have the potential to foster customer loyalty and provide financial service providers with a competitive edge in terms of market share, concerns about infrastructure deficits, security and cybercrime persist. These issues are a source of concern for both financial service providers and their customers.
Addressing the challenge of failed transactions in Nigeria’s payment systems necessitates a collaborative effort among industry stakeholders and the implementation of appropriate policies and regulations. An increased collaboration among the Central Bank, Telcos, the commercial banks and FinTech to expand internet connectivity and seamless electronic transfers across the country. A uniformity in banking applications across the industry could significantly reduce the occurrence of failed or delayed payments. However, it would require robust technology, stringent security measures, and seamless integration with various payment platforms and financial institutions.
Collaboration among stakeholders, including financial institutions, fintech companies, government entities, and regulatory bodies, plays a pivotal role in ensuring the success of innovative solutions. Ultimately, it comes down to policy, regulation, and collaboration. If parties are willing to collaborate, many of the frictions currently experienced in the Nigeria financial service sector can be mitigated.
To combat fraud, it is imperative for the government, private sector organizations, and international partners to engage in strong and cohesive collaboration. Sharing intelligence and pooling resources will significantly contribute to the fight against cybercrime. Furthermore, this collaboration can extend to investments in cybersecurity infrastructure, including cybersecurity training facilities, incident response centers, and cybersecurity research and development centers.
Ultimately, our aspiration extends beyond achieving a cashless Nigeria; it aims to establish an inclusive digital financial ecosystem that seamlessly aligns with the needs of the Nigerian populace.
Thank you.