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E-PAYMENT REVIEW Vol. 07. No. 02 June 2018

69 % O f T h e W o r l d' s A d u lt s C a n N ow A cc e s s Ban king Se rvice s CLOSING THE EXISTING GAPS IN FINANCIAL INCLUSION

+ INTERVIEW: Claudia McKay, Senior Financial Sector Specialist at the World Bank Group

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EPAYMENTREVIEW.COM

E-PAYMENT REVIEW Vol. 08. No. 02 | | Jun 2018

EDITORIAL Brown N. Ugbaja Editor Lucy Akokotu Assistant Editor MANAGEMENT Onajite Regha Executive Secretary/CEO Kushimo Oluwayemi Strategy & Projects Manager Adesakin Folasayo Conference Coordinator /Manager

Babatunde Olaleke Communications Manager Lucy Akokotu E-Payment Review Manager Joy Obaji Administration & Membership TRUSTEES Adedotun Sulaiman Chaiman, Financial Reporting Council of Nigeria Tunde Lemo Former Deputy Governor, Operations, Central Bank Of Nigeria (CBN)

Kyari Abba Bukar Chairman, Nigerian Economic Summit (NESG) Senator Ayo Arise Chairman, Fortunes Games Limited Demola Aladekomo Chairman, SmartCity Resorts Plc & Director, Chams Plc GOVERNING BOARD Macaulay Atasie Managing Director, Nextzon Business Services Mitchell Elegbe Managing Director, Interswitch

Transnational

Payments Services

of Nigeria

Onajite Regha Executive Secretary/CEO, E-PPAN

Dele Adeyinka Chairman, CeBIH

Gbenga Haastrup Group Legal Counsel, Interswitch

Valentine Obi Managing Director, E-Tranzact International

Folashodun Shonubi Managing Director, NIBSS Plc

Ochanya Dan-Ugo Group Head, Enterprise Risk Management Unified Payments Services

Chukwuma Ezirim Head, E-Business, First Bank of Nigeria

ALTERNATE BOARD Niyi Ajao Executive Director (Business Development), NIBSS Plc

Bami Akinlade Head, Information Technology, SecureID

Eme Godwin Head, Legal, Etranzact International

PUBLISHED BY THE E-PAYMENT PROVIDERS ASSOCIATION OF NIGERIA (E-PPAN)

Kofo Akinkugbe Managing Director, SecureID Nigeria Ltd Agada Apochi Managing Director, Unified

Bob Nwojo Head, Card Business, First Bank

In This Issue June 2018 4 | To Our Readers

11 Questions

6 | Abimbola Agbejule, Chief Commercial Officer, Alat

Talking Points

9 | Africa digitalization, Internet links numbers, digits, talent shortages threat 10 | Zenith leads Nigerian banks, banks face digital threats, Internet exchange targets, blockchain incubator to open 11 | CBN's new USSD rules, NITDA concerns on e-governance, appointments, briefly 12 | Blockchain brain drain, high data cost, in short, Cameroon's e-commerce plans, Jumia records net loss 13 | Global agencies on inclusion, BitPesa looks eastwards, Shoprite payment app, testing small lending

Training

14 | E-PPAN/police workshop on fraud forensics and investigative techniques

Startup Nation INVEST DATA

14 | Onyeka Adibeli,

Oradian co-founder on micro finance

Quick Take

26 | Jamie Anderson on inclusion targetsetting strategies

Media

28 | E-PPAN's workshop for tech reporters

NeFF Insight

30 | Challenges for the payment system

The Risk Report

32 | Mobile fraud soars, new EU data rules, banks are vulnerable, bye-bye passwords 33 | Hackers steal millions, threat level, Russia hacking, data, hacker milks bitcoin

Next Up

34 | Sodium phone battery, asphaltprinting drone, gene control, electronic nose 35 | VR for chemists, robotics, huge AI future, NFC mat

Roundtable

36 | Navigating the data landscape

NIBSS Fraud Report

benchmarks

Trends & Tactics

Cover

The pursuit of financial inclusion

43 | Fintech scares bankers, China robot bank, numbers

The potential of mobile technologies to reduce poverty and inequality has been extensively discussed. What would it take to bring new, better and more affordable financial services to all? | 18

44 | Finger vein payment arrives, Paypal bank coming, briefly

Inclusion maestro

45 | Hong Kong eases lending rules, MS Outlook payment, Visa, Mastercard push for one-click ordering, by the numbers

Roundtable

46 | Will cryptocurrencies kill banks?

A CGAP expert offers ideas on how digital finance can play an important role in helping the poor manage—and save—their money | 22

The agent impact

Paga is a leader when it comes to mobile money services and its agents are on the frontier of its progress | 24

BANK CEOS ON DEEPENING FINANCIAL INCLUSION L-R: Kennedy Uzoka, UBA, Peter Amangbo, Zenith Bank; Segun Agbaje, GTB; Prof. Segun Ajibola, President, Chartered Institute of Bankers of Nigeria, Herbert Wigwe, Access Bank, Emeka Emuwa, Union Bank, Bola Adesola, Standard Chartered Bank, and Uzoma Dozie, Diamond Bank at a press briefing to announce the shared agent network plan.

Postcard from the secretariat

The head of CBN's financial inclusion office reviews efforts by the apex bank on inclusion efforts and maps way forward | 26

38 | Q1 2018 fraud

COVER: Planes fly around the globe. Courtesy of VideoBlocks.com.

E-PAYMENT REVIEW (ISSN: 2360-9818) is published every quarter by the E-Payment Providers Association of Nigeria, 1 Rachael Nwangwu Close, Lekki Phase 1, Lagos. © Vol. 08 No. 02. June 2018. All rights reserved. The opinions expressed do not necessarily reflect E-PPAN’s policy. E-PPAN accepts no responsibility for views expressed by contributors. Printed in Nigeria. 3 /E-PAYMENT REVIEW/ JUNE 2018


To Our Readers Inclusive access

FCMB / ECOBANK

FULL DISCLOSURE: WE SET OUT TO MAKE THIS ISSUE ALL ABOUT financial inclusion. That decision was informed in part by developments from the Global Findex report, which tracks how people use financial services around the world and which was released by the World Bank in April. Its findings indicate that a huge number of individuals in Nigeria are completely left out of the formal financial system and are as a consequence not part of those surfing the waves of economic progress made so far in the country. Financial inclusion is a global concern today. Policy makers, governments, activists, development agencies and bankers are in agreement that every adult individual, regardless of where they may be in the world, should own an account at a formal financial institution to allow them to save and borrow money formally, to contract insurance or to use payment services. It is widely agreed that being financially included leads to some economic benefits. Indeed, The challenge now is analysts have determined that ‘in the to ensure that strong absence of inclusive financial systems, growth will translate poverty traps can emerge and hamper into inclusive growth, economic development since access to so that the benefits of financial tools allows people to invest global economic integra- in their education, finance projects and tion are enjoyed by all become entrepreneurs.’ This message has been variously commembers of society." municated to the Nigerian public but it has not engendered the kind of accepJim Yong Kim tance and adoption that the financial President, system expected would have emerged by The World Bank. now. The Global Findex finds that Nigeria reversed from the progress it made when the last report was unveiled in 2014. However, it showed that overall, the world has seen some success in its effort at swinging the pendulum towards the side of inclusion. The report shows that globally 69 percent of adults, or 3.8 billion people, have an account at a bank or mobile money provider, up from 62 percent in 2014. But more work needs to be done. Nearly one-third of the world's adult population doesn't have access to financial services, according to the Findex data. Still in April, World Bank President Jim Yong Kim told those gathered at the annual spring meeting of the International Monetary Fund and the World Bank that he expected the progress and innovation in improving financial access seen in places like China to happen in other countries, so that financial services become universally accessible. "The global economy is showing solid momentum. We're expecting global growth to edge up to 3.1 per cent in 2018 'its strongest performance since 2011' as the recovery in investment, manufacturing, and trade continues, and as commodity-exporting developing economies benefit from firming commodity prices," Kim, the leading inclusion champion, said. "The challenge now is to ensure that strong growth will translate into inclusive growth, so that the benefits of global economic integration are enjoyed by all members of society." These are the notions we tried to point out in this issue. We want more focus on the inclusion of everybody in the financial system to enable them have some form of financial stability. We tried to stoke national enthusiasm by shining a spotlight on the various issues involved in the matter of financial inclusion. We interviewed Onyeka Adibeli of Oradian on how his company supports microfinance institutions with quality software for their operations. Temitope Akin-Fadeyi, Head of Financial Inclusion Secretariat at the Central Bank of Nigeria did an x-ray of his office's efforts and the outcomes of financial inclusion policies. And there is a profile of mobile money provider, Paga, whose agents are spearheading change in communities around Nigeria. We also interviewed Claudia McKay, who is a senior financial sector specialist at the World Bank and who lives in Nairobi, Kenya where she works to advance access to finance by helping develop payment models that leverage new technology. You will learn a lot from her insights on what to do to bring more people into the formal financial fold. Feel free let us know your thoughts on this issue. Thank you.

BROWN N. UGBAJA, Editor

RECOGNITION First City Monument Bank got two top honours: ‘’Best Workplace for Women in Africa’’ and ‘’Second Best Company to Work For in Africa’’ both in the large corporates category at the Best Companies to Work For 2018 Africa Awards held in Lagos in May. Organisers, Great Place to Work Institute, said the bank creates an enabling environment where employees can pursue their career goals and thrive.

GROWING TEN TIMES Paystack has had fairly vertical growth since its launch two years ago. At the end of 2017, it had achieved a transaction total of N2.7 billion (US$7.4 million) per month:"We've grown ten times every year (since we launched in 2016). The goal by the end of the year is to be doing US$74 million in payments every month. We did N3.5 bn (US$9.6 million) in March 2018," Shola Akinlade, its CEO, told Balancing Act. 9,000 businesses use Paystack. “We will continue to ensure that we are at the forefront of harnessing stateof-the-art technology to provide our customers with accessible and affordable banking services.” - Ade Ayeyemi, Group CEO of Ecobank, on being named Best Retail Bank in Africa at the African Banker’s prestigious award held in South Korea.

N207 million

Amount a 28-year-old suspect, identified as James Nwagalezi, was accused of stealing after hacking into the app of an unnamed bank. The police hit him with a slew of charges including conspiring with another suspect, Okoli Nmesoma, now at large, felony, unlawfully hacking into bank account and theft, Vanguard reported.

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11 Questions Abimbola Agbejule Chief Commercial Officer of Alat by

Wema Bank on the disruptive nature of her digital bank and the rise of women in tech TELL US ABOUT YOUR CAREER in digital banking and your role at Alat. The experience has been quite interesting and challenging as we continue to disrupt and change the norms in banking. Prior to joining the team, I worked in a strategy and planning role with strong flair for innovation and creativity. I have experience in branding and marketing and once did a stint in investment banking. Alat's agile methodology approach has helped me unlearn some of the well-known strategies in normal work environment; more importantly, I am leveraging on data to make most business decisions. My role requires analytical skills and a good understanding of customer behaviour supported with continuous research and improvement.

TWITTER - ALAT

How do you see the digital banking scene developing over the next five to ten years? Every aspect of our everyday life has gone digital - from transportation, healthcare, education, entertainment, to consumer products and much more. Businesses are intruding into our lives through artificial intelligence and target marketing. Banking has become what we do and not where we go. The adoption of digital banking in Africa is growing faster than what was expected for the continent. The high penetration rate of the internet and the affordability of smart devices are enabling people to access banking services. In the next decade, we will have banking without the physical bank. Alat has enjoyed remarkable success as a digital bank. Can you identify the factors that have helped to make the bank so successful? The audacity and tenacity of Wema Bank to disrupt the industry has been the driving force for the business. The team is dedicated; we are continuously innovating and simplifying the banking experience with the ultimate aim to save our customers time and money. The agile methodology and design thinking approach to developing solutions has helped reinforce our aspiration to be the platform for our target customer segment. There is a big unknown when it comes to speed and depth of

colleagues. We get to talk about the intrigues and lessons from the movie. Good food brings people together. My family typically looks forward to my Sunday meals. What are your considerations regarding the role of women in business today? Women are taking prominent roles in business and leading the desired change in the gender shift. A lot more women are now taking up roles in STEM related professions; rising up the corporate ladder or establishing lifechanging businesses. I believe women will continue to rise up to leadership positions and make a change in our world. If your grandchildren could read this years from now, what wisdom would you want to pass on to them? What would you want them to know? Hey grandkids! you need to hold on to my values of persistence and resilience; and add other stronger values. I will encourage them to know that they can achieve their dreams no matter the circumstances. The world is theirs to own and rule. e-payment adoption among consumers. Do you think that they are truly ready to embrace digital banking services? Based on available data, consumers want convenience when it comes to making payment. Hence, the proliferation of various payment solutions providers in the country. Also, our youthful population and the internet age are driving the adoption of e-payment solutions. Consumers are expecting improved services and simplified solutions for various transactions. As providers continue to use design thinking to develop payment solutions, their adoption will continue to grow. Which Alat features do you find most useful on a day-to-day basis? All ALAT features are simple and easy to use. In developing each feature, we followed our vision of simplicity, reliability and convenience. I like the personal finance manager because I can monitor every spend and savings and the stash feature where I can quickly save my loose cash. What are the most important les-

sons you have learned in life? I have learned to be resilient and persistent in every area of my life. These two values keep me going and give me the confidence to achieve much more. What are some of your interests outside of work? How do you make time to do things you truly enjoy? What are some of the benefits both you and your career receive from those activities? I love movies and cooking. I love watching the food channels as they spur my creativity and choice of healthy living. Watching a good movie is a great way for me to bond with my family, friends and

THE AGILE METHODOLOGY AND DESIGN THINKING APPROACH TO DEVELOPING SOLUTIONS HAS HELPED REINFORCE OUR ASPIRATION TO BE THE PLATFORM FOR OUR TARGET CUSTOMER SEGMENT

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If you could honour one person in your life - living or dead - by listening to their story, who would that be, what would you ask them and why? It will be Jumoke Adenowo, the leading architect of our time. A strong and brilliant woman, she has achieved a lot locally and globally in her profession. I love her drive and passion for success and how she balances both her professional and spiritual life. I will ask her for her source of energy and what fuels her passion for classic architectural pieces. Looking to the future, do you see some form of “tipping point” ahead when we will know that fintech has finally arrived as an alternative to traditional banking? The future is now and the tipping point has occurred as every bank has some form of digital service. Every bank has a mobile application to support banking services and many customers do not visit a bank branch as often as they did in the last decade. In the next decade, no one will visit a bank branch at all. Transactions will start and end online.


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Talking Points Nigeria, others lead Africa's digitalization The Enabling Digitalization Index (EDI) 2018 report has shown South Africa, Kenya and Nigeria as the top three among 115 countries providing the environment for businesses to thrive in the digitalization era. EDI ranked countries on ability to develop digital regulation, build human capital, use pivot sectors and territories, bank on smart logistics, and reduce digital inequalities. The index also measured corporations’ ability to transform and thrive digitally. It found weak connectivity, trade infrastructure and knowledge ecosystem have proved to be the main shortcomings in Africa.

Internet links to reach 100 billion by 2025 A report by Chinese electronics giant Huawei showed that there will be nearly 40 billion personal smart devices and 100 billion Internet connections around the world by 2025. The report which was released by the Director of Board and Chief Strategy Marketing Officer of Huawei, William Xu at the 2018 edition of global annual analyst summit, predicted that industrial Internet would be the major source of those 100 billion connections.

PAVING WAY FOR TELCOS TO PLAY IN THE MOBILE MONEY SPACE: Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, right, and Professor Umar Danbatta, Executive Vice Chairman of the Nigerian Communications Commission (NCC) after they signed a Memorandum of Understanding (MoU) on Payment Systems in Nigeria. The MOU spells out responsibilities for both organisations towards enhancing the country's payment system and defines areas of collaboration between them with respect to Nigeria's financial inclusion strategy.

DIGITS

₦32.5 trillion Value of electronic payments in Nigeria in the first quarter of 2018, according to NIBSS payment fact sheet.

₦474.7 billion Point of Sales transaction value in the same period.

NCC / HUAWEI

10%

Increase in growth value of first quarter of 2018 over fourth quarter of 2017.

HUMAN RESOURCES

Talent shortages threaten business growth ALREADY A MAJOR ISSUE, SKILLED TALENT shortages could impede global growth and if left unaddressed, could have a significant impact on Africa and major economies by 2030, according to a study by advisory firm, Korn Ferry. The report, Future of Work: The Impending Talent Crunch, explored the gap between future talent supply and demand across the three sectors of: finance and business services; technology, media and telecommunications and manufacturing. Manufacturing alone faces a talent deficit crisis in EMEA of more than 1.1 million workers by 2030, despite having a predicted surplus of highly skilled workers in 2020. “This talent crisis has the potential to greatly impact individual company growth as well as ambitious national economic development strategies to diversify and grow local economies,” said Jonathan Holmes, Managing Director, Korn Ferry MENA. “Now is the time for leaders in both the public and private sectors to proactively plan and align the workforce of the future to power the growth needs of the economy of the future.” The study revealed a mismatch between supply of workers and business demand across the globe. The US, Japan, France, Germany and 9 /E-PAYMENT REVIEW/ JUNE 2018

Australia face the largest threat in the short term. Failing to invest in talent could cost these countries $1.876 trillion (£1.38 trillion) by 2020. Labour shortages in global financial and business services are most acute, with a potential deficit of 10.7 million workers globally by 2030. India was the only economy predicted to maintain a talent surplus in 2025 and 2030. “Companies must work to mitigate this potential talent crisis now to protect their future,” said Matt Crosby, senior client partner at Korn Ferry. “Left to run its course, this shortage will severely impact the growth of markets across Europe, the Middle East and Africa (EMEA) with a talent deficit of more than 14.3 million workers and $1.906 trillion in unrealised annual revenue across the region at 2030.” The report showed the challenge companies will face in finding talent with the right competencies and experience to fully realise that human capital potential as well as to maximise investments in advanced technologies that are impacting workforce needs. The study estimates that left to run its course, this shortage will create 85.2 million unfilled jobs and nearly $8.5 trillion in unrealized revenue in the economies analyzed.


Talking Points - Nigeria FACEBOOK'S COMMUNITY HUB IN AFRICA: L-R - Ime Archibong, VP Partnerships, Facebook; Bosun Tijani, CEO CcHub; Ebele Okobi, Head Public Policy Africa, Facebook and Chukwuemeka Afigbo, Manager, Developer Programs - Facebook at the unveiling of NG_Hub built by Facebook in partnership with ccHub in Lagos. The facility's purpose is to drive innovation in Nigeria’s tech space and equip SMEs, tech entrepreneurs to utilise the power of digital tools for economic growth.

Zenith is Nigeria's largest bank

ZENITHBANK.COM

MEASURED BY BALANCE sheet size and customers deposits, Zenith Bank has displaced First Bank as Nigeria's largest bank. Its first quarter results shows customer deposits of N3.396 trillion as against the N3.24 trillion reported by First Bank in the same period. Recent data shows that Nigeria’s tier 1 banks (First Bank, UBA, GTBank, Access Bank and Zenith) hold N14.1 trillion in customer deposits. Zenith leads in current deposits at N1.8 trillion, First Bank tops savings deposits at N1 trillion while Access has the largest fixed deposit at N1.29 trillion. GTBank has the least customer deposits but has traditionally never pursued deposits aggressively.

Peter Amangbo Zenith Bank CEO

COMPLIANCE ROADMAP

Banks must beef up technology to survive in the era of digital threats

FACED WITH THE GROWING INdustry pressure to improve efficiency and effectiveness in risk management processes, stay competitive in the age of the fintech, and be innovative on risk assessments during new product development, the time for financial institutions in Nigeria to act is now. They must embrace innovation and modernise their risk management systems in order to stay relevant in a rapidly changing market. As financial institutions navigate digital threats and an evolving regulatory landscape, management teams need to allocate funding and time to developing new operating models and, bring in new automation and risk management analytics to help them adapt to regulatory changes, promote enterprise-wide collaboration in risk management activities to enhance risk management strategies, uncover new revenue streams, manage costs and improve their customer service. Charles Nyamuzinga, Senior Business Solutions Manager, Pre-Sales Risk Practice, SAS made this assertion at the SAS Risk & Finance Analytics Roadshow in Lagos in May. He said that banks face additional challenges, including risk analytics

skills shortages, data management issues and integrating their risk management and finance processes across the enterprise. He however noted that they have started considering technology as a way of eliminating these challenges and have access to new streams of data that are also helping to advance the financial inclusion mandate. SAS, a leading global analytics firm, as a technological partner for banking institutions has always played a proactive role in fostering innovation and transformation of processes and systems, regulatory compliance, strategic decisions support, digitisation, risk assessment in real-time and provision of analytics solutions allow banks adapt more quickly to regulatory changes. As with banks all over the world, banks in Africa should already be compliant with the new IFRS 9 accounting standard, which changes the way they calculate expected credit losses, Nyamuzinga said, while asking banks in Nigeria to start thinking about the new 'Basel IV framework, which impacts on how banks calculate their risk weighted assets and the amount of capital they need to offset those risks.

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Internet exchange aims to keep 30% of Nigeria's e-traffic local IF YOU SEND AN EMAIL TO SOMEone in Nigeria, it makes a long and circuitous journey to America or Europe or even Asia before arriving in the inbox of the intended recipient. That costs money in international connection charges and also results in a myriad of latency issues. The Internet Exchange Point of Nigeria (IXPN) wants to change that. Muhammed Rudman, managing director of IXPN told CommunicationsWeek that 30 percent of Nigeria's Internet traffic are now routed locally with the recent connection of his company to American content delivery network, Akamai Technologies. He urged content providers who host their servers outside of the country to consider relocating them in other to boost local traffic and save money for the country. “Media and entertainment contents are generated locally but hosted abroad. The day we experience cut to undersea cable infrastructure that links Nigeria to the outside world, we won’t have access to those content which are generated here and are meant for Nigerians,” he said. Initially founded in 2000, IXPN connects almost all major telecoms service providers, submarine cables and ISPs. In 2016, it won a bid to become a regional IXP for West Africa as part of the African Internet Exchange System project.

Blockchain incubator is coming to Nigeria AS PART OF ITS GREATER PLAN FOR investment in Africa, bitcoin technology firm Paxful will launch a blockchainincubation hub in Lagos later this year, providing a co-working space and services including mentorship, corporate and individual blockchain training, and networking for ICO advisors. The company also appointed Chuta Chimezie as regional director for Africa. He will be responsible for conducting business operations, facilitating local and international brand awareness, creating educational content on behalf of Paxful, recruiting, and overseeing the incubator’s day-to-day operations. “Paxful is committed to fostering economic growth in Africa and helping the unbanked and underbanked gain access to the opportunities they have been denied for so long,” said the company’s chief executive officer Ray Youssef. “The incubator is simply a starting point to help driven entrepreneurs in an industry that has shattered boundaries all over the world.”


REGULATION

CBN regulatory reforms for use of USSD THE CENTRAL BANK OF Nigeria (CBN) has issued new rules on the use of Unstructured Supplementary Service Data (USSD) for banking transactions. It put a limit of N100,000 per customer, per day for transactions and madated the use of both PIN and second factor authentication for transactions above N20, 000. In addition, banks must now install a monitoring system to detect user behavior and track unusual transactions. This must be done by 31st October 2018. “The vast applications of the USSD technology, in terms of available services have raised the issue of the risks inherent in the channel," the CBN said in a circular in April announcing the changes. Among other things, Financial institutions must now put in place, a proper message authentication mechanism to validate that requests/responses are generated through authenticated users. They are to ensure that customer information that is logged by the USSD application as part of financial transactions do not include sensitive information such as customer PIN to avoid compromising the users’ account if their phone got stolen.

E-GOVERNANCE

NITDA faults public service performance drawbacks MINISTRIES, DEPARTMENTS AND AGENCIES (MDAS) of the federal government are operating in silos and are not fostering Nigeria's e-government policy, according to Ibrahim Pantami, Director-General, National Information Technology Development Agency (NITDA) in statements at the stakeholders’ engagement on Nigeria’s e-Government Interoperability Framework (Ne-GIF) in Abuja. He warned that operating such silo e-government systems would not help government deliver public services efficiently and that advanced phases of service innovation cannot be achieved without integrating many back-office functions. ‘’For instance, registering a limited guarantee company in Nigeria requires visit to at least three institutions: CAC, FIRS, and Attorney General of the Federation physically and/or through their portals. This is inefficient, inconvenient, time consuming and makes citizens pay more,’’ Pantami said, adding that robust e-government applications could deliver these services faster and on a single portal. He said that citizen-centred service delivery involves breaking up silos, integrating across agencies, innovating new ways of doing business, and creating a service-focused culture. According to him, a proven e-government strategy is the Wholeof-Government (WoG) approach for deriving expected value from IT. WoG involves back-end offices re-engineering, consolidation and integration of business processes across government agencies to deliver effective and consolidated services through the front-end offices at an affordable cost. "To achieve the needed integration preached by WoG principles, there is a need for a framework that guarantees interoperability of IT infrastructure and applications," Pantami said. "Regrettably, Nigeria, with all her efforts at deploying IT infrastructure and/or e-government systems, is yet to develop one." He said Ne-GIF provides tools, specifications and recommendations for supporting MDAs in undertaking interoperability of e-government solutions for the provision of cross-portfolio services. But warned that it would require strong political and leadership will by MDAs for it to succeed.

Appointments

NIYI TOLUWALOPE E-Tranzact International has promoted Niyi, its Chief Financial Officer, to acting Managing Director, in line with a Central Bank of Nigeria directive that founder and former CEO, Valentine Obi, and four top officials step down from their positions following fraud allegations against one of the company's clients. MUKHTAR ADAM The Central Bank of Nigeria has approved Adam's appointment as the Chief Financial Officer of Zenith Bank. He was the bank’s deputy CFO, a position he held since September 2014.. A PwC alumni, he holds a PhD in finance from Leeds Beckett University in the UK. CHERRY EROMOSOLE The former chief marketing officer of Interswitch has been appointed the company's Group Chief Product and Marketing

Officer. Prior to this appointment, she was responsible for creating and implementing Interswitch’s marketing strategies. Her new role will align product development with marketing as the company taps into growth opportunities in African markets. OLADIPUPO JADESIMI FCMB Group Plc has appointed Oladipupo Jadesimi as chairman of its board. He was a nonexecutive director of the bank before his elevation. Jadesimi was a jurisprudence scholar at the University of Oxford, has run several businesses in the energy, finance and real estate sectors, and brings on board high-level competencies and varied experience. He is the founder of Ladol Group and a variety of high value enterprises. UBA 2,000 workers, representing about 17 percent of the total staff of the United Bank for Africa were promoted in April. Last year, the bank promoted 3,000 staffers, representing 25 percent of its workforce and also doled out rewards to some for exemplary conduct and performance that year.

Briefly NUMBERS

₦225 billion

789MARKETING /CELLULANT / VISA

Investments in Nigeria by the MTN Group in 2017, according to its investor day presentation

Union Bank has become first to deploy robotic process automation technology for banking in Nigeria that its CEO Emeka Emuwa (2nd right) said would be essential to automating repetitive processes, enhance staff productivity and reduce process turnaround time.

Mobile payment app, Zoto has seen its transacting user base and order volume grow by 56% and 200% respectively in 2017. Its co-founder, Oshone Ikazoboh said the company plans to expand vertically and horizontally by adding more categories and merchants.

38 million Smartphone users in Nigeria, 14.8 million of whom are on the MTN network

28%

Mobile phone users in Nigeria said to have no access to the internet 11 /E-PAYMENT REVIEW/ JUNE 2018

The National Identity Management Commission plans to issue 70 million electronic ID cards by December 2019 to boost financial inclusion. “There are plans to expand the collaboration with the ultimate target of covering all citizens,” said Aliyu Aziz, its director-general.

Gaming startup Gamsole and Diamond Bank have created Dreamville, a gamified platform to drive engagement with young people and help them build their knowledge of financial services. Through the games users learn to plan their financial future.


Talking Points - Africa TALENT RETENTION

How Africa can avoid brain drain of blockchain entrepreneurs AFRICA’S BEST TALENTS AND ENtrepreneurs in the blockchain space may settle abroad to work for the tech giants of the world if they do not receive adequate local support. But CEO of the Global Blockchain Business Council and Managing Director of Unleashing the Wealth of Nations Corp, Sandra Ro, believes that African governments can prevent this brain drain from happening by developing a supportive regulatory environment. "As Africa builds on its reputation as a hub of blockchain innovation, it also runs the risk of a tech ‘brain drain’, in much the same way as it has seen with its medical profession with many nurses and doctors working overseas,' Ro said, adding that the technology could benefit the continent especially in enhancing financial inclusion. She also said that in the same way Africa leapfrogged from landlines and adopted mobile phones, it can do the same with blockchain and that African governments are best placed to embrace it because they have fewer legacy systems that could decelerate its adoption. DATANOMICS 101

THE NEW TIMES

Data costs holding back full adoption of banking apps THE COST OF DATA CONTINUES to impact on more widespread adoption of mobile banking applications in most markets - while uptake of other digital banking platforms remains sluggish on the continent. This has seen USSD and SMS banking emerge as prevalent mobile banking platforms in Africa according to Barclays Africa. "USSD remains the most popular channel across our markets by a significant margin," said Nvalaye Kourouma, chief digital and innovation officer for Barclays Africa's continental operations. "We expect (banking) application uptake to accelerate as data costs decrease, and the perceptions of high data costs in our markets are addressed." A McKinsey report African retail banking's next growth frontier, states that nearly 50% of African banking executives under the banking executive survey cited digital as their number one priority (while) an additional 40 percent cited it as very important.

In Short South Africa's FNB has said that SMEs can now completely switch or open a new bank account in less than five minutes through selfie authentication and digital KYC on the FNB App. Zimbabwe's bitcoin exchange Golix has enabled cryptocurrency purchases and cash withdrawals from bitcoin wallets via an Automated Teller Machine that went live in early May and trades according to the global bitcoin and ethereum average prices. Tigo Tanzania’s mobile financial services business, Tigo Pesa, has received the GSMA Mobile Money Certification, recognizing Tigo’s ability to deliver safe, transparent, reliable and more resilient services that promote consumer rights and prevent malicious transactions. Safaricom, parent company of the famous M-Pesa app is reportedly working on a new social messaging application called ‘Bonga’, which will be combined with the payment service. Now, M-Pesa customers will be able to chat, send, and receive money on the platform.

$1 billion

Value of transactions on the Ecobank Mobile App, which is used in 33 African countries, since its launch in 2016. It processed 9 million transactions from over 4 million users in the same period.

$45.7 million

Investment in fintech firm Cellulant. by a consortium of investors. It will be used for scaling up operations and expansion.

FINANCING TELECOM INFRASTRUCTURE L-R: Enga Kameni, from the legal department of African Export-Import Bank (Afreximbank), standing, Mohamed Ali, CEO of Abu Dhabi Islamic Bank (ADIB) - Egypt, Dr. George Elombi, Executive Vice President, Afreximbank, Ahmed El Beheiry, CEO of Telecom Egypt, and Mohamed Shamroukh, CFO of Telecom Egypt at the signing of an agreement for a $200m short-term facility from Afreximbank for Telecom Egypt and ADIB to finance working capital and investments in Telecom Egypt’s infrastructure. DIGITAL ECONOMY

The Commonwealth creates new strategy for Cameroon to enhance e-commerce BUSINESSES IN CAMEROON ARE poised to take advantage of new proposals by the Commonwealth which is helping the country to put in place effective legal, policy and regulatory frameworks for e-commerce that would help to diversify the economy, create employment, reduce poverty and integrate Cameroon into the new multilateral trading system. "It must be acknowledged that in this sector, the existing possibilities and opportunities for economic operators still remain largely underexploited, but this will be different with enhanced access to digital technology," said Magloire Mbarga Atangana, Cameroon's Minister of Trade. “It is worthy of note that the last decade was marked by a remarkable increase in e-commerce development in our country with internet penetration rising from 2 per cent in 2006 to 18 per cent in 2016." Like many Commonwealth countries, Cameroon has seen rapid growth in

e-commerce due to more people using mobile devices to access the internet. An innovation hub known as ‘Silicon Mountain’ in Buea, in the South West part of the country, incubates young tech startups and houses a growing community of developers and designers, contributing billions of dollars to the economy. “Electronic commerce is becoming increasingly important in the global trade ecosystem," said Commonwealth Trade Adviser Opeyemi Abebe. "Developing countries which are able to harness this technology and provide adequate support to the digital landscape though appropriate policies and technology infrastructure have been able to fast track the participation of their SMEs in electronic commerce.” The Commonwealth’s assistance will enable the country to harness its human capital and digital competencies to grow its participation in the digital trade value chain in Central Africa and the continent.

ECOMMERCE

Jumia lost €120.1m in 2017 despite sales growth DESPITE A 41.8 PER CENT YEAR-ON-YEAR INCREASE IN GROSS MERCHANDISE volume, e-commerce company, Jumia has declared a negative of €120.1 million in 2017, according to its financial results for the fourth quarter and the full year 2017. The volume increase was mainly driven by improved macro-economic conditions, as well as a stronger relevance of the marketplace, with a significant increase in the number of active merchants as well as products and services available. Highlights of the report showed that Jumia reached the threshold of 550 million visits across Africa in 2017 with the number of products available on the platform skyrocketing from 50,000 in 2012 to over 5 million in 2017. Jumia said it was addressing daily needs of consumers across its markets, resulting in a strong increase in the number of orders and growth of its customer base. 12 /E-PAYMENT REVIEW/ JUNE 2018


FINANCIAL ACCESS

RECYCLING

GLOBAL FINANCE AGENCIES AND businesses are building partnerships that they hope would boost financial inclusion in Africa. In one case, the European Investment Bank (EIB), the EU Bank, and the International Monetary Fund (IMF) all signed a Letter of Understanding to pool their expertise and experience to promote sustainable economic development, financial stability and inclusive growth in Africa. While in another, digital banking services provider, Fidor signed a Memorandum of Understanding (MOU) with the International Finance Corporation to identify opportunities to expand digital banking services in Africa and Latin America to boost financial inclusion. The letter signed by Managing Director of the IMF, Christine Lagarde and EIB President, Werner Hoyer, said the EIB will contribute €3m to IMF economic institutions and will launch a new course with the IMF on financial inclusion. The MOU leverages Fidor and IFC’s expertise, existing portfolio of investments, franchise, industry relationships, co-investors, and other relevant stakeholder relationships in these emerging markets. Fidor will co-innovate with organisations that wish to launch digital banks by sharing both its banking expertise and cutting-edge technology.

RETAIL GIANT SHOPRITE is taking on the banking industry with the launch of a new free mobile transactional banking service, Shoprite Money which will give people access to banking services even if they do not have an existing bank account in South Africa. Shoprite Money is essentially a mobile wallet that enables customers to deposit, withdraw and send money electronically, buy prepaid electricity and airtime, as well as buy groceries at any Checkers, Shoprite, Checkers Hyper and Usave store. All transactions are free , expect for a R9,95 fee for withdrawals. “Basic transactional banking services in South Africa are expensive and in many cases, still not accessible to a large number of South Africans,” said Joseph Bronn, Chief Business Officer at the Shoprite Group. “We believe Shoprite Money will have a marked impact on economic activity in South Africa.” The service is available to people over the age of 18. Cellphone number will serve as account number. The group said the offering would be rolled out to other African countries over the next year to 18 months.

Shoprite creates new free banking service

Building capacity on financial inclusion and stability in Africa

PUSH FOR BRIDGING OF GENDER DIGITAL DIVIDE Rwandan First Lady Jeannette Kagame (5th from right) and representatives of governments and international organisations at the Smart Africa Women’s Summit held as part of the Transform Africa Summit in May. The summit convened African government leaders and representatives, private sector players, development partners and organisations in ICT to push for strategic interventions to bridge the gender digital divide.

BUSINESS TRENDS

NEWTIMES.CO.RW / STANDARDMEDIA.CO.KE

African payment startup looks to expand in Asia BITPESA, KENYA-BASED DIGITAL payment startup using blockchain technology is seeking to partner with more Asian companies and plans to open an office in the region next year. Most of the company's transactions are between customers in Europe and Africa, but "now we are seeing more between Africa and Asia," said Elizabeth Rossiello, BitPesa's chief executive and founder. As of March, about 10% of the transactions that the company handles, which is roughly $24 million, involve countries in Asia. Its platform is often used to pay fees to suppliers or to pay wages across regions. Rossiello is looking to increase the number of companies entering new markets other than Africa and Europe. According to her, Bitpesa teams are good at opening markets, are able to manage legal ground work, including documentation, tax clearance and import-export certificates in each country. Rossiello said there are plans to open offices in Abu Dhabi, and she also is looking to expand its operations in South and Central Asia, such as Pakistan and Kazakhstan.

POLICING THE INTERNET Kenyan President Uhuru Kenyatta assenting to the country's cybercrimes law that imposes hefty fines and long prison terms for offences relating to computer systems, including online insults, wrongful distribution of obscene images, child pornography, fraud, cyber terrorism and espionage. Civic society groups and the media fear the law could be abused by the State to stifle dissent or unflattering reporting.

MARKET RESEARCH

Mastercard Unilever, unveil digital lending platform MASTERCARD AND CONSUMER GOODS GIANT Unilever are expanding a digital lending initiative designed to help micro-entrepreneurs in Africa and other regions overcome the cash constraints that limit their ability to buy and sell more products and ultimately grow their businesses. In Kenya, the two companies launched Jaza Duka ('fill up your store'), combining distribution data from Unilever and analysis by Mastercard, on how much inventory a store has bought from Unilever over time. The results from the analysis are used to provide a micro-credit eligibility recommendation to Kenya Commercial Bank, replacing the requirement for formal credit history or collateral. If the micro-credit line from KCB is approved, the store owner is able to increase their purchases. For example, if a store is consistently showing weekly purchases of $50 from Unilever they could qualify 13 /E-PAYMENT REVIEW/ JUNE 2018

for an interest-free credit line of $120 to stock their inventory. The credit line from KCB is provided through a secure Mastercard digital payment solution. As part of the micro-credit, the partners are providing the store owners with training to help them manage their finances, inventory and forward planning for supply against demand. The entrepreneurs are also being trained on marketing tools and techniques to help sell their products. By the end of April, more than 5,000 kiosk owners in Nairobi had applied to join the programme. Stores on the platform have seen their sales of Unilever products up by to 20%. The two firms plan to get 20,000 kiosks in Kenya on board by the end of the year and also want to expand to other African countries and Asia Pacific. They are also encouraging other financial institutions and consumer good suppliers to jump aboard.


Event - Training

E-PPAN

EPPAN, STAKEHOLDERS TRAIN POLICE ON PAYMENT FRAUD FORENSICS WHEN NEWS REPORTS TALK ABOUT THE billions of naira lost to electronic payment fraud every year in Nigeria, it is easy to lose sight of the fact that it is often real people at the receiving end of the problem. Because banks and their customers lose several millions of naira on a monthly basis, while perpetrators continue to evade justice, the Electronic Payment Providers Association of Nigeria (EPPAN), in partnership with industry stakeholders, developed a capacity building workshop for the Nigeria Police on how to detect, track and arrest fraudsters. The training, an annual event now in its second year, was specifically designed for the Police Special Fraud Unit (PSFU), which has responsibility for the investigation and prosecution of complex

fraudulent cases within and outside the country. In this year's edition, the training focused on the examination of cyber forensics, as well as investigative techniques to target criminal networks responsible for payment fraud incidents. During the training, PSFU officers took part in different sessions like fraud modus operandi, trends and threats for electronic payments, as well as tools for payment fraud analysis. Deputy Commissioner of Police, Dan Okoro remarked on the importance of the event to strengthen the professional ties that will help his officers with future investigations. He said that bank frauds using information technology have steadily increased but that his unit is unswerving in its effort to bring perpetrators to justice.

The trainers who included Osita Nwanu, Head Internal Audit at the Interswitch Group, Francis Achebe of the Nigeria Inter-Bank Settlement System Plc (NIBSS), Ike Nnamani, CEO of Demadiur Systems, William Makatiani, CEO of Serianu Limited and Babatunde Ajiboye, Secretary to the Nigeria Electronic Fraud Forum (NeFF) agreed that the use of electronic devices to commit crime has increased dramatically and that it is the role of the police to bring cybercriminals to justice. They described cybercrime as presenting unique challenges including the variety of devices available, amount of data produced by these devices, the absence of standards and guidelines for analyzing that data and the lack of qualified personnel to perform investigations.

Deputy Commissioner of Police (DCP) Dan Okoro. Police Special Fraud Unit giving the welcome address to kickstart the training.

Onajite Regha, Executive Secretary/CEO, E-Payment Providers Association of Nigeria, E-PPAN, giving her address at the workshop.

Babatunde Ajiboye, Secretary to the Nigeria Electronic Fraud Forum (NeFF) giving his presentation at the capacity building workshop.

Osita Nwanu, Head Internal Audit, Interswitch Group giving his presentation at the capacity building workshop.

William Makatiani, CEO of Serianu making a presentation on "the State of Cyber Security in Africa" at the capacity building workshop.

Francis Achebe of NIBSS facilitating the session on Principle and Techniques for Digital Forensics at the capacity building workshop.

Lawal Audu, Public Relations Officer of PSFU, Assistant Superintendent of Police, left, and Onajite Regha, CEO of E-PPAN.

Onajite Regha, CEO, E-PPAN, Osita Nwanu, Head Internal Audit, Interswitch Group and CSP Gbenga Adeoye.

Officers of the Police Special Fraud Unit listen to a presentation at the capacity building workshop.

14 /E-PAYMENT REVIEW/ JUNE 2018


Onajite Regha, Executive Secretary/CEO of E-PPAN, and DCP Dan Okoro listen during one of the sessions.

DSP John Idoko, left, and Public Relations Officer of PSFU, Assistant Superintendent of Police, Lawal Audu.

Babatunde Ajiboye, Secretary to the Nigeria Electronic Fraud Forum (NeFF) giving his presentation.

An officer of the Police Special Fraud Unit make a contribution after a presentation at the capacity building workshop.

Another officer of the Police Special Fraud Unit make a contribution after a presentation at the capacity building workshop.

Yet another officer of the Police Special Fraud Unit make a contribution after a presentation at the capacity building workshop.

E-PPAN staff, Babatunde Olaleke, right, and Joy Obaji, middle, manning the registration desk at the capacity building workshop.

Ikechukwu Nnamani, President and CEO of Medallion Communications and Demadiur System Ltd.

DSP Afolayan Sunday, left, and another SFU officer conversing at the capacity building workshop.

L-R: Babatunde Ajiboye, Secretary of NeFF, Aituaz Kola-Oladejo, Head, Research and Development at NIBSS, Ike Nnamani, MD/ CEO Demadiur System Ltd, DCP Dan Okoro, Onajite Regha, CEO of E-PPAN, ACP Andy Andem and ACP Agbaminoja Toyin.

All the attendees, organizers and trainers pose for a group photograph at the end of the one day workshop and training. Front row middle Babatunde Ajiboye, Secretary of NeFF, Aituaz Kola-Oladejo, Head, Research and Development at NIBSS, Ike Nnamani, MD/CEO Demadiur System Ltd, DCP Dan Okoro, Onajite Regha, CEO of E-PPAN, ACP Lawal Audu and ACP Agbaminoja Toyin. 15 /E-PAYMENT REVIEW/ JUNE 2018


Startup Nation

Game-changing the global microfinance industry Oradian co-founder & Programme Director for Africa, Onyeka Adibeli, on the potentials of his company's toolset for MFIs BY BROWN N. UGBAJA COULD YOU GIVE US A LITTLE OVERVIEW ABOUT YOUR COMpany, Oradian and the service you provide? Oradian is a company that was started out of the need to provide a good and reasonable software for microfinance institutions (MFIs). When Antonio [Separovic, Oradian co-founder and CEO] and I met, he was on the core banking software side and was our vendor while I was on the customer end, as the head of IT for a large MFI in Nigeria. We got along and discovered that the systems that were available in the market were really not robust enough to meet the needs of MFIs. Besides, they were quite expensive. If you are providing core banking software for MFIs to leverage to provide efficient services to their clients and it is expensive, invariably the cost of their services will also be expensive and the charges and cost will actually be borne by the institution’s clients. So, we decided to address that: to provide a system that is not only efficient but reasonably priced for MFIs. When we started, we targeted microfinance institutions in Nigeria. To guarantee that they would be able to subscribe and give us the kind of buy-in that would make it successful, we made it more like pay as you use, which means you pay for what you are using instead of paying for the entire package or features that may not be useful to you. Is that why you chose the Software-as-a-Service model? Yes. The Software-as-a-Service model and Oradian’s toolset, including Instafin our core banking software, remove the barriers that prevent MFIs from using the right technology to serve their clients and to strengthen their operations; enabling our MFI customers to grow year-on-year. How is that working out in Nigeria? I is working out well. We are now focusing on customer orientation and education. We educate our customers by doing a cost-benefit analysis and showing them the benefits they will get by signing up for Oradian’s toolset. We let them know what they are using and how long they’ll use it and what they will pay for using it. Take for example, if the software costs N2 million to use for four years, it invariably means you would be paying N500,000 every year to use it. We let them see that there is no reason to pay two million and tie lots of money down when they can just pay five hundred for a year and use the remaining money for their business. Educating MFIs on things like is why we are in the market and meeting with MFIs face-to-face, to do a bit of analysis for them to understand why they should be using this software. I read where you were quoted as saying that Oradian’s toolset delivers three key benefits to financial institutions - improved efficiency with digital processes and operations, informed decision-making with real time data and reporting, and growth without incremental cost. From a financial inclusion and sustainable microfinance perspective, how has Oradian helped MFIs to achieve these benefits over the years? Let me use the example of our first client in Nigeria, which is the Development Exchange Centre (DEC), a major MFI based in Bauchi. When we took DEC as a customer it had 69 branches and it actually took them time to be able to roll out to those branches because of the cost of the previous software they were using. But when we got in, DEC was able to add 23 new branches within a period of six months. In terms of growth, it wasn’t exponential before they joined us. They started in 2007 and grew to 69 branches by 2013 and after that they were not able to open up branches because of the cost. To open a branch, they’ll have to consider the cost of getting a software license for that branch, which cost about a thousand dollars and they’ll have to buy a good system, maybe a desktop which will run on a generator. Then there is data consolidation, where at the end of the month they have to send reports to the head office using a disc. Usually at the head office they had to wade through lots of information to determine how that branch was functioning. If there were issues in that branch it will be very difficult for them to figure it out until the following month when they have the report. Never mind that in terms of infrastructure,

they have to set up a mast or install a VSAT to provide network for the system they are using. But when we came to them, we made their system very light, enabling it to run on 2G. Going to DEC was more of a deliberate strategy in our attempt to launch into Nigeria. We knew the network in the north was not as agile as in places like Lagos or Ibadan. We felt that if our system worked well in the north then it would work down south. With our system, DEC began to see what was happening in all its branches in real time. There was a dramatic turn in savings. Instead of wasting staff time on road trips that could take hours, you just check the system to know what’s happening and make phone calls to do follow up. That created a reasonable amount of efficiency in the system. And because the staff know that someone is watching them they’ll always want to do the right thing. Tell me about Instafin, your company’s main software platform. We have other products on the side like messaging but Instafin is the core platform while the others are for value added services. Instafin is a simple tool that MFIs use to manage their core banking activities. It fundamentally enhances their ability to manage their bank records in terms of the CRM and related details like deposits, withdrawals, transactions and loans. It’s just a replica of what the big banks are using but fully tailored to serve the microfinance sector. Both functionally and economically, how does it reduce technology complexity for microfinance banks? Based on our experience, if you have to run an in-house system, you will need to set up your own data centre and hire staff with some level of IT expertise. Microfinance institutions really don’t have the capacity to do that. That was why we decided to offer it as a service. All that is required to use the system is a device that is internet enabled. You can use Instafin on your Android phone, tablet or laptop. You don’t need a data centre or technical team. The whole of that cost is eliminated. Your data is saved on the cloud and you can access it easily. By simply subscribing to it you can serve the most rural clients affordably and effectively. The best part is that you only pay for what you use. That way MFIs can focus on their core competence which is to do credit; to do micro finance. Oradian believes the use of cloud

16 /E-PAYMENT REVIEW/ JUNE 2018

by MFIs is essential in solving the challenges of financial inclusion because it can upgrade the competitiveness of banks in rural areas enabling them to provide affordable, high quality financial services. How would that work in practical terms ? Financial inclusion is about reaching the unbanked. In a city, it is easier to go to a bank to do your transactions but in remote locations you have to travel for hours to find a bank. With our cloud toolset anybody can provide banking services in locations where it wasn’t possible to offer them before. In the villages where DEC has its branches there are no other banks there and using our product they are providing banking services that allow people there to save money and access loans. Their customers are now among the financially included. Because it eliminates a huge chunk of the startup cost and reduces the cost of service drastically, MFIs can have many branches in a locality and that means more people will be attracted to their services. They are able to reach people in places that other bigger banking entities will not want to go. That helps expand financial inclusion. Nigeria has an extraordinary number of small enterprises which frequently do not manage to be sustainable because they are in the informal economy and are perpetually threatened by low productivity challenges. Are there policies you believe should be formulated to enable the banks to sustain small businesses? The Central Bank of Nigeria has regulations that require the allocation of portions of its loan portfolio to SMEs. Banks are also doing the same. If you look at every successful economy, you will see that they are actually driven by SMEs. What we do in Oradian is to provide a platform for these institutions to be able to serve the SMEs. Whatever the loan parameters of an MFI, we try as much as possible to accommodate them in Oradian, no matter how complex. Tell me a little about your background. I studied business administration and began my career at an NGO that was engaged in training the less privileged and equipping them with skills and tools. I later joined LAPO as a technical officer and became the head of IT two years later. I was there for another six years before I left in 2012 to co-found Oradian. It was while I was at LAPO that I met Antonio whose company was provid-


different. What business do they have with installing ATMs, building big banking halls if they really want to help those who are financially excluded? They are opening banks in the same location as commercial banks and are designed like them and as such cannot provide services to the right clients. They should focus on those who need microfinance not those that are already included. What are Oradian’s key performance indicators for measuring its costumers experience and how have the numbers been trending over the years? What we do from time-to-time is to work with our costumers to measure the impact that the use of Instafin is making on the bank. We analyze it on an annual basis and that was how we identified that banks using Instafin reduced their operation cost by 30%. We look at cost in the areas of travel and its impact on human resource. Before, when staff travel to head office, they may not work for days but with travelling removed, it means man hours are not lost. There is also the added benefit of convenience because the customers’ data are consolidated in one place and can be accessed very easily. What are your company’s plans for Nigeria and how would those plans impact microfinance and financial inclusion 5 to 10 years from now? When we started, we targeted the core MFIs in Nigeria and later branched out to other African countries and then Asia. Based on the experiences that we’ve gathered in serving these other markets, we are returning to Nigeria to serve the microfinance banks. We are working on creating a critical mass in the sense that all our clients will be in one box where services can be offered not just within entities but across entities. We want people to be able to transact across MFIs. With the interest in financial inclusion and the effort to avail funding to people at the bottom of the pyramid, we want to consolidate microfinance data in a way that it could be easily accessed anywhere. Instead of the data of DEC in one place and LAPO in the other, you can see the data from all MFIs in one place. There are lots of agencies that want to provide some assistance but when the data is not available there’s really nothing they can do. We want to ensure they can make decisions based on these data. Five to 10 years from now we want the CBN to be able to see the transaction history of microfinance customers from one window. It will help reduce MFIs risk by showing a fuller picture of what is happening.

ORADIAN

ing us software. LAPO could afford the software but when we looked at other MFIs, they really didn’t have the financial capability to afford a good software. We thought that there could be a way to support them. LAPO is an example of an organization helping small businesses and fostering financial inclusion. What do you think is making it difficult for other MFIs to replicate the example of LAPO? I think the problem with Nigeria is the actual understanding of the word inclusion or even the role of microfinance. Unlike other MFIs, what LAPO is doing is completely different, providing services where they are needed and that is mostly in rural areas. It provides these services to those that ordinarily you wouldn’t want to do business with. They come to your MFI without collateral, but they want a loan. LAPO has to develop a method of self-guarantee because you can’t set out to end poverty but exclude poor people from among those who can access loans. LAPO will give anyone a loan. The problem is microfinance banks that conduct themselves like big deposit money banks. The policy on microfinance is saying something else and they are doing something

WE DECIDED TO ADDRESS THAT: TO TO PROVIDE A SYSTEM THAT IS NOT ONLY EFFICIENT BUT ALSO REASONABLY PRICED FOR MFIS."

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What are your concerns about the security of Instafin and competition from an unexpected place? Instafin is very safe. Because it is built to be flexible, it would be hard to use social engineering to penetrate it. The data is saved using cloud technology provided by companies that are dedicated to data security. Though some clients say they want to be in charge of their own data, we tell them it is not really by hosting themselves that they can guarantee the security of their data. If you are hosting in-house, you are even more vulnerable. Besides, when you want to increase server space you have to rebuild from top down. But if you are using a data hosting service all that you need is to fill a form and within a few minutes you are assigned the space or memory you require. If you have to do it in-house it will take months. On the issue of competition, we need to deliver quality service to our clients and constantly upscale our offering to remain the leader in this area. When we serve clients well, they’ll be the ones telling the stories. The output in sales will be in relation to good marketing and word of mouth which sells faster than any other thing. Our focus is to provide the best services to our clients .


Cover

Deepening impact: The need for surge variable in financial inclusion

AP PHOTO/JOSE LUIS MAGANA

BY BROWN N. UGBAJA IN FOOLS DIE, MARIO PUZO’S LITERARY tome about randomness, one of the characters, a casino owner named Gronevelt, is an ardent believer in the percentage. He trusts in it so much that it is like a god to him. “You can lose faith in everything, religion and God, women and love, good and evil, war and peace. You name it. But the percentage will always stand fast,” Gronevelt tells his protégé, Cully Cross. “…You have to live going with the percentage. Otherwise life is not worthwhile. Always remember that. Everything you do in life use percentage as your god.” In any field that deploys numbers in expressing its evaluation or interpretation of events, patterns and circumstances, you will find individuals who, like Gronevelt, believe in the absolutism of percentage: that the only things that matter are those things you can measure. To them, percentage has become shorthand for extracting insights from raw data that the human eye, no matter how closely you look, cannot see. It could be rates of inflation, discounts in shops, bank interest rates, or the goods and services tax included in the prices of things we buy. As a mathematical concept, percentage represents the degree of change over time. It has been employed to many purposes in finance to show price changes, growth rates, measurable quantities, market indexes, as well as in comparing the values of national currencies. The reason is that percentages are important for understanding the financial aspects of everyday life. They give information which is often easier to understand than ordinary fractions, which is why statistics in the media are mostly expressed in percentages. You know who else likes percentages? Those charged with outlining the of results of the global agenda to enhance financial inclusion. This is very evident in the recent World Bank report on efforts to deliver financial services to disadvantaged and low-income people in the world. It is peppered with comparative statistics of different countries results showing percentages on changes over periods of time and outcomes that reveal financial inclusion is on the rise globally and is being fast-tracked by mobile phones and the internet. The Global Findex, the world's most comprehensive database on how adults save, borrow, make payments, and manage risk uses percentages to show a dashboard of progress. Launched by the World Bank with funding from the Bill & Melinda Gates Foundation, it is the result of painstaking work by the World Bank in collaboration with the global research and polling company, Gallup. Published every three years, the first issue was in released in 2011 and each report contains

nationally representative surveys of adults in different economies. Each of the three reports so far provides a birds-eye view of configurations and statistics pertaining to finance and financial inclusion in each country. The 2017 edition made public in April “includes updated indicators on access to and use of formal and informal financial services. And it adds new data on the use of financial technology (fintech), including the use of mobile phones and the internet to conduct financial transactions,” according to a press statement announcing its release. It found that 515 million individuals opened accounts at traditional financial institutions or through mobile payment providers between 2014 and 2017, that 69 percent of adults – 3.8 billion people – globally now have an account at a bank or mobile money provider up from 62 per cent in 2014 and 51 per cent in 2011. It informs us that men remain more likely than women to have a bank account; that women represent 56 percent of all unbanked adults; and that while the proportion of adults in Sub-Saharan Africa with a mobile money account grew to 21 percent, the needle did not budge on the share with accounts in formal financial institutions, which only rose by 4 percent. Further disclosures indicate that in high-income countries like Britain, Canada, Germany, Switzerland, the United States and others, 94 percent of adults own a bank account compared to 63 percent in developing countries. “Globally, half of unbanked adults come from the poorest 40 percent of households within their economy, the other half from the richest 60 percent,” the report said while delineating the pattern of unbanked population with regards to individual economies. “In those where half or more of adults are unbanked, the unbanked are as likely to come from a poorer household as from a wealthier one. In economies where only about 2030 percent of adults are unbanked, however, the unbanked are much more likely to be poor.” Taken in its entirety, this latest Global Findex report underscores many benefits and raises certain crucial concerns. For one, the rise in financial inclusion is very good news, not just because of the cloak of protection that it offers those who are ardent enough to sign up for financial services but for the fact that insights from these data will be vitally important in helping shape effective policies in the nations that were surveyed. On a key significant level, the report proves that the fintech revolutions is not a hoax and the momentum shown by upstarts keen on redefining financial services is not halting at all. In highlighting the developmental potential of financial inclusion 18 /E-PAYMENT REVIEW/ JUNE 2018

World Bank President Jim Yong Kim accompanied by HM Queen Maxima of the Netherlands speaks on the panel Moving from Financial Access to Inclusion: Leveraging the Power of Technology , during the World Bank/IMF Spring Meetings, in Washington, USA in April.

especially from the use of digital financial services, including mobile money services, payment cards, and other financial technology applications, it acknowledges that financial technology startups played outsized roles in helping scale up adoption rate for financial services. Between 2014 and 2017, the number of individuals globally who send or receive payments through fintech enabled channels increased from 67 percent to 76 percent globally, and in the developing world from 57 percent to 70 percent. “The Global Findex shows great progress for financial access–and also great opportunities for policymakers and the private sector to increase usage and to expand inclusion among women, farmers and the poor,” said Queen Máxima of the Netherlands, the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development in the World Bank press release. “Digital financial services were the key to our recent progress and will continue to be essential as we seek to achieve universal financial inclusion.” Beyond alerting the world to the inexorable im-


pact of fintech, the report provides evidence to convey the sort of progress that has been made over the past few years toward extending financial access to excluded segments of the global society. The number of unbanked individuals around the world dropped to 1.7 billion from 2.6 billion in 2014. The dashboard of progress indicates that reaching these numbers have set off a race among countries willing to ultimately improve the wellbeing of their citizens, especially with regard to financial inclusion. It should be pointed out that the financial inclusion is woven into seven of the 17 Sustainable Development Goals of the United Nations. Much like they did with millennium development goals, the Nordic countries have seized global leadership on financial inclusion and fintech innovation and are determined to keep it. “In the past few years, we have seen great strides around the world in connecting people to formal financial services,” World Bank Group President Jim Yong Kim said. “Financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency. Having access to financial services is a critical step towards reducing both poverty and inequality, and new data on mobile phone ownership and internet access show unprecedented opportunities to use technology to achieve universal financial inclusion.” In the Global Findex rankings, with a score of 100 percent, Denmark, Norway, Sweden, Finland, Iceland, the Faroe Islands, Greenland and Åland as well as Australia and the Netherlands are the world’s most financially inclusive economies.

This means that virtually everybody in these countries has an account. On the bottom of the spectrum are located underachievers like the Central African Republic, where just 14 percent of the populace are financially included; Afghanistan with 15 percent; Madagascar at 17 percent and Sierra Leone at 20 percent. Moving up from there you will find Pakistan (21%), Phillipines (34%), Togo (45%), Indonesia (49%), Rwanda (50%), Zimbabwe (55%) China (80%), and Kenya (82%). The United States did not make any progress instead moving one point backwards from 2014 numbers (94%) to a score of 93 percent, poor for the richest nation in the world. It trails behind Hong Kong (95%), Singapore (98%), and Malta (97%). What is more, the report quantifies and ranks countries according to the gender gap in account ownership. Here, the trend line for women is not significantly narrowing: In 2011, 47 percent of women and 54 per cent of men had an account; in 2014, 58 percent of women had an account, compared to 65 per cent of men. Regionally, the gender gap is largest in South Asia, where 37 percent of women have an account compared to 55 per cent of men (an 18 percentage point gap). Jordan’s grades are the worst, followed by Turkey. Interestingly, there are six countries where more women than men have bank accounts. They include Argentina, Georgia, Indonesia, Laos, Mongolia, and the Philippines. What about Nigeria? The report puts the proportion of financially included Nigerians at 40 percent. This means that 60 percent of people in the country lack any form of account for finan19 /E-PAYMENT REVIEW/ JUNE 2018

cial transactions. A critical mass, according to the report, that may not significantly contribute to the economy since financial inclusion is an important factor in economic development. This unbanked population are excepted from the benefit of financial inclusion such as receiving and transferring money easily, getting an insurance, starting and expanding businesses, investing in education or health, managing risk, and weather financial shocks. What is most shocking is that the number is a decline from 44 percent 2014. In fact, Nigeria retrogressed, on all the metrics employed for the survey, from where it was in 2014. 34 percent of women had an account then compared to 27 percent now. The number of bank account holders shrank from 44 percent to 39 percent. In 2011, only 24 percent of adults in rural areas of Nigeria had bank accounts. By 2014, that figure had risen to 39 percent. Today, it has reduced to 33 percent. What happened? At an April 9, 2015 event to unveil the 2014 Global Findex, one of the report’s authors, Leora Klapper, a Lead Economist in the Finance and Private Sector Research Team of the Development Research Group at the World Bank highlighted several policy measures that could expand financial inclusion. For instance, she suggested that governments and the private sector can support a shift away from cash to digital transfers and payments of wages and encouraged the private sector to create innovative products that support the digital payment of fees and transfer of remittances, particularly on the side of the recipient. Countries such as Brazil and Kenya that are making significant progress on this issue provide vivid examples. “They offer low-fee bank accounts, they try to minimize documentation requirements, they allow correspondent and agent banking, there is an effort to digitize government and wage payments, and mobile technology is available,” said Asli Demirguc-Kunt, Research Director and co-author of the report. Nigeria heeded this advice and since then there have been many actions taken to create an incusive atmosphere in the country. The Central Bank of Nigeria (CBN) updated the three-tiered Know Your Customer. (KYC) requirements, licensed mobile money operators to develop products and financial services that would be accessible to the banked and unbanked population and introduced the Remita/GIFMIS Systems used to disburse payments (salaries, overheads, capital payments etc.) to federal ministries, departments and agencies. This is in addition to provision of agent banking as a delivery channel for offering banking services in a cost effective manner to a wider geography of consumers and the offering payments incentives schemes for users of digital channelss. At the private sector level, financial services providers, driven by Nigeria’s unquenched desire to become a cashless economy and the avalanche of innovative products cascading out of fintech incubators, have largely backed efforts towards financial inclusion. Amid talk that the mobile phone holds the key to integrating the unbanked holdouts into the formal financial sector, banks and fintech firms added USSD-based mobile banking to their service palette. Here, USSD is the abbreviation for Unstructured Supplementary


SAMSUNG

Cover Service Data. Using GSM network channels to transmit data, anyone can do the entire gamut of banking – account opening, deposits/ withdrawals, funds transfer, airtime/data purchase, loans applications and much more - on their phone. Essentially, USSD works on a basic phone with black-and-white display, a feature phone and on smartphones. By the same token, financial technology purveyors saturated the market with products and services that in their form and content were supposed to stir significant interest in the unbanked populations. There are apps that allow people to try out their investing skills on their own with little money; apps that allow you to obtain quick loans; free online personal finance tools that provide the best way for consumers to save money; and apps which allow P2P payment through NFC, QR codes or online. We even have a mobile only bank designed specifically for the digital realm, offering easy and convenient banking along with unique and engaging ways to manage money. Yet, despite their best efforts, enough of the unbanked populace are not banking. In fact, 40.1 million bankable Nigerians, representing 41.6 percent of the adult population, are currently subsisting outside the realm and influence of the formal financial sector. What is even worse is that too many of them seem unable to grasp this stark reality. In an economy that is touted as the largest in Africa and a population that accounts for a good percentage of black people on earth, that has strong financial regulation, a functioning banking system, and a network of mobile money services, why is Nigeria lagging far behind its peers? Emerging answers seem to treat contemptuously the energy poured into the efforts outlined above. Last year, global research consultancy, InterMedia published findings from its Financial Inclusion Insights (FII) 2016 Annual Report and Survey Data on the status of financial inclusion in Nigeria. It was based on trends in attitudes, access, use and demand for financial services of what the firm called a nationally representative survey of 6,352 Nigerian adults. FII is a programme also funded by the Bill & Melinda Gates Foundation and designed to build meaningful knowledge about how the financial landscape is changing across eight countries in Africa and Asia (Bangladesh, India, Indonesia, Kenya, Nigeria, Pakistan, Tanzania and Uganda). It produces data and analysis regarding citizens’ financial lives, attitudes, awareness and use of, access to, and advanced engagement with financial products and services. According to the annual survey data, the number of adults who are considered financially included, defined by FII as adults with a registered account at a full-service financial institution, has not improved in Nigeria since 2014. Financial inclusion in Nigeria dropped slightly from 37 percent in 2015 to 35 percent in 2016, lagging behind three other African countries surveyed as part of the programme. In 2016, FII data showed 69 percent of Kenyans, 54 percent of Tanzanians, and 40 percent of Ugandans were financially included. It found that more than half of Nigerian adults do not have access to financial services and that most Nigerians did not know of a mobile money point of service within their environment. Even when they have access, many Nigerians lack the basic resources that facilitate inclusion. Financial litera-

THERE HAS BEEN SIGNIFICANT GROWTH IN FINANCIAL INCLUSION More adults have an account with a financial institution or mobile money service now than three year ago

69+100+ 31+z Z 62+100+ 38+z Z 1.7

69%

BILLION UNBANKED

World's adult population with account in 2017

2

62%

BILLION UNBANKED

World's adult population with account in 2014

PERSISTENT GAPS FOR WOMEN

980 million

Women who who are part of the unbanked population. The gender gap has barely changed since 2011.

SIGNS OF PROGRESS

515 million

Adults have gained access to financial services since 2014, a seven percent increase in three years

MUCH SLOWER PACE

40.1 million

Nigerian adults, representing 41.6 percent of the adult population, that are financially excluded.

EXCLUSION vs REVOLUTION

30%

Share of adults using mobile money in Sub-Saharan Africa, the epicenter of digital financial inclusion

SAVINGS BEHAVIOUR LAGS

27%

Adults around the world who used formal savings services in 2017, which is the exact same level as 2014.

cy is low and necessary requirements for opening a full-service account, such as valid identification are lacking. Banks impose stringent KYC requirements for account opening. These requirements form a wide spectrum spanning from proof of residence (utility bill), copy of ID (international passport, driver’s license or voters card), confirmation of employment to assure source of funds and a passport sized photo. Most citizens fall short on some of these requirements and failure to meet any one of the above immediately makes one ineligible to obtain access to digital payment channels like cards and USSD access. This places 20 /E-PAYMENT REVIEW/ JUNE 2018

the unbanked at a disadvantage because most of them operate outside the formal employment system hence lack part of the account opening prerequisites. Only 79 percent of adults in Nigeria have the necessary documents for opening a mobile money or bank account. The folks at Intermedia pointed accusing fingers at regulatory policies and insecurity for the slowdown in Nigeria’s impulsion towards financial inclusion. They said the requirement of BVNs for maintenance of accounts at deposit money banks, which began in 2014 resulted in account closures due to noncompliance. Another burden was the imposition of a N50 stamp duty in March 2016 by the federal government on bank customers for money received into their accounts, and added charges on cash withdrawals, debit card issuances and online transfers that increased transaction costs associated with bank-based financial services. Worse, Nigeria’s descent into a recession as a result of deepening economic challenges related to a drop in oil prices and runaway inflation rates in 2016 that reached 18.5 percent caused Nigerians to spend more on their daily needs and save less. FII data showed a steep decline in savings-to-debt and income-to-expenditure ratios from 2014 to 2016, with a more than 20-percentage- point decrease in both indicators. In addition to the noticeable impacts on the daily financial lives of Nigerians, this may have impacted their ability to be part of the financial system. This blatant finger pointing wasn’t the limit of international agencies’ criticism of regulatory dynamics for Nigeria’s faltering steps in the area of financial inclusion. A recent report, this time published by the International Finance Corporation blamed the country’s straggle on mobile money on the 2009 guidelines that barred telecom companies from offering mobile money services. The impact of IFC’s position should be understood in the context of two interesting dynamics. One, most of the 25 recipients of the CBN's mobile money licenses have not put boots on the ground to offer the service at all, much less in places in dire need of it. Many of the licensees are dissuaded by the kind of heavy investment in operational expenses that mobile money requires before becoming profitable. Only Pagatech is sufficiently invested in developing the mobile money business. It is steadfastly promoting the service while attempting to leverage partners to build a large agency network for its distribution. Two, since its inception, countries that have seen success in mobile money payments are those that took a radical path through a mobile network operator dominated model and it has brought about financial inclusion to those places while widening access to efficient payment services for everybody. “The vast majority of the fastest-growing deployments are operating in markets where the regulator allows both banks and nonbanks (including MNOs) to offer mobile money services. Partnerships between banks and MNOs to offer mobile money are possible but often difficult in practice,” says the Mobile for Development Guide by the GSMA. “Generally speaking, regulations that promote competition while respecting individual providers’ commercial priorities achieve the best results. Conversely, regulations that only permit banks and other traditional financial service


PRODATA ELECTRONICS

providers to issue mobile money, mandate bank-MNO partnerships, or dictate the timing and/or technical solution for interoperability typically discourage investment and slow the rollout and adoption of mobile money.” But despite the setbacks, financial inclusion is a high priority in Nigeria. For years the CBN has emphasized the importance of bringing services to the unbanked and integrating the poor into the formal economy by giving them access to useful financial tools. For this ambition to be realized, a more nuanced view of financial inclusion is necessary. The truth is that financial inclusion is a complex topic and the absence of a full view of its mechanism prevents its outcomes from manifesting. Many people involved in its implementation are seeing only a part of the picture or an overly complex portrait, so they are unable to make the fixes and adjustments that will improve it. They need a comprehensive insight. The problem begins with the yardstick for tracking financial inclusion: number of adults who have opened a bank or mobile money account. That metric has no advice about whether these adults are actively using the accounts to achieve their financial goals or whether the products and services deployed to foster inclusion are beneficial to consumers or not. By looking only at how many adults have an account, regulators and financial inclusion advocates are lulled into a false sense of inclusivity because that picture will not tell the whole story. Take South Africa, for example, 70% of adults there have transaction accounts, according to the World Bank, but most of them opened these accounts as conditions of employment or receipt of welfare and other public, or social payments. As such more than one-quarter withdraw their money as soon as they are deposited. In India, the bank account ownership story mirrors that of South Africa. After he assumed office, Indian Prime Minister Narendra Modi who had run on an anti-poverty platform proposed steps to promote financial inclusion such as opening basic accounts for those who did not have them, distributing debit cards to enable financial transactions, making regulatory changes that broaden the kinds of firms that offer financial services, and developing mobile money solutions for rural areas without brick and mortar banks. Before his proposal only 35 percent of adults had bank accounts. That figure now stands at 80 percent. Here is the interesting part. 48 percent of those accounts are inactive – they have not been used at all in more than a year. That is the highest share of inactive accounts in the world. To avoid such confusion, there has arisen a need to address the critical dimensions of inclusion and set out the elements that are integral to its sustainability. In a presentation at the maiden annual media workshop organized by the Electronic Payment Providers Association of Nigeria (E-PPAN), Niyi Ajao, Executive Director, Business Development at the Nigeria Inter-Bank Settlement System Plc (NIBSS) offered eight sophisticated benchmarks for measuring financial inclusion. It begins with “account opening, easy access to cash when required i.e. convenient cash in & cash out, very convenient and low cost means of paying bills and making daily purchases, saving money in the account to earn interest, investing in instruments for returns (fixed deposit, mutual

THE NEW TOP TIER

In 2017, top-flight success is measured as countries where over 40 percent of the population only has a mobile money account. In Sub-Saharan Africa top flight countries now consists of Kenya, Uganda, Zimbabwe, Namibia and Gabon.

73+100+ 27 Z 73+100+ 27 Z+ 73+100+ 27 Z 6+100+ 94 Z 73%

77% MALE FEMALE 69%

KENYA

51%

59% MALE FEMALE 43%

UGANDA

49%

51% MALE FEMALE 46%

ZIMBABWE

NIGERIA'S GRADE

5.6%

7.2% MALE FEMALE 3.8%

Nigeria is trailing neighbours Niger (9%), Cameroon (15.13%) and Chad (15.23%) in absolute mobile money accounts

NO YOUTH BIAS

5.08%

Nigerian under-25s that have a mobile money account. The young are as uninterested in a 'mobile-first' financial inclusion as their seniors.

funds, bonds, stock, etc), access to finance i.e. loans at affordable rates and under friendly conditions, insuring risks around assets and savings for pension,” he said. Last year, a bunch of experts from the Boston Consulting Group (BCG) writing on ‘How to Create and Sustain Financial Inclusion,’ tried to clear the cobwebs on the dimensions of inclusion. The pointed out that the operating models of banks, insurers, and other institutions, the overall regulatory environment, infrastructure and connectivity can encourage or frustrate financial inclusion. Many consumers rely on cash. they said, because 21 /E-PAYMENT REVIEW/ JUNE 2018

the infrastructure that would support point-of-sale card or biometric transactions is not in place. Admittedly, low-income segments of the market have vastly divergent needs so the financial services models should include innovations in areas like branchless banking, agent banking and mobile payments. They advocated for improvements in products and services, distribution channels, risk management, technology operations, and IT governance as potential solutions. According to them, countries that have implemented successful inclusion had “to improve competition at the low end of the market, develop the overall quality of credit, relax unproductive but costly regulations, and provide financial incentives to save.” “Sustainable financial inclusion has to address demand (what consumers want), supply (what financial institutions provide), and the environment (how the public sector and other private-sector companies play a facilitative role) or to put the challenge in other terms, sustainable financial inclusion is built on operating models, regulation, and infrastructure,” the BCG team led by Klaus Kessler Managing Director and Senior Partner at The Boston Consulting Group wrote. “At the same time, stakeholders need to understand the preferences and unmet needs of consumers, as well as the barriers they perceive in accessing financial services. This understanding is derived less from numbers than from qualitative research.” Nigeria has experimented extensively with many ideas including borrowing financial-inclusion interventions that have proven successful elsewhere and tailoring them to the country’s unique needs. Further actions are being engendered on all fronts to see that financial inclusion works here. For instance, the Central Bank and financial services operators have unveiled SANEF, the Shared Agent Network Expansion Facilities, an initiative to aggressively deploy 500,000 agents whose main mandate is to extend financial services to 60 million financially excluded Nigerians by 2020. “Under the agreement, 10 licensed mobile money operators and super agents are expected to immediately deploy financial services agents’ outlets in under-served urban and rural areas in Nigeria, with priority in the Northern geo-political zones where financial exclusion is most predominant,” said Segun Agbaje, Managing Director/CEO of GTBank at a press conference held in Lagos to announce the plan. “The approved CBN-Bankers Committee’s roll-out ratio is as follows: North East, 30 percent; North West, 30 percent, North Central, 20 percent, South South 7.5 percent; South East 7.5 percent; and South West, 5.0 percent.” On the heels of that, the CBN and the Nigerian Communications Commission, NCC, signed a wide-ranging Memorandum of Understanding in April that is widely seen as an attempt to expand the role of telecom companies in the provision of mobile money services. Added to this, the CBN, E-PPAN and NIBSS are co-opting the media into the financial inclusion advocacy effortsespecially in the area of improving the quality of financial education. The first media workshop culminated in the formation of an industry-media affiliation to harmonize messaging on the issue. The hope is that with the successful execution of these actions, Nigeria’s financial inclusion devoutness would gratify the god of percentages when the next Findex report is released in 2022.


Cover interview

A specialist's view on financial inclusion

government, but rather by the private sector, working across a multitude of different regulatory and commercial environments. Even really challenging countries like the DRC, Liberia and Mali saw double-digit increases. How have they achieved this? A forthcoming CGAP publication traces the trajectory of DFS in Ghana and Tanzania, two countries in the region that have experienced strong growth in financial inclusion. These case studies illustrate the most important components to achiveving an inclusive payment ecosystem: an effective regulatory approach, executive commitment and investment, competition, interconnected services and compelling use cases.

Africa Lead for the Consultative Group to Assist the Poor (CGAP), Claudia McKay spoke to us online from Nairobi on the power of digital financial services to foster wider inclusiion

BY BROWN N. UGBAJA

CGAP

HOW LARGE IS THE PROBLEM OF FINANCIAL EXCLUsion? And why is it such an important issue to tackle? The newest numbers just released by Global Findex tell us that globally the share of adults owning an account is now 69 percent, an increase of 18 percentage points – representing 1.2 billion people – since 2011. This impressive progress has been driven by government policies as well as a new generation of financial services accessed through mobile phones, networks of retail agents and the internet. While progress in the past six years demonstrates a clear upward trajectory, 1.7 billion people are still excluded and women, those living in poverty and rural populations are much more likely to be financially excluded. Virtually all of these unbanked adults live in the developing world and nearly half live in just seven developing economies: Bangladesh, China, India, Mexico, Nigeria and Pakistan. We have a growing evidence base that financial services provide positive benefits for the poor. We know for example that proximity to agents helps people, especially women, by allowing them to diversify economic activities and draw on geographically dispersed social networks in times of need. A study in Kenya found that access to mobile money services enabled women to increase their savings by more than a fifth and helped reduce extreme poverty among women-headed households by 22 percent. We know that women, when financially empowered, save and invest for the benefit of their children. CGAP has also worked with providers of essential services (such as electricity and water) to explore how DFS [Digital financial services] can expand services such as pay-as-you-go solar devices. In the next two years, CGAP will work with the impact research community to ensure that the important work they do is focused on answering questions of importance to the financial inclusion community, so that donor funding and policy decisions can be made on the basis of solid evidence on the ways financial inclusion benefits the poor. CGAP defines financial inclusion in terms of efforts to ensure that people and businesses, regardless of income level can access and use financial services to improve their lives. How can this be realistically achieved in Nigeria and other emerging markets which are plagued by significant inclusion-hampering issues such as high levels of unemployment, poor education systems and staggering income inequality? The greatest gains in financial inclusion in the past few years have taken places in markets that, like Nigeria, experience high levels of unemployment, poor education systems and income inequality. This year’s Findex revealed that seven countries in sub-Saharan Africa now have more than 50 percent access to financial services and three countries have more than 80 percent. While early advances were concentrated in eastern and southern Africa, they are now more widely distributed, with big advances in West Africa in particular. Eight countries experienced improvements of more than 20 percentage points between 2014 and 2017, and six of those countries were in West Africa, including four in the WAEMU [West African Economic and Monetary Union] region. Overall, sub-Saharan Africa saw access to accounts increase from 23 percent in 2011 to 43 percent in 2017, largely driven by mobile money. This represents the addition of roughly 140 million new accounts in the last six years – which is particularly impressive given that it was not driven by a single

"We have a growing evidence base that financial services provide positive benefits for the poor. We know for example that proximity to agents helps people, especially women, by allowing them to diversify economic activities and draw on geographically dispersed social networks in times of need."

22 /E-PAYMENT REVIEW/ JUNE 2018

Financial inclusion continues to grow as an issue in both Nigeria and on the international arena, but progress in this area has been difficult to achieve. What do you think imperils efforts channeled towards financial inclusion? Is there any country in particular that you feel has done well promoting financial inclusion through that Nigeria can look to as a model? In most markets that have seen significant gains in financial inclusion, particularly in sub-Saharan Africa, progress towards financial inclusion has been led by the private sector but has been enabled by effective regulations and a supportive government. CGAP recently published a report on the basic enablers of digital finance, namely: allowing non-bank e-money issuers, tiered and risk-based Customer Due Diligence, the use of agents, and appropriate consumer protection. This year’s Findex appears to support the notion that countries with enabling regulations experienced big improvements in access, while markets that did not often made slower progress. For example, Ghana and Senegal put in place relatively enabling regulations that opened their markets up to competition, and enjoyed rapid growth in access as a result. Ghana is an example of a country that has seen impressive financial inclusion gains recently thanks to enabling regulations which spurred significant investments in DFS . After Ghana issued new E-money Issuer and Agent Guidelines in 2015 which allowed MNOs and other nonbanks to set up dedicated companies offering digital financial services that are directly supervised by the Bank of Ghana, industry invested in growing the agent network, which quintupled to reach over 150 thousand active agents by 2017. Account access grew in parallel, reaching over 11 million active users in just two years. Usage rates have increased dramatically in parallel: with the number of transactions per month more than doubling between 2013 and 2017, and the average balance on these accounts growing seven-fold during the same period, perhaps boosted by the regulatory requirement that providers pay interest on mobile money accounts. MTN Ghana, which is the largest provider in the market, has active usage rates of 73 percent, well above the industry average of 36 percent. Rapid growth in mobile money has also had an impact on the banking sector: in 2011, only 29 percent of Ghanaians had a bank account. By 2017, 43 percent did. Technology is playing an increasing role in the sale and delivery of financial products and there is a global belief that Africa represents a huge opportunity in digital banking especially with the rise of financial technology startups. But banks and fintech entities do not have footprints in rural parts of the continent. If we hope that the fintech revolution will transform financial services in the region,


what inclusion impacts would we see in the next five years? Technology is indeed expanding access to financial services at levels which the financial inclusion community might have thought impossible just a decade ago. However, in the vast majority of cases digital financial services (including mobile money, payment cards and other fintech applications) are supplemented by an extensive network of cash-in, cash-out (CICO) agents. These agents form the backbone of most mobile money services, particularly in Africa, and globally 75% of all incoming transactions and 74% of all outgoing transactions are still done in cash (as opposed to digital incoming transctions such as salary payments or outgoing such as bill payments). CGAP conducted geospatial research in Tanzania to explore the link between agent proximity and financial inclusion. We found that both poor and non-poor households in rural areas are twice as likely to be active mobile money users if they live within 5km of a mobile money agent. Increasingly, markets around the world, particularly in sub-Saharan Africa, are seeing extensive networks of agents, including in rural areas – although a lot more needs to be done. This is reflected in the growth in people with access to an account who live in rural areas. Globally, the percentage of rural households with an account increased from 44 percent in 2011 to 66 percent in 2017, driven by big shifts in India and China, and smaller but substantial improvements in sub-Saharan Africa. Rural Kenyan households with accounts grew from 38 to 81 percent, thanks to the ubiquity of mobile money. But Ghana is clearly not far behind and the same pattern is emerging in Senegal and many other African markets. Given that roughly 75 percent of Africans live in rural areas, the importance of mobile money in Africa cannot be overstated. Their entry is enabling banks and other financial institutions to enter the market. The proportion of people with bank accounts, including in rural areas, has grown across

virtually all markets where mobile money is present.

SHORT PROFILE

Claudia is a Senior Financial Sector Specialist at the World Bank. Her work involves helping to develop and scale mobile money services as well engaging with financial service providers and policymakers in Africa. Originally from Los Angeles, she holds a Master’s of Business Administration from Oxford University’s Saïd Business School and worked as a management consultant with the Boston Consulting Group. She lives in Nairobi with her familiy.

23 /E-PAYMENT REVIEW/ JUNE 2018

Can you share some examples of work done by CGAP to boost financial access and how they impacted beneficiaries in concrete terms? CGAP is a global partnership of more than 30 leading organizations that seek to advance financial inclusion. We develop innovative solutions through practical research and active engagement with financial service providers and policymakers. This allows us to learn and share insights globally while influencing change and learning with our partners. For example, CGAP worked closely with the Bank of Ghana to develop the new regulations in 2015 mentioned above which have had a significant impact on the market. Partly as a result of this engagement, CGAP published a Focus Note on basic regulatory enablers and on Ghana and Tanzania’s DFS trajectory so that others can benefit from what we learned. Moving forward, our work on digital rails – including open APIs, interoperability and next generation agent models – is aimed at increasing the integration and physical footprint we know drives usage. Our work on Financial Innovation for Development supports financially robust new use cases in energy, agriculture, health and education that not only provide the poor with services they want, but also support the mobile money ecosystem. Our work on segments seeks to increase usage rates for excluded groups, and our work on emerging business models is helping us think about how new players and technologies can build use cases that reach the poor with services that meet their needs.


Cover interview

THE AGENTS OF CHANGE

PAGA

Paga's human touch is bringing digital financial services to new customers in Nigeria

AS NIGERIA’S FOREMOST MOBILE PAYMENT platform, Paga’s motivations run the gamut from providing consumers with new ways of commercial exchange to effectively rearranging the country’s financial services constellation. The company believes everybody has the right to a seamless payment experience and the ability to transact easily, quickly, and securely. It wants banking services available to everyone irrespective of their location or status or occupation. To this extent, it even helps businesses with the technology, tools, and support to create exceptional buying experience. Today, Paga has established Nigeria’s largest agent network who act as retailers for its services. The company’s success in this area came from not just meticulous execution of its plans but a deeper awareness of digital payment and its role in financial inclusion. Here is what Paga understands, which many in the banking industry are now gradually waking up to: access to financial services really involves being connected to a general payments system, in much the same way as being linked to the national grid. That is why despite the evolving market dynamics in Nigeria, the company, like a great artist, is shaping mobile payments into a great success story for Nigeria. Many had assumed the system would not fully take off in Nigeria, in spite of the country being a tailor-made market for mobile money with its huge population and broad mobile penetration. Paga was founded in 2009 by Tayo Oviosu, a former corporate development manager at Cisco Systems with a mission to “transform lives by delivering innovative and universal access to financial services” for all Nigerians. Nine years into its journey, the company has shown impressive growth, recording a milestone of over 8,000,000 users at the end of 2017 and processing 42.7 million transactions valued at over N660 billion. In 2017, the volume of transactions on Paga exceeded 13.5 million with a value of about N297 billion. These numbers have made Paga a great part of Nigeria's financial inclusion narrative. A tale prognosticated on Paga’s inclination to enable people to achieve all the little things that make a big difference in their lives In 2016, Paga joined the Business Call to Action (BCtA) with a pledge to expand its agent network to 40,000 to enable it serve a target customer base of 22 million as well as extend its savings and credit products to 5 million others across Nigeria by 2018. Launched in 2008, the BCtA aims to accelerate progress towards the Sustainable Development Goals by challenging companies to develop inclusive business models that imbue poor people with the purchasing power to be consumers, producers, suppliers and distributors. Since

signing on, the company has reached millions of households in Nigeria and has grown to be what is now regarded as the largest financial services network in Nigeria. With over 5,000 businesses and 15,000 agents, it is on the frontlines of financial inclusion, poverty alleviation and financial services innovation in Nigeria. Paga is leveraging its agent network, made up of people with established businesses, to provide simple cash-in, cash-out, funds transfer, bill payments, account opening, savings, government’s disbursements and many other financial services. “A critical factor to inclusive growth is access to finance and convenient payment systems. What we are doing at Paga is changing the delivery of financial services and making it much more accessible to everyone. In so doing we are also creating an army of entrepreneurs and jobs across Nigeria. It is very exciting. While we have started in Nigeria, our vision is Pan-African,” said Paga’s CEO, Oviosu. “These agents are small entrepreneurs who offer Paga services within their grocery stores, boutiques, pharmacies etc. They enable customers to withdraw or deposit cash, transfer money and pay their utility and household bills through the Paga platform. In rural areas without bank branches, these entrepreneurs have become people’s sole access points for these critical services.” The bottomline is that serving as agents empowers these entrepreneurs and small business owners to make measurable impact in communities where they operate. A Paga agent operation is not typically high-tech - just an internet enabled tablet or a PC. It does not require saddling yourself with unnecessary costs. Just someone selling the normal nick nacks -- soap, Coke, detergent, biscuits -- required everyday by people while offering Paga mobile money services for additional income. Its platform for real-time transaction processing is easily accessible by these agents. The platform is PCI level 1 certified and meets the universal security standards for payments. Because, trust and reliability are fundamental to the agent-customer relationship, Paga ensures its platform runs smoothly 24/7 and that glitches are resolved in real time by its support team. All agents are trained in the areas of customer care and relationship management. Paga agent outlets are prevalent in the 36 states of the country enabling millions of Nigerians to perform the same day-to-day transactions they could still at any bank. These agents are an integral part of the company’s growth so far as they remain fully invested in the mission of Paga. Early this year, Leumastek Ventures, one of its most notable agents unveiled a brand new office building dedicated to the provision of Paga services in underserved communities in Badagry axis of Lagos. The building was the third such structure financed by the agent to serve as a convenient location for people in Badagry to get financial services. Paga brands its agents outlet to enhance visibility in their community and this has been proven useful in increasing agent growth by at least 30%. It also assigns field staff to its agents to establish a relationship that allows them to monitor growth, offer advice and assist in anyway necessary. Oviosu himself visits every region of the country whe24 /E-PAYMENT REVIEW/ JUNE 2018

SELFIE TIME: Paga founder & CEO, Tayo Oviosu takes pictures with some of his company's agents who were just rewarded for thier outstanding performance.

re agents are located to directly listen to them, share in their experiences and receive feedback, which has proven useful in the way the company tweaks its platform, products and services. One remarkable value of Paga is that it has made lowering cost, a unique feature of its payment platform. Opening a Paga account is free. Becoming an agent is very easy and also completely free, all you have to do joing is send and email to agents@mypaga.com or a WhatsApp message to 08099227242 and a representative will reach out to fully onboard you as an agent. The benefits of being a Paga agent are ever-growing; from earning substantial commission, business support services, quality branding for more visibility, periodic loyalty rewards and truly bringing banking services into local and sometimes hard to reach communities. The company rewards agents for their hard work. Recently, its top tier agents won an all-expense paid holiday trip to Dubai in addition to receiving other prizes. Besides, merchants, business owners and SMEs can also integrate Paga checkout payment processes on their websites as well as give their cu-


TESTIMONIALS

PAGA AGENTS IN THEIR OWN WORDS ADEYEMI OGEYINGBO Blue Heritage Resources

Paga has helped me solve problems for people in my community. I help them pay their bills and send money to their people around Nigeria. One of my major customers is an okada rider who has his family in the North. After the day’s work, he comes to my outlet to send money to his family for feeding and upkeep. I also provide for my family with the income I make from transacting for Paga. Presently, I have an average of 50 people coming in my store daily to perform transactions on Paga. With Paga, I earn up to N200,000 or more every month, which gives me more money to support my business. My business operations have been smooth and now I have more customers patronising me.

MOJEED ADEBOYEJO Delight Communications

stomers the option of paying through Paga’s mobile services and then receiving their payments through Paga’s agent network. Here, the aim is to retain money in communities so that further economic deepening can take place. And because merchants take the pain of bringing products to these markets, Paga believes they deserve the technology, tools, and support to create an exceptional payment experience. One that is simple, powerful, and drastically elevates customer relationships. Today, prominent businesses and organizations like the Dangote Foundation, Ikeja Electric, Eko Distribution Company, JAMB, WAEC, UK Immigration, among others, leverage the reach and impact of Paga for payment collections and bulk disbursements. And Paga is determined to enable them to do more. Last year, it launched my242, a shortcode service that anyone using a feature phone or a smartphone with no mobile data or airtime, can avail by simply dialing *242# to make transfers, pay bills, save money and earn interest on savings. This service is safe, quick, reliable and nullifies any technological barriers or complexities as the user experience is designed to be as simple as checking one’s mobile airtime balance. Users of this service can visit agents in their communities to fund their accounts, save money, access loans, open accounts and receive any form of assistance as they use Paga on their own. For such innovations and for showing great potential as a champion of entrepreneurship and progress, Paga has been receiving accolades. Most recently, it was recognised by the Nigeria Inter-

-Bank Settlement Systems Plc (NIBSS) for achieving the highest transaction count on the Global Mobile Regulatory and Monitoring Platform in 2017. It was also singled out as the fastest-growing agent network among the mobile money operator, banks and super agents that have come together to drive the Central Bank of Nigeria’s initiative to roll out half a million agent outlets in Nigeria by 2020. Paga has been recognized by the World Bank and International Monetary Fund for its expertise and excellence in driving financial inclusion in Nigeria. It was named one of the top 10 tech companies by this magazine in its 2017 ranking of 50 fintech companies in the country. Most of all, while many new firms are obsessed with becoming a hashtag, Paga has become a verb. You don’t just transfer or send money, you paga it. By setting up and operating Nigeria’s largest agent network, Paga is extending the traditional footprint of mobile payment, growing its usage amongst Nigerians as well as onboarding more people into the financial ecosystem. The company has opened up a world previously out of reach for many in Nigeria. Yet, catering to customers’ needs remains its key focus. Apart from increasing market share and revenues, and boosting customer loyalty and increasing brand affinity – two essential tools in a highly competitive market, its aim continues to be financial inclusion for all, regardless of who they are, where they live or what they do for a living. It will be working to build on this with exciting new services and products in the year ahead. 25 /E-PAYMENT REVIEW/ JUNE 2018

“I joined Paga four years ago. When a Paga official first told me about Paga, I wasn’t initially interested until one day when I found out my friend was earning a lot of commission from it. So I decided to give it a try and started with little money and since then I have been happy with the business I do. With Paga, I earn more money to support my business, my operations have been smooth and now I have more customers patronising me. People now refer to me as Paga.”

TAIWO SERIKI Paga customer

“I live in Ajangbadi and normally I’d spend N350 on transportation to the bank. But with Paga on my street, it’s just N100 and it saves me stress and money.”

ARIKE OKUNOWO Head of Agent Network Sales, Paga

“At Paga, we believe that every Nigerian should have access to a convenient means of payments and financial services, no matter where the person resides or operates from. Our Agent Network has been able to meet this expectation even beyond what the bank networks currently offer. Paga has over 10,000 agents across 35 states in the country. This is a larger service network than all the banks in Nigeria combined. This is why we have opened up our networks to all banks to leverage. Paga has truly made life possible for both the banked and unbanked Nigerians.”


Cover / Commentary

INCLUSION FOR ALL: L-R - Head Of Financial Inclusion Secretariat, CBN, Temitope Akin-Fadeyi; Special Adviser To CBN Governor On Development Financing, Paul Nduka-Eluhaiwe, and Vice President of Nigeria, Yemi Osinbajo, at a meeting on financial inclusion of people living with disabilities in Nigeria, at the Presidential Villa, Abuja in November 2015.

Nigeria's impressive trajectory How the CBN is creating sustainable financial inclusion

SCANNEWS / YOUTUBE -MASTERCARD

BY TEMITOPE AKIN-FADEYI THE LACK OF ACCESS TO FINANcial services is a major issue for poor households in Nigeria and it would require proper understanding of their needs and the circumstances that engendered their exclusion from the system in order to make the necessary changes. Development experts have long determined that to escape poverty, the poor ultimately needs to learn the rudiments of proper spending, imbibe a savings culture, borrow to support their businesses and work to grow their asset base. Helping adult Nigerians to do these are among the responsibilities assigned to the Financial Inclusion Secretariat at the Central Bank of Nigeria (CBN) and at which it is determined to succeed. This duty has become even more essential at a time of increased global concern about financial exclusion – over 1.7 billion adults around the world remain unbanked; are without access to an account with a formal financial

institution.' A good part of this number are Nigerians who are unserved in terms of their financing needs and face diminished potential in terms of their well being, future prospects and contribution to the country's economic development. In today's world, access to financial services has become a crucial element of everyday life because of its power to create sustain-

"WHILE FINANCIAL INCLUSION EFFORTS CONTINUE TO SUPPORT INCREASED ACCESS TO FINANCE, THE CURRENT PACE TOWARDS REDUCING EXCLUSION NEEDS A SLIGHT PUSH TO ACHIEVE 2020 AMBITIONS."

able existence. Great results have been achieved when people were served by financial institutions. To improve access to wider financial services for everyone in Nigeria, the CBN launched the Nigerian Financial Inclusion Strategy (NFIS) in 2012. It was to serve as a major plank for improving the efficiency of the financial sector, promoting diversification and innovation in product and service delivery, and increasing outreach in rural and remote areas. NFIS stemmed from Nigeria's commitment to the Maya Declaration in 2011 during the Alliance for Financial Inclusion Global Policy Forum to increase universal financial inclusion to 80% by 2020. Since the inauguration of that action, the number of adult Nigerians excluded from access to digital payment, savings, credit, insurance or pension has declined from 46.3% in the baseline year of 2010 to 41.6% as at 2016. While some progress

26 /E-PAYMENT REVIEW/ JUNE 2018

has been recorded over the years, the journey is far from over, even though several stakeholder institutions with a mandate to drive inclusive growth in the Nigerian economy through sustained improvement in access to finance have teamed up to scale up financial inclusion rates. The CBN, through the Secretariat, spearheads the implementation of NFIS. A governance arrangement comprising a financial inclusion steering committee – providing overall policy direction, a financial inclusion technical committee – mandated to provide technical guidance on related initiatives, and other inclusion working groups comprising financial literacy, special interventions, products and channels, all with membership from regulatory agencies, financial service providers, apex associations and other relevant ministries, departments and agencies. These groups have actively driven financial inclusion efforts over the years. In addition to launching the NFIS and establishing the financial inclusion secretariat to drive its implementation, the CBN has launched several programmes to support financial inclusion such as the cashless policy to incentivize electronic payments and the tiered know your-customer requirements to reduce account opening barriers for the bottom of the pyramid. It also approved several guidelines for provision of financial services including those for mobile money, super-agents, financial literacy framework, consumer protection framework, bancassurance amongst others. Several credit enhancement interventions have also been deployed by the apex bank to improve access to credit for the bottom of the pyramid. These include the Anchor Borrowers’ Programme, the Micro Small and Medium Enterprises Development Fund, the real sector support facility and many others. As part of the financial inclusion governance arrangement, several member institutions have also recorded successes in interventions aimed at improving access to finance for the underserved and unserved segments of the society. For instance, the Nigerian Postal Service (NIPOST) has launched innovative products to support improved access to finance. With its wide branch network of over 1,000 offices and 3,800 postal agencies, NIPOST, aims to support the deployment of digital


services through a super-agent network. The Nigerian Deposit Insurance Corporation, on the other hand, provided insurance coverage for mobile money subscribers. The aim here was to boost confidence and ensure sustenance of the mobile payment system. In other developments, the National Pension Commission released a micro pension framework, a long-term voluntary financial plan for the provision of pension coverage to people who are self-employed and those working for organizations with less than three employees. The National Insurance Commission launched the Takaful (Islamic insurance) and micro insurance guidelines to cater for the underserved and the low-income segment of the society. Subsequently, the bancassurance guidelines (referral model) were issued to allow the usage of banking platforms in reaching out to the insuring public. Meanwhile, the Securities and Exchange Commission introduced the collective investment scheme, an investment strategy that allows the pooling of funds from different investors for investment in a portfolio of securities such as shares, bonds or other asset classes. While financial inclusion efforts continue to support increased access to finance, the current pace towards reducing exclusion needs a slight push to achieve 2020 ambitions. It is our firm belief that one of the surest ways to drive this much-needed push lies in the improvement of the digital financial services (DFS) ecosystem in the country. According to a McKinsey Global Institute study titled ‘Digital Finance for All: Powering Inclusive Growth In Emerging Economies, DFS has the potential to create three million new jobs, boost GDP by 12.4% and improve access to credit for SMEs by 2025 . To this, a new office has been created within the Financial Inclusion Secretariat to drive the adoption of DFS. Working together with relevant stakeholders, this office strives to improve the availability and efficient usage of electronic payment channels deployed across the country, especially in rural areas. Moreso, the CBN pushed for seamless experience for all digital payment evidenced in the fact that the Nigerian mobile money platform is one of the few around the world where operators are mandated to ensure interoperability by connecting to the National Central Switch. Another initiative to promote financial inclusion was the devolution of inclusion responsibilities to the various states of the federation. Hitherto, financial inclusion efforts were somewhat centralized with most

of the initiatives deployed at national level. But in 2017, the Financial Inclusion Secretariat initiated the Financial Inclusion State Steering Committee (FISSCO) which was approved by the National Financial Inclusion Technical Committee and inaugurated in January 2018. Under FISSCO, CBN branch controllers in states across the country chair the committee, which has the mandate to initiate financial inclusion interventions at state level that would be driven by members drawn from state ministries, departments and agencies, as well as financial services providers, regulators, apex associations and other relevant partners. Meanwhile, in the implementation of financial inclusion initiatives there have been some challenges including the high exclusion rates in the north western and north eastern parts of the country largely due to the insurgency in those areas, lack of awareness and uptake of mobile money services, and low financial literacy. There have been efforts at addressing these challenges including nationwide campaigns to increase awareness about CBN interventions, policies and schemes. The Bankers’ Committee has promised to provide funding to qualified CBN-licensed super agents to deploy 500,000 agents across the country with a mandate to open 60 million new accounts by 2020. The CBN remains focused on interventions that reflect current realities and this is why the Financial Inclusion Secretariat is currently working with industry stakeholders to review and refresh the NFIS after its fifth year of implementation. This process is essentially to take stock of the journey so far, reflect on what has worked well and what has been slower on the uptake and refresh the document by identifying a more strategically focused approach to improving access to finance for adult Nigerians. As sure as day turns to night, the CBN will continue to drive financial inclusion in Nigeria, in close collaboration with stakeholders as this not only supports our mandate to ensure a safe, reliable and efficient payment system and improve financial stability, but forms the bedrock for sustainable economic development and reduced unemployment. We can only hope that our efforts and those of all financial inclusion stakeholders would help secure the necessities of life for Nigerians, reduce poverty and ultimately improve the Nigerian economy. Temitope Akin-Fadeyi is the Head of Financial Inclusion Secretariat at the Central Bank Of Nigeria. 27 /E-PAYMENT REVIEW/ JUNE 2018

QUICK TAKE

Targets and goals

Jamie Anderson, a Senior Financial Sector Specialist with focus on smallholder families at the Consultative Group to Assist the Poor (CGAP), a global partnership that seeks to advance financial inclusion. She speaks on rationale target-setting strategies for financial inclusion. IN ADDRESSING FINANCIAL INCLUSION, SHOULD banks and financial services providers design different strategies to target youth, women and men? All low-income clients are not the same. When financial services providers see “the poor” as one big consumer base with no differentiating characteristics, they can only offer generic products or use marketing gimmicks, and neither work very well. Instead, providing financial solutions that create value for low-income customers and that will scale requires identifying a client group to target, understanding their specific needs and aspirations, and delivering tailored, relevant financial solutions. Women are a key demographic, often facing greater social and financial exclusion than men. For financial services providers, one way to quickly scale a product is to identify a large group of clients with consistent, predictable financial needs and behaviours and design a financial tool that makes these financial habits easier, faster, or cheaper. Data from the CGAP financial diaries with smallholder families show that smallholder women in Tanzania fit this profile: In this sample, women save more money, more often, and more consistently than men, and they also borrow less money, less frequently, but more consistently than men. Their consistent financial behaviours lend themselves to standardized financial solutions, such as simple accounts that accumulate small deposits, ideally leveraging technology. This is a financial product they do not currently have and a ready gap for financial services providers to fill. Young consumers offer financial service providers another massive opportunity. The CGAP financial diaries and national surveys of smallholder households indicate that young people 15 to 30 years old in smallholder households save more than their elders and have mobile phones, but are less likely to use formal financial services, including mobile money. In the smallholder diaries in Tanzania, for example, household members under 30 years old saved an average of $174 over the year – over four times as much as their elders 31 to 60 years old. Considering that there are roughly 2.3 million youth 15 to 30 years old in smallholder households in Tanzania who own a mobile phone but don’t use mobile money, that’s an estimated $400 million under mattresses every year that financial services providers could be capturing with a savings solution tailored to young people. And in Nigeria the youth market is even bigger. In smallholder households alone, there are 20 million young people in Nigeria who have a mobile phone but who don’t use mobile money – a big market opportunity for financial service providers.


Media

Digital Literacy: E-PPAN's holds media workshop on effective financial inclusion coverage THE ELECTRONIC PAYMENT PROVIDERS Association of Nigeria, (E-PPAN) has stepped up efforts to reach out to the financially excluded segment of the Nigerian population through enhancing financial literacy and in May conducted the 1st National Media Workshop for its members and journalists to help disseminate the message. The workshop aimed to seek digital payment industry cooperation with the media on the need for proper sensitization, education, promotion and reporting of payment system opportunities with the ultimate aim of ensuring financial inclusiveness of all Nigerians. The Executive Secretary and Chief Executive Officer of E-PPAN, Onajite Regha was on hand to welcome the facilitators and journalists. There was a total of 62 participants, made up almost entirely of information technology reporters from various newsrooms in the country. Minister of Information and Culture, Lai Mohammed in his goodwill message said Nigeria has great interest in enhancing opportunities for financial inclusion and challenged the Central Bank of Nigeria, CBN, to spur more actions in the electronic payment system to fully exploit the potentials of the sector for economic growth and development. Mohammed who was represented by Stella Adefusi, Deputy Director, Ministry of Information and Culture, noted that ignorance about the need to be included in the financial services sector is widespread in Nigeria but expressed optimism that the CBN and other stakeholders in the industry will succeed in improving digital financial literacy "provided that all stakeholders are committed to the growth of financial inclusion." He expressed concern that only 58 million Nigerians have access to financial services out of a population of about 200 million with about 50 per cent of them bankable and blamed the poor uptake of financial services on microfinance institutions and deposit money banks that concentrate more in the cities. He commended the CBN, NIBSS, E-PPAN and various stakeholders in the payment system for their impact on the payment sector, adding that in spite of these achievements, the potential of the sector’s contribution to economic growth and development has not been fully realized. On his part, CBN Director, Banking and Payments Services Department, 'Dipo Fatokun, noted that a well-functioning national payments system is crucial to the financial sector's development and would help increase confidence in the financial sector by ensuring a credible, reliable and efficient payment system. According to him, the Nigerian payment landscape in recent times has experienced a lot of innovations in terms of financial services, bursting

Attendees pose for a group photograph. at the 1st National Media Workshop with the theme “Promoting Digital Literacy to Enhance Public Confidence and Financial Inclusion.”

L-R: Executive Secretary and Chief Executive Officer, E-PPAN, Onajite Regha, Francis Wasa Deputy Director,Banking and Payments System, CBN, Stella Adefusi, Director Information and Liaison, Ministry of Information and Culture, Babatunde Irukera, Director General, Consumer Protection Council (CPC), Oyeniyi Ajao, Executive Director, Business Development, Nigeria Inter-Bank Settlement System Plc (NIBSS) and Adedeji Adebisi, Deputy Director, Development Finance Office, CBN.

Stella Adefusi delivering a goodwill message on behalf of Minister of Information and Culture, Lai Mohammed.

Babatunde Irukera, Director General, Consumer Protection Council giving his goodwill message.

Niyi Ajao, Executive Director, NIBSS delivering a presentation on "The National Payment System: Challengies and remedies." On his left is Babatunde Olaleke of E-PPAN.

Adedeji Adebisi, Deputy Director, CBN speaking on the topic: Financial Inclusion: Consumer Education, Key for Further Adoption. On his left Is Oluwayemi Kushimo of E-PPAN.

28 /E-PAYMENT REVIEW/ JUNE 2018


Brown N. Ugbaja, Editor of E-Payment Review moderating a panel discussion on Financial Inclusion: Media Augumentation, Tool for Increased Adoption.

L-R: Brown N.Ugbaja, Wole Ogunlade of VoguePay, Abdulrahman Jogbojogbo of Paystack, Samuel Oluyemi of NIBSS and Uloh Kelechi of Parkway Projects during the panel discussion.

Aituaz Kola-Oladejo, Head, Research and Development at NIBSS anchoring the session on "Going Forward: Payment Industry and Press Collaboration to Promote E-Payment Adoption.

Onajite Regha anchoring the session on "Going Forward: Payment Industry and Press Collaboration to Promote E-Payment Adoption

Cyriacus Nnaji of The AUTHORITY Newspapers making a contribution during the interactive session. Around him are journalists from other media houses.

The workshop saw turn out from an assemblage of decion makers in the country's digital payment space and journalists covering financial technology.

Participants at the workshop which was aimed at getting the payment industry closer to the media to enhance reporting on Nigeria's digital financial system.

Journalists listen to speakers share ideas about digital financial services. Front right is Kelechi Uloh, Group Chief Operations Officer of Parkway Projects.

Journalists listen as speakers share ideas on cooperation between the media and the payment industry on proper promotion of financial inclusion.

Staff of Nigeria Inter-Bank Settlement System Plc.

L-R: Folasayo Adesakin and Babatunde Olaleke of the E-Payment Providers Association of Nigeria.

L-R: Lucy Akokotu and Joy Obaji of the E-Payment Providers Association of Nigeria.

with enterprise and reaching the unbanked. Other speakers at the workshop were Niyi Ajao, Executive Drector at NIBSS who highlight the value of digital financial services and their impact on improving financial inclusion. Adedeji Adebisi, Deputy Director, Development

Finance Office, CBN, talked about the need to enhance consumer education for further deepening of financial services adoption. There was a panel discussion on media augumentation as tool for increased adoption that was moderated by Brown N. Ugbaja, Editor of E-Payment Re-

view. Panel members were drawn from companies that inclued VoguePay, Paystack, Parkway Projects and NIBSS. They called for thetailoring of products to attract holdouts in all parts of the country and asked government to suport the industry.

29 /E-PAYMENT REVIEW/ JUNE 2018


NeFF Insight PRACTICAL ADVICE FOR THE MITIGATION OF PAYMENTS RISK BY THE NIGERIA ELECTRONIC FRAUD FORUM

Security challenges in the changing payments landscape To meet compliance requirements and mitigate fraud, service providers will do well to secure transactions across an increasingly diverse and porous digital ecosystem

By Gbolabo Awelewa THE GLOBAL SYSTEM OF PAYMENTS IS EVOLVING at a remarkable pace. Our initially barter-based society has evolved through cash, into cheques, then cards, and is now moving into the digital frontier of virtual wallets and mobile platforms. Whereas, at some point in the history of payments, one could only pay with cash, we now have a plethora of alternatives namely: Online payment services, electronic bills payment, internet banking, local or international transfer, direct credit, debit/ credit cards, and good old cheques. Players in the payments space have ranged from the traditional banks coming up with digital payment solutions to non-bank institutions performing traditional payment functions and to players who are attempting to completely circumvent existing payment systems using blockchain and cryptocurrencies like Bitcoin; all in the bid to find new ways of ensuring that customers are able to pay for goods and services received, and that merchants or businesses are able to receive payment for goods sold and services rendered. The heightened activity in payments has been largely attributed to four major shifts being observed in the global payments landscape. First, the ongoing digital and technology revolution, championed by the smartphones and mobile internet has revolutionised digital payments; next, the entry of non-bank institutions (like Google, and PayPal) offering payment services and products; third, customers (consumers and merchants) are becoming more demanding and expect instant payment solutions; and fourth, progressive changes in the regulatory framework. These four factors have given rise to a burgeoning industry recording three trillion transactions per year globally, worth around $13 trillion in aggregate. The advent of marketplace innovation in payment methods, technology and the influx of participants raises important policy issues for the regulators. While on one hand, it is necessary to create an enabling environment for innovations in payment which will improve customer convenience, transaction efficiency and overall benefits to the economy, it is equally imperative that adequate protections be incorporated into the regulatory framework so that customer confidence in the payment system is maintained and even improved. Achieving this balance in policy and regulatory framework development is paramount as it has enormous implications for the economy. Three core issues to be addressed by regulators and policy makers have been identified by the American Bankers Association (ABA). Consumer Protection - Regulators and policy makers are saddled with the responsibility of ensuring that consumers are adequately shielded against unauthorised charges, and that the procedures for disputing charges

₦44

trillion

Payments made across Nigeria in 2014.

₦6.22 billion

Amount lost to fraud in Nigeria in 2014, according to the Nigeria InterBank Settlement System (NIBSS).

49%

Compound annual growth rate of mobile money accounts in Nigeria between 2010 and 2015, according to the World Bank.

are properly defined. Regulators are also responsible for ensuring that the regulations governing the activities of non-bank payment service providers are well defined in order to prevent the degradation of customer confidence. Competitive Equity - Regulators and policy makers must evolve their policies and frameworks to accommodate the growth of the payments landscape and the introduction of new technologies. They must ensure that all participants, whether incumbents or new entrants, operate by a similar set of rules and standards so that all participants have as equal as possible, incentives to innovate. Payment System Integrity - Because payments are the facilitators of commerce, the overall stability, efficiency and integrity of the payment system must never be in question. All players in the industry must ensure that adequate controls - subject to appropriate government oversight - are implemented to maintain the overall integrity of the payments system. It is against this backdrop that this article attempts to discuss the challenge of maintaining the integrity of the payments system with respect to the changing payments landscape in Nigeria. Although non-cash and noncheque payment solutions were made available relatively recently in Nigeria, in comparison with the Western world, the pace of growth of the payments industry in the country has been remarkable. The World Bank Global Payments Systems Survey reports that the number of cards (debit and credit cards) grew from 4.7 million in 2010 to nearly 34 million in 2015. The number of mobile money accounts in the country grew from zero to 10 million in the same period, representing a Compound Annual Growth Rate (CAGR) of 49% and 27% respectively. With this surge in adoption and usage of payment systems, there has been a rise in the incidence of fraud in the Nigerian payments landscape. Of the nearly 44 trillion naira in payments made across Nigeria in 2014, over N7 billion was reported as the value of “attempted” fraud and N6.22 billion was the actual loss value reported. The Nigeria Inter-Bank Settlement System Plc

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(NIBSS) report also shows that in the same year, ATM fraud was the most attempted with 491 incidents and Internet Banking recorded the highest fraud value of N3.2 billion. With these facts in mind, and considering the rate at which new technologies come on¬board, and new payment solutions are introduced, payment systems regulators and policymakers in Nigeria have a lot on their hands if customer confidence in the system is to be improved upon. The European Banking Authority (EBA) has put forward a number of guidelines which could be of use in this regard under the following headings7: Governance - Payment Service Providers (PSPs) should implement and regularly review a formal security policy for internet payment services. This policy should be documented properly, reviewed regularly and approved by senior management with oversight from the regulators. It should define security objectives, risk appetite, roles and responsibilities, and a plan for the management of sensitive payment data with regards to risk assessment, control and mitigation. Risk assessment - PSPs should carry out and document thorough risk assessments with regard to the security of internet payments and related services, both prior to establishing the service(s) and regularly, thereafter. Incident monitoring and reporting - PSPs should ensure consistent and integrated monitoring, handling and follow-up of security incidents, including security-related customer complaints. PSPs should establish a procedure for reporting such incidents to management and, in the event of major payment security incidents, the competent authorities. Risk control and mitigation - PSPs should implement security measures in line with their respective security policies in order to mitigate identified risks. These measures should incorporate multiple layers of security defences, where the failure of one line of defence is caught by the next line of defence. Traceability - PSPs should have processes in place, ensuring that all transactions, as well as the emandate process flows, are appropriately traced. Initial customer identification


NEFF

information - Customers should be properly identified in line with the anti-money laundering legislation and confirm their willingness to make internet payments using the services before being granted access to such services. PSPs should provide adequate “prior”, “regular” or, where applicable, “ad hoc” information to the customer about the necessary requirements (e.g. equipment, procedures) for performing secure internet payment transactions and the inherent risks. Strong customer authentication The initiation of internet payments, as well as access to sensitive payment data, should be protected by strong customer authentication. PSPs should have a strong customer authentication procedure. Enrolment for, and provision of authentication tools and/or software delivered to the customer PSPs should ensure that customer enrolment for, and the initial provi-

sion of the authentication tools required to use the internet payment service and/or the delivery of payment-related software to customers is carried out in a secure manner. Log-in attempts, session time out, validity of authentication - PSPs should limit the number of log-in or authentication attempts, define rules for internet payment services session “time out” and set time limits for the validity of authentication. Transaction monitoring - This mechanisms to prevent, detect and block fraudulent payment transactions should be operated before the PSP's final authorisation; suspicious or high risk transactions should be subject to a specific screening and evaluation procedure. Equivalent security monitoring and authorisation mechanisms should also be in place for the issuance of e-mandates. Protection of sensitive payment data - Sensitive payment data should be protected when stored,

” All players in the industry must ensure that adequate controls subject to appropriate government oversight - are implemented to maintain the overall integrity of the payments system.

processed or transmitted. Customer education and communication - PSPs should provide assistance and guidance to customers, where needed with regard to the secure use of the internet payment services. PSPs should communicate with their customers in such a way as to reassure them of the authenticity of the messages received. Notifications, setting of limits - PSPs should set limits for internet payment services and could provide their customers with options for further risk limitation within these limits. They may also provide alert and customer profile management services. Customer access to information on the status of payment initiation and execution - PSPs should confirm to their customers the payment initiation, and provide in good time, the information necessary to check that a payment transaction has been correctly initiated and/ or executed. Gbolabo Awelewa is a business information systems and enterprise security architect with over a decade’s experience in the design, development and management of secure information systems and enterprise infrastructure.

Culled from 2015 NeFF annual report.

Dipo Fatokun Chairman of NeFF and Director of the Banking and Payment System at the Central Bank of Nigeria (CBN) and Mohammed Suleyman, Director, FSS 2020, Secretariat, CBN at the the NEFF stakeholders’ workshop on cybercrime.

Ezekiel Egboye, Director of Operations at the Rack Centre (left) and Basil Udotai, Managing Partner, Technology Advisors at the NEFF stakeholders’ workshop on cybercrime in May 2017 at Transcorp Hilton, Abuja.

Cross section of attendees at the NEFF Stakeholders Workshop on Cybercrime last year.

Singing the national anthemat the NEFF Stakeholders Workshop on Cybercrime.

31 /E-PAYMENT REVIEW/ JUNE 2018


The Risk Report PENETRATION TESTING

All banks are prone to web app bugs

MOX.TURRIS.CZ

ROUTER EASILY CONFIGURABLE AS A SANDWICH Turris MOX is an open source router which can be configured to your exact requirements. Components are included with the router to enable users switch the technology from performance to functionality. You decide whether you want a pocket sized router, or an AP, or a switch or a media converter. Plus it is powered by the company's custom-designed open source software which can be automatically updated to help keep the router secure if a threat is identified by the Turris development team.

Mobile fraud soars as social sites help scammers

REGULATION

PHISHING CONTINUES TO dominate the fraud landscape, accounting for nearly half of all attacks, but mobile fraud has jumped 650% over the past three years, according to RSA Security’s Q1 2018 Fraud Report, which found phishing accounted for 48% of all attacks during the quarter, followed by Trojans (24%) and brand abuse (21%). Fraud on mobile apps have risen from 5% in 2015 to 39% today. RSA also confirmed the increasing role of legitimate social networks in unwittingly helping fraudsters to sell their wares. “Social media provides the perfect control station for cyber-criminals, who can easily create profiles using fake details to operate on the platforms before collaborating with other fraudsters in closed groups, or peddling stolen wares in online marketplaces,” said RSA Fraud & Risk Intelligence Unit director, Daniel Cohen. The problem appears to be rife on Facebook.

IF YOU HAVE BEEN OBSERVANT SOMETIME IN MAY, YOU would have noticed the notifications on websites you visit informing you that they have updated their privacy policy. The reason was that GDPR, a new European privacy regulation went into effect last month that will force companies to be more attentive to how they handle customer data. Businesses ran the risk of incurring hefty fines and penalties if they failed to comply. The European Union General Data Protection Regulation (GDPR) replaces the bloc's patchwork of rules dating back to 1995 and heralds an era where breaking privacy laws can result in fines of up to 4 percent of global revenue or 20 million euros (N8.3 billion), whichever is higher, as opposed to a few hundred thousand euros. The GDPR clarifies and strengthens existing individual rights, such as the right to have one's data erased and the right to ask a company for a copy of one's data. But it also includes entirely new mandates, such as the right to transfer data from one service provider to another and the right to restrict companies from using personal data. The GDPR applies to organizations within and outside the EU that offer goods or services or process and hold personal data of people residing in the EU. This should be a cause for concern for many in Africa, as the continent has an array of organizations that transact buisness via e-commerce websites that process the personal data of individuals who are based in Europe. Such companies will need to be aware of the new requirements under the GDPR in order to continue to conduct their businesses in a data protection compliant manner. One key step is conducting comprehensive due diligence of their businesses to determine where and how the personal information of the data subjects is processed. This will then assist them to plan accordingly to make sure that appropriate measures are taken to comply with GDPR.

The birth of GDPR, Europe's new data protection framework

32 /E-PAYMENT REVIEW/ JUNE 2018

A SERIES OF PENETRATION TESTS FOUND that every bank is guilty of web application vulnerabilities and insufficient network security measures. According to a recent report from Positive Technologies, Bank Attacks 2018, 100 percent of banks suffered from these vulnerabilities and inadequacies.. It showed banks have built up formidable barriers against external attacks, but fall short in defending against internal attackers. Whether by puncturing the perimeter with social engineering, vulnerabilities in web applications, or the help of insiders, attackers able to reach a bank’s internal network would need only four steps to obtain access to key banking systems. With access to the internal network of client banks, Positive Technologies testers succeeded in obtaining access to financial applications in 58 percent of cases. At 25 percent of banks, they were able to compromise the workstations used for ATM management -- techniques similar to ones used by cybercriminals in actual attacks. Moving money to criminal-controlled accounts via interbank transfers was possible at 17 percent of tested banks. Also at 17 percent of banks, card processing systems were poorly defended, which would enable attackers to manipulate the balance of card accounts. The weakest link in bank security is the human factor. Positive Technologies found employees at 75 percent of banks clicked on links in phishing messages, those at 25 percent of banks entered their credentials in a fake authentication form while at 25 percent of banks, at least one employee ran a malicious attachment on their work computer. STANDARDS MILESTONE

FIDO Alliance & W3C move to kill passwords THE FIDO ALLIANCE AND W3C HAVE launched a Web Authentication standard that makes it easier to offer truly unique encryption credentials for each site. Called WebAuthn, the new open standard lets you access virtually any online service in a PC browser, not just specific services. You can continue to use familiar methods like fingerprint readers, cameras and USB keys, and it can serve both in place of and in addition to passwords. It reduces the chances that a password compromised on one site can be used on another . The functionality is useful right now in Mozilla's Firefox browser, Google Chrome Microsoft Edge. No, you can't immediately forego all your passwords, but this could let you depend on biometric logins much more consistently than you have in the past.


TRANSFER HEIST

THREAT LEVEL

CYBERTHIEVES WHO TARgeted Mexico’s interbank payment infrastructure siphoned hundreds of millions of pesos out of Mexican banks by creating phantom orders that wired funds through the country’s domestic electronic transfer system to bogus accounts. They they emptied those accounts in cash withdrawals in dozens of branch offices, Reuters reported, citing two sources close to a government investigation. More than 300 million pesos ($15.4 million) is thought to have been transferred, although not all of the money was successfully withdrawn by the hackers. “There’s no evidence that would allow us to say with certainty that this is over." Mexico's Central bank governor Alejandro Diaz de Leon told journalists. "We’re taking corrective and mitigating action." At least five such attacks were recorded but Mexico’s SPEI system - a domestic version of the SWIFT global messaging system that has dealt with massive cyberattacks – was not targeted. The problem appears to be with the software developed by thirdparty providers to connect to the payment system. It remains unclear how the hackers managed to infiltrate the system, but banks have switched to a more secure but slower technology to still support payment.

Researchers have discovered adware pre-installed on several Android device models and versions. Most are low-cost tablets, including devices from manufacturers like ZTE, MediaTek and Archos. Cyber security specialist Avast detected a particular variation of adware on around 18,000 devices belonging to Avast users in more than 100 countries. --------------Phone manufacturers are shipping Android-based devices with open ADB debug port setups that leave them exposed to hackers. Android Debug Bridge (ADB) is a command-line feature that are generally used for diagnostic and debugging purposes by helping app developers communicate with Android devices remotely to execute commands and, if necessary, completely control a device. If left enabled, remote attackers can scan the Internet to find a list of insecure Android devices running ADB debug interface over port 5555, remotely access them with highest "root" privileges, and then silently install malware without any authentication. --------------A giant botnet that has already compromised more than 40,000 servers, modems and internetconnected devices belonging to a wide number of organizations across the world has been discovered by researchers at GuardiCore. Dubbed Operation Prowli, the campaign has been spreading malware and injecting malicious code to take over servers and websites around the world using various attack techniques including use of exploits, password brute-forcing and abusing weak configurations.

Hackers suck millions out of Mexican banks

GETTY IMAGES

Warning: Nobody is safe from Russian hackers NO ONE IS TOO UNIMPORTANT TO BE targeted by Russia-backed hackers, US and UK authorities have said while teaming up to issue a warning that attacks on communications infrastructure are part of Vladimir Putin's grand plan for global disruption. The rare joint alert noted that routers, switches, firewalls and network intrusion detection systems at government and businesses were the main targets of Russian hackers, adding that even "small-office/home-office customers" should take more protective action, as should Internet Service Providers (ISPs) and those developing infrastructure. Russia-sponsored hackers are accused of running "man-in-themiddle" attacks to spy, steal intellectual property, and "potentially lay a foundation for future offensive operations", the alert said. "This is not something new, and is not something that has developed in response to Salisbury and Syria," said Keir Giles, a senior consulting fellow of the Russia and Eurasia Programme at thinktank Chatham House. "But it's something that is entirely consistent with how Russia thinks about information warfare."

Nigeria Cyber Security Report Launch

From right: Martin Ikpehai, vice president of ISSAN, Christabel Onyejekwe Executive Director, Technology & Operations, NIBSS, William Makatiani, CEO of Serianu, Onajite Regha, CEO of E-PPAN, Ike Nnamani, CEO of Demadiur Systems, Olatunji Igbalajobi, vice president of CSEAN, Edith Udeagu, COO of NIRA, Olusola Teniola, President of ATCON and Austin Okere Vice Chairman of CWG pose with copies of the 2017 Nigeria Cyber Security Report at its launch in Lagos.

L-R: William Makatiani, CEO of Serianu Limited, Ike Nnamani, CEO of Demadiur Systems Limited and Olusola Teniola, President of the Association of Telecommunications Companies of Nigeria at the launch. Demadiur and Serianu are the publishers of the report.

DATA Aggregated data for EMV cards card issuance and chip transaction by EMVCo

7.1 billion

EMV cards in worldwide circulation by the end of 2017.

1 billion

EMV chip cards issued across the world in 2017.

90.9%

Card-present transactions in Africa and the Middle East in 2017 using EMV cards.

1.02 million UAE consumers who fell

to online shopping scams in 2017, according to the 2017 Norton Cyber Security Insights Report. 22% had their financial details compromised while 28% experienced credit or debit card fraud.

33 /E-PAYMENT REVIEW/ JUNE 2018

Hacker makes over $18 million in bitcoin double-spend attack A HACKER HAS MOUNTED SEVERAL attacks on the infrastructure of the Bitcoin Gold cryptocurrency and managed to amass over $18 million worth of Bitcoin Gold coins in the process. According to a post on the Bitcoin Gold forums, the attacker deployed a large number of servers to take control of more than half of the Bitcoin Gold's network hashrate in what's known as a "51% attack." This granted him or her the ability to modify details of blockchain transactions, an ability he used to perform a second attack called "double spend," which as the name implies, allowed him to spend the same coins twice. To be clear, the hacker did not steal money from users, but from the exchanges. While no user lost money, the attacks are still dangerous because they might destabilize an exchange's backup funds,


Next Up

Is sodium the future of smartphone batteries?

TWO RESEARCHERS -- CHONGWU ZHOU, A PROFESSOR OF ELECTRICAL ENGINEERING AT THE USC VITERBI SCHOOL of Engineering and doctoral student Yihang Liu -- have figured out a way to use sodium to make cellphone batteries much cheaper and cleaner. Today's cellphones use lithium batteries but sodium - one of the elements that make up table salt - could be a better option. However, there's a problem. Current technology stores lithium ions in graphite (a soft mineral made of carbon), but sodium ions are too big to be stored in graphite. Zhou and Liu arranged red phosphorus on sheets of graphene. (Graphene is a layer of honeycombed carbon atoms—and one of the strongest materials ever discovered). The groundbreaking result: wavy sheets of so-called "nanodots" that could store and release sodium ions. In practical terms, their creation could bring sodium-ion batteries into reality. Sodium is better than lithium in a lot of ways. It's much cleaner than lithium, which contributes heavily to climate change and pollution. Because of its abundance, sodium is also cheaper than lithium, which must be mined.

IBM POWERS FASTEST SUMMIT SUPERCOMPUTER The International Business Machines (IBM) has developed a supercomputer, with help from Nvidia for the US Department of Energy’s Oak Ridge National Laboratory. The system cost about $200 million to build, will occupy a warehouse the size of 2 tennis courts and be put to work on super-complex calculations that could lead to breakthroughs in fields from astrophysics to cancer research, the lab said in a statement. Summit also brings the title of world’s fastest computer back to the US. Summit operates at a speed of 200,000-T calculations per sec — or 200 petaflops. That’s more than two times as fast as the current record holder, the Sunway TaihuLight at the National Super Computer Centre in Guangzhou, China, which runs at 93 petaflops. EMERGING TECH

OAK RIDGE NATIONAL LABORATORY

In the future, asphalt-printing drones would fix potholes DRIVING ON ROADS COVERED in potholes is no fun. At best, it can make your ride bumpier and less enjoyable. At worst, it can cause serious damage to your vehicle and, potentially, to its occupants. Couldn’t cutting-edge technology help? Quite possibly yes, claim researchers from the U.K. They have proposed an unorthodox approach to pothole repairs in which cameras equipped with image recognition technology constantly scan the streets for developing flaws, dispatch a drone to the site, and then use an on-board 3D printer to patch the hole with asphalt. Simple, right? The concept is part of a larger, multi-university project looking at the possibility of self-repairing

cities, and how robotics and other automated systems could be used to aid with repairs so as to cut down on disruptive road closures and other street works. While it might sound like overkill to use drones, image recognition and 3D printing for a simple repair job, Phil Purnell, professor of Materials and Structures at the University of Leeds, told Digital Trends that these systems could actually save money in the long run. “When you look at interventions in infrastructure — whether it’s roads, pipes, bridges, or similar — you’re very often using ton and meterscale solutions for problems that started out as gram and millimeterscale defects,” he said. In the case of potholes, that means

that what begins as tiny coin-sized dents in the road can quickly grow in size as the result of weather and repeated vehicular activity. By using smart technology, the researchers think it can be nipped in the bud to avoid later problems. So far, researchers from University College London have successfully built an asphalt extruder, which was mounted onto a University of Leeds hybrid aerial-ground vehicle. It is capable of extruding asphalt with 1-millimeter accuracy. The technology is certainly impressive, although Purnell noted that it’s still a long way from being deployed on roads. But what the work demonstrates is a proof of concept for how approaches such as this may be used in the future.

34 /E-PAYMENT REVIEW/ JUNE 2018

Researchers use caffeine to control genes A team led by Martin Fussenegger of ETH Zurich in Basel has shown that caffeine can be used as a trigger for synthetic genetic circuitry, which can then in turn do useful things for us—even correct or treat medical conditions. For a buzz-worthy proof of concept, the team engineered a system to treat type 2 diabetes in mice with sips of coffee, specifically Nespresso Volluto coffee. Essentially, when the animals drink the coffee (or any other caffeinated beverage), a synthetic genetic system in cells implanted in their abdomens switches on. This leads to the production of a hormone that increases insulin production and lowers blood sugar levels—thus successfully treating their diabetes after a simple morning brew. The system, published in Nature Communications, is just the start, Fussenegger and his colleagues suggest enthusiastically.

Gadgets sense smells with new electronic nose GERMAN RESEARCHERS AT Karlsruhe Institute of Technology have developed an electronic nose, a sensor-laden chip that is capable of sniffing out a range of different scents faster than a human can. Dr. Martin Sommer, who coordinates the project said that it uses the workings of the biological nose as its model. The human nose boasts around 10 million olfactory cells with around 400 different olfactory receptors. These receptors allow the nose to perceive different scents and generate a specific signal pattern to inform the nose owner’s brain what it is that they are smelling. “In our electronic nose, nanofibers react to complex gas mixtures — i.e. scents — and also generate signal patterns, on the basis of which the sensor identifies the scents,” Sommer said in a statement. The nose is just a few centimeters in size and contains the tech to evaluate gases. If a specific patterns for a scent have been “taught” to the chip previously, the sensor can reportedly identify it in mere seconds.


Virtual reality is helping chemists discover new life-enhancing drugs US DRUG COMPANY C4X DISCOVERY has developed its own virtual reality technology, 4Sight, that its chemists are relying on to visualise the structure of complex molecules and come up with new drugs for conditions like cancer, respiratory conditions and neurodegenerative diseases like Parkinson's and dementia. The company had been using its incredibly detailed proprietary database in its work, and has partnered with another pharmaceutical company Indivior to try developing a drug that treats addiction. This database records an unusually high level of information about each drug molecule, the different formations it takes, and how often they take them. In the past, like other scientists, they would use plastic ‘ball-and-stick’ models to represent drugs. But these were static; now, with the new technology, they are able to see the molecule right before them, as well as the range of shapes it might take. ROBOTICS BRIEF

TWITTER - MICROSOFT/ ÖREBRO UNIVERSITY

BLOOD ROBOT Researchers at Rutgers University have developed a robot that can draw and analyze blood samples. It uses near-infrared and ultrasound imaging to localize blood vessels, image analysis to reconstruct the vessels in 3D, and miniaturized robotics to place a needle in the center of the indicated vein to draw blood for analysis. At present, it can perform a three-part white blood cell differential and hemoglobin measurement. HUMAN EMOTIONS Researchers at Cambridge University’s Department of Computer Science and Technology have created a robot that can read and interpret human emotions. Named Charles, it can scan and interpret various expressions written on a person’s face. At present, Charles can project

a stunning array of emotions, including shock, fear and anger, even capturing some as subtle and complex as arrogance, or even grumpiness.

SMOKEBOT Created by researchers in Sweden, SmokeBot is a firefighting robot designed to be extremely useful in an emergency situation like a house fire or indoor gas leak. It is able to see and navigate in smoky areas while plotting maps of its surroundings for assisting fire services or search-and-rescue teams. To do this, it uses a combination of gas sensors, radar, a laser scanner, and a thermal camera. It is also equipped with a heat shield, and WiFi connection sensors.

LIMITING THE INTERNET'S HUGE ENVIRONMENTAL IMPACT Microsoft has installed an underwater data centre in the North Sea near Scotland’s Orkney Islands. It has been experimenting with this subsea technology, dubbed Project Natick, for two reasons: cooling efficiency and latency. The 854 servers contained in a submersible cylindrical system are cooled by the cold waters found near the seafloor. The data centre is as powerful as several thousand high end consumer PCs with enough storage for about five million movies. Microsoft chose the Naval Group to implement the project. The underwater data centre is designed to remain immersed for 5 years without direct intervention and will be operated “lights-out” for a year to evaluate its performance in real use conditions. BIOMETRICS

Report says AI business value will reach $3.9 trillion by 2022 RESEARCH AND ADVISORY FIRM GARTNER RELEASED A new report in April on artificial intelligence-derived business value forecasts showing the industry will be worth $3.9 trillion by 2022. For the next few years, the firm expects that the primary source of AI value will come from customer experience “with the goal of increasing customer growth and retention.” "AI promises to be the most disruptive class of technologies during the next 10 years due to advances in computational power, volume, velocity and variety of data, as well as advances in deep neural networks," said John-David Lovelock, research vice president at Gartner. This fact has been supported by other research. Oracle had estimated that eight out of 10 businesses have already implemented or are planning to adopt AI as a customer service solution by 2020. After 2021, Lovelock said AI will be used to “increase sales of existing products and services, as well as to discover opportunities for new products and services” concluding that "in the long run, the business value of AI will be about new revenue possibilities." This too has been verified by previous data. Salesforce predicted that by 2020, 57% of customers will expect companies to know what they need before they ask for it while Forrester has already estimated that, by 2020, AI insightsdriven businesses will steal $1.2 trillion per year from lessinformed peers. The future of AI will likely be in new business creation and customer retention through advanced prediction capabilities. The firm also predicted that decision support/augmentation will represent 44% of AI-derived business value by 2022, surpassing all other AI sectors. Meanwhile, virtual agents will represent 46% of the AI-derived business value in 2018 and 26% by 2022, decision automation 2% in 2018 and 16% by 2022, and smart products 18% in 2018 and 14% by 2022. 35 /E-PAYMENT REVIEW/ JUNE 2018

Microsoft unveils NFC smart mat MICROSOFT HAS DETAILED PROJECT Zanzibar, a research effort involving the development of a smart mat that takes physical toys and presents them on a display, combining realworld and digital play into a single experience. To put it simply, Microsoft said Project Zanzibar is a smart mat that can sense touch and physical items using NFC, in part. The technology could open the door to new types of gaming experiences. The idea here seems fairly simple. Displays (smartphones, tablets, etc) are found just about anywhere and you’re likely to have one on you regardless of where you’re at. A flexible smart mat that is easily toted around could be a great accessory for these display-based devices, expanding game play and offering interaction with digital applications, such as games.


Roundtable

Navigating the constantly evolving data landscape

YOUTUBE - CHANNELS / NKEM ONUORAH / TECHPOINT / NILADRI ROY

Expert insights into the new data economy and how the payment industry can form business strategy using intelligence gleaned from customer data

WHAT ARE THE COMMON CHALLENGES payment organizations face with data management today? ROY: We are currently living in a world where every second we generate zillions of data through our interaction with digital devices and applications, which play a big role in our daily life. The growth of any payment organization today depends on having the ability to use the data generated by their customers to understand the customers better. Most organizations in the payment sector today are struggling with how to do this effectively. There are many reasons why data may not be managed properly - a lack of data strategy, absence of skilled staff to manage the data, data becoming obsolete and periodic data cleansing. There is also the issue of data privacy what is shared versus what is not shared. ONUORAH: Payment organizations have a lot of data and data management issues that include lack of valid reference data. Their databases have multiple unique identifiers. Banks, for instance, use account numbers, Bank Verification Numbers (BVN), and customer ID amongst other identifiers. The key question then is which of these IDs will give unique reference data that will aid decision making. During report generation or data warehouse deployment, data can easily be duplicated, and this usually leads to low quality data, which impacts and impedes decision making. There is also the issue of multiple database systems in silos. Most payment organizations possess multiple databases ranging from customer relationship management, enterprise resource planning systems, payment systems, human resource management systems and management information and reporting systems. This means that the organizations are drowning in so much data, but are unable to use them to make decisions about their customers. That is because customer information is captured in various software systems and stored in different data repositories. The root of these challenge is that most payment organizations started operations without putting a robust data governance framework in place. Data governance will help them ask the following questions: What data do we need when accounts are being opened? What data do we need for decisions on loan approvals? What data do we use for validation to ensure that we prevent duplicate data entries? Do we have a data steward or a data architect whose duty is to validate the data we generate? With a robust data governance framework, these organizations will be able to recognize and mitigate data quality issues before they occur. Deploying an enterprise wide data strategy also helps payment organizations and their data team gain a better understanding of data management.

ADEJUMO: Payment organizations are faced with the common challenges of absence of adequate infrastructure for big data storage and analytics, a reluctance to adopt the technology and insufficient understanding to allow for development and growth of data systems. UDOAKA: The exponential increase in transaction volumes means payment services providers must have scalable platforms that can grow with the demands of data volumes. But the challenge is maintaining the underlying infrastructure that underpins the operations of payment companies. These platforms are now hosted in data centres close to the point of use to remove the latency issues associated with hosting overseas or on the cloud. Besides, payment platforms have to adhere to the highest levels of physical and software protection to ensure payment security. How do they make data management more efficient and effective? ONUORAH: To manage data efficiently and effectively, payment services providers need to go back to the drawing board and setup a data strategy or a data governance board. The data governance team would advise management and database teams on the validation requirements of data. For example, in the years between 1995 to 2005, banks didn’t require email addresses or telephones number for account opening. Today, both are compulsory requirements. I think that in the years to come, payment organizations would begin to require our social media account details to know how to better serve us as customers. This is the kind of thinking that data architects and governance teams implement for organizations to enable them to become efficient and effective. ADEJUMO: Data management can be made more efficient and effective through collaboration and the adoption of a common structure in the various payment systems. At the moment we have heterogeneous systems, creating a silo effect as opposed to a homogeneous system that would drive down cost, and encourage adoption and growth. ROY: Payment organizations should adopt a strategy that builds a culture of making data more meaningful to serve their customers better, protecting harnessed customer information, add more values to customers’ day-to-day life and using data analytics tool to make qualitative data. UDOAKA: They need to integrate with local internet exchanges to domicile transactions data at the point of use while effective application of artificial intelligence will help them with real time analysis of data to determine efficient ways to transform customer experience. 36 /E-PAYMENT REVIEW/ JUNE 2018

What are the regulatory changes driving new expectations around personal data? UDOAKA: There is a global drive towards enhanced data protection, including the enforcement of sovereign data rules that take into account the prevalence of social media which knows no boundaries. This is evidenced in the GDPR rules introduced by the European Union. Payment organizations have to ensure their business models and technology platforms take this into account in dealing with customers' transactional data. This means fintech is no longer just hosted in cloud services where location of customer transaction data cannot be fully validated. They have to host locally or regionally. Other industry standards such as PCIDSS and ISO 27001 are being enforced by financial regulatory bodies, as the building blocks of integrity and security in the handling of customer data within the jurisdictions that financial payments companies operate. ADEJUMO: We currently do not have a coherent regulation that would drive expectations around personal data. The adoption of GDPR or a similar policy is not reflected in this part of the world. ONUORAH: There are numerous regulations driving personal data protection ranging from PCIDSS, UK Data Protection Act as well as the EU Directive on Data. However, I think the major regulation that has and might slow down the rave of data analysis is currently the GDPR whose implementation deadline is already upon us. I wish to emphasize that regulation helps to keep data managers and payment organizations on course to creating a data driven enterprise. ROY: Until few months ago, no one was so concerned about having a regulatory compliance around data privacy and customer data protection. But recent stories about the Cambridge


RESPONDENTS: L-R - Frederick Udoaka, Business Development Director, Rack Centre; Michael Onuorah, Technical Partner, BVC Consulting Limited; Aderemi Adejumo, Chief Technical Officer, Comercio and Niladri Roy, Head of Sales - Inclusive Banking and Finance (Africa), Temenos.

Analytica scandal have demonstrated how big organizations such as Amazon, Google, Twitter and Facebook are not strictly complying to a single set of rules. The EU’s General Data Protection Regulation (GDPR) was introduced to unify all EU member states' approaches to data regulation, ensuring all data protection laws are applied identically in every country within the EU. It will protect EU citizens from organisations using their data irresponsibly and put them in charge of what information is shared, where and how it's shared. We can expect regulatory changes in Africa in the coming years once GDPR is implemented fully in the EU. In what ways would data impact the ability of banks and payment providers to create personalized offerings? What can they do to use data to deliver tailored offerings? ADEJUMO: Data available to banks and payment organizations are in silos and are incomplete. Extensive data cleansing needs to be carried out to get detailed information. The BVN should be the foundation of a master data concept and the ability to ensure the accuracy and currency of personal data. There also needs to be a form of data exchange whilst maintaining the master data concept. ROY: We see great outcomes when an organization applies its data analytics tools to identify ways to serve customers better. Over time, data has been a key driver of business strategy for successful organizations. In the banking and payment sector, the transactional data has been the key driver for business. We see growth among fintech firms who use customer data with help from analytical tools to offer better services in the market. ONUORAH: Data impacts payment providers and banks in a lot of ways. Without data, it is

impossible to even know your customers or to propose new or custom-made offerings to them. Every payment organization should channel its energy and resources to data management with a view of knowing the customer more, that is the key to their success. For payment organizations to be able to deliver tailored offerings to customers, they must deploy real time analytics tools that enable them see patterns as data is being generated and collected. Payment organizations must begin to analyze operational data as they are collected, make prescriptive decisions as the data is stored and be able to make predictive analytics based on present data and some historical data. Data collected on a real time operational situation can help them make real time decisions, while leveraging historical data and operational data to make futuristic decisions. For example, if an organization realizes a trend that shows that most customers spend about fifty thousand naira and more every weekend at malls during the weekend, it can partner the malls and ensure that customers get gifts, vouchers and or loyalty cards which will enable them spend more and generate more business for the malls and the payment service provider. UDOAKA: Everything has to be driven by exemplary value proposition and customer experience. ‘Big data’ collection requires the ability to scale and the computing power to undertake deep analytics on customer data, and use of artificial intelligence to provide customer tailored solutions. Selecting the right technology ecosystems, and acquiring the expertise for creating the analytics are essential. They need the domain knowledge to innovate and undertake the required analytics and create a focussed one-on-one relationship with customers. How do you see the use of data changing in the 37 /E-PAYMENT REVIEW/ JUNE 2018

next 10 years? ONUORAH: 10 years from now, data will be the game changer for every organization because every decision they make will be about 75% data driven. For example, every morning before I leave home, I analyze data from Google Maps to know which routes to follow on my way to work and I do the same when going home. Every payment organization will begin to do the same in the future; they wiill review and analyze data on every customer to make service or product decisions. ROY: Quality data will be the key driver of future business for any organization. If we start using data in a correct manner, we can generate lots of valuable customer information and do predictive analysis and future trends of the customer behaviour. In the next 5-10 years, data is going to be the main source of information on customer behaviour and business models will follow data outcome and analysis for organizations in the market. UDOAKA: There will be a exponential growth in data on customers’ transaction habit. Customers will expect highly interactive experiences and personalised service across all channels. Other channels are bound to mature and emerge in the next few years mostly aound wearable technology. The companies that thrive will be those that integrate social media and big data into their decision making. ADEJUMO: We will see a rapid improvement in the way data is handled to cope with challenges and societal demands. The landscape is developing and changing rapidly and consumers will become more and more demanding about the quality and the type of services they need. We have a great platform and the foundation of some amazing technology to blaze a trail in data handling and processing.


NIBSS Fraud Report Industry Fraud Report, First Quarter 2018 DMBs Q1 2018 Fraud at a Glance Fraud Volume

6, 212 Fraud Volume 7,609 Individual Accounts

85

Corporate Accounts

Q1 2018 Vs Q4 2017 Comparison

11.24%

Q1 2018 Vs Q1 2017 Comparison

60.97%

Increase

Increase

With a fraud attempt of 8,538 the first quarter of 2018 experienced 11.24% and 60.97% increase from both Q4 2017 and Q1 2017 respectively. The volume of attempts that resulted in no loss in value represents a 66.6% save by the industry from the overall fraud attempts. The overall fraud volume for the Q1 2018 reflects heightened fraud attempts by fraudsters thus calling for increased efforts.

Attempted Fraud Value

N1.3 billion

Attempted Fraud Value

Q1 2018 Vs Q4 2017 Comparison

Q1 2018 Vs Q1 2017 Comparison

Decrease

Increase

13%

71%

Actual Loss Value

N794 million

Actual Loss Value

Q1 2018 Vs Q4 2017 Comparison

129%

Q1 2018 Vs Q1 2017 Comparison

Increase

111%

Increase

Despite possessing lower values in attempted fraud in comparison to Q4 2017, the actual loss values for Q1 2018 were a 128.9 % higher than the actual loss values for Q4 2017. This indicates that the industry barely saved 39% of the fraud attempted in value. Although the industry's collaborations can be deemed commendable, it is imperative that loopholes resulting in such apparent losses be plugged and strategic approaches be taken to curb fraud and ensure losses are well minimized. It is important to note that the actual loss value of N794M in Q1 2018 represents 49% of the actual loss value for the year 2017.

39+61+z 39%

Percentage of the attempted fraud value that was salvaged by the industry. Fraud By Channel

ATM -- Volume - 2,558 Value - N225 million

ATM recorded the highest volume for both Q1 2018 and Q4 2017 and second highest loss in the overall actual loss value for Q1 2018. When compared with Q1 2017, ATM experienced an increase of 56.1% in actual loss amount. ATM represents 29.9% of overall fraud volume in this quarter. With an attempted value of N309M, the "bad guys" were successful with 73% of their attempts on this channel within the quarter.

Mobile -- Volume - 2,160 Value - N142.5 million

mobile phones coupled with USSD enabled services, this comes as no surprise. However, this growing trend needs to be speedily curtailed. Mobile experienced a 514% and 59.9% increase in fraud value when compared to Q4 2017 and Q1 2017 respectively. This channel also experienced an increase of 76.03% and 88% from Q4 2017 and Q1 2017 fraud volume respectively. Mobile fraud made up for 25.29% of the entire fraud value in this quarter and the industry was able to salvage 58% of the attempts on this channel.

PoS -- Volume - 349 Value - N345 million

The massive increment of about 3,154% in actual loss value for POS in Q1 2018 in comparison with Q4 2017 is worthy of note. This massive increase is indicative of the fact that POS channel still remains one of the primary focal points for dissipating funds in any coordinated fraud attack. With a fraud count of 349, POS recorded the highest loss in value for Q1 2018. The loss represents 43% of the total value lost in this quarter.

Internet Banking -- Volume - 1,170 Value - N15.4 million

For Q1 2018, actual loss via the internet banking channel decreased in comparison Q4 2017 loss values despite a significant rise in fraud volume via this same channel. Internet banking represented 1.16% of the overall fraud value and 13.7% of the entire volume for Q1, 2018. Although the fraudsters attempted to make away with N116.5M through this channel within the quarter, the industry was able to salvage N101M.

Across The Counter -- Volume - 103 Value - N25.6 million

Across the counter made up for 1.94% of the overall actual loss value. Q1 2018 decreased in both value and volume in comparison with Q4 2017. However, across the counter increased in volume but decreased in value when measured against Q1 2017.

Web -- Volume - 1,686 Value - N31.6 million

Both actual loss values and fraud volume via the Web channel decreased when compared Q4 2017. Comparing with Q1 2017, the WEB channel increased in both actual loss value and fraud volume. Web represented 19.74% of the entire fraud volume and 3.9% of the attempted fraud value. The substantial volume in fraud attempts via this channel covey its viability to fraudsters.

Cheque -- Volume - 2 Value - N145, 000

Cheque fraud appears to be steadily on a decline. Making up of barely 0.01% of the entire fraud value, this channel seems to have lost the interest of fraudsters. However, fraudsters are known to be dynamic in their operations.

Ecommerce -- Volume - 483 Value - N5.2 million

At the exact same count in fraud volume from Q4 2017, the actual loss values via the eCommerce channel in Q1 2018 experienced a 100% increase. Trends over time have shown dips and spikes on the e-commerce channel thus buttressing the fact that fraudsters are steady, looking out for loopholes to exploit. The volume of fraud attempted via the e-commerce channel made up for 5.65% of the entire fraud volume. S/N Channels 1. Across the Counter 2. ATM 3. Cheques 4. eCommerce 5. Internet Banking 6. Mobile 7. Others 8. POS 9. Web 10. Total

Mobile emerged as the channel with the second highest fraud volume and the third highest in actual loss amount. With the advent of convenient banking on 38 /E-PAYMENT REVIEW/ JUNE 2018

Fraud Volume 103 2,558 2 483 1,170 2,160 27 349 1,686 8,538

Attempted Fraud Value 69,922,678.55 309,822,931.67 445,000.00 23,956,561.90 116,546,897.97 339,148,006.57 7,294,365.00 360,066,635.57 91,612,441.35 1,318,815,518.58

Actual Loss Value 25.639,869.28 225,165,322.95 145,000.00 5,201,832.71 15,387,402.00 142,535,746.37 3,971,165.00 345,183,729.83 31,691,759.70 794,921,827.84


Fraud By Day

We observed a significant drop in the attempted value and actual loss value for Q1 2018 when measured with Q1 and Q4 2017. Although the attempted amount reduced significantly in this quarter, it important to note that 94% of theattempted value was completely lost. While we have reductions in the value of reported fraud, almost all the attempts were successful with meager recovery.

Fraud Volume Comparison by Day Q1 2018 Vs Q4 2017

6+94+z 6%

Attempted fraud value that was salvaged by the industry. Fraud By Channel

ATM -- Volume - 11 Value - N1.9 million

In this quarter, ATM channel witnessed a decline in volume and value when compared to Q1 and Q4 2017. ATM fraud made up for 21% of the entire fraud value for OFIs in this quarter. Fraud volume via this channel decreased from 16 to 11 representing 31.25% reduction in volume from Q4 2017. With 1.9M actual loss, the channel also decreased by 29%.

Actual Loss Value Comparison by Day Q1 2018 Vs Q4 2017 [in Millions]

Mobile -- Volume - 20 Value - N2.6 million

The fraud volume for the mobile channel moved from 29 in Q4 2017 to 20 citing a decrease of 31%. The exact amount lost in Q4 2017 was also lost in Q1 2018. However, the amounts that were salvaged from the fraud attempts for the OFIs were on the mobile channel. In Q1 2018, the actual loss value and fraud volume for mobile decreased notably in comparison to Q1 2017 by 92% and 85.6% respectively. This reduction is very significant considering that the OFIs lost about N39M via the mobile channel in Q1 2017.

Web -- Volume - 31 Value - N3.2 million Thursday recorded the highest fraud volume for Q1 2018 followed by Friday. With Saturday and Sunday recording the lowest volume of fraud in Q1 2018, it is evident that fraudsters do not often wait till weekends to carry out their attacks. The highest loss in value was recorded on Saturday. Following in 2nd and 3rd place was Friday and Wednesday respectively. The huge lost recorded for Saturday accounted for over 50% of the entire loss within the quarter.

Internet Banking -- Volume - 1 Value - N697, 000

OFIs Q1 2018 Fraud at a Glance Fraud Volume

63 Fraud Volume 63

Individual Accounts

0 Corporate Accounts

Q1 2018 Vs Q4 2017 Comparison

Q1 2018 Vs Q1 2017 Comparison

Decrease

Decrease

71.6%

76%

The OFIs reported 63 fraud events in Q1 2018. This volume represented 76% and 71.6% decreased when compared to Q1 and Q4 2017 respectively. All amount involved in the 63 fraud cases were completely lost with the exception of two which were salvaged. This has been the trend for the OFIs over the years. There is need for the OFIs to be more proactive in their response to fraud events in other to reduce further gains due to the fraudsters.

Attempted Fraud Value

N8.99 million

Attempted Fraud Value

Q1 2018 Vs Q4 2017 Comparison

Q1 2018 Vs Q1 2017 Comparison

Decrease

Decrease

53.43%

Web emerged as the channel with the highest amount of fraud lost as well as the highest in volume for both Q1 2018 and Q4 2017. Web reflected 37% of the entire actual loss value for OFIs. Over the years, the web channel had always yielded much success for the fraudsters on OFI platforms. However, it is imperative to note that actual loss value decreased significantly when compared to Q1 and Q4 2017. With the same figure of just one fraud occurrence with Q4 2017, the internet banking channel decreased by 46.38% in actual loss amount when compared to Q4 2017. This channel has shown trends of minimal viability to fraudsters. However, all channels need to be safeguarded. S/N Channels 1. ATM 2. Internet Banking 3. Mobile 4. Web 5. Total

million

Actual Loss Value

Q1 2018 Vs Q1 2017 Comparison

Decrease

Decrease

55.7%

Actual Loss Value 1,906,000.00 697.000.00 2,605,600.007. 3,277,040.00 8,485,640.00

Thursday and Saturday recorded the highest fraud volume for Q1 2018 followed by Monday. Sunday had the lowest fraud occurrence. Thursday and Saturday recorded the highest in fraud volume for Q1 and Q4, 2017 respectively. Thursday recorded the highest actual loss value for Q1 2018 followed closely by Saturday. Wednesday and Friday recorded the highest loss in value for Q1 and Q4 2017 respectively.

84.49%

Q1 2018 Vs Q4 2017 Comparison

Attempted Fraud Value 1,906,000.00 697,000.00 3,115,600.00 3,277,040.00 8,995,640.00

Fraud By Day

Actual Loss Value

N8.49

Fraud Volume 11 1 20 31 63

84.8%

39 /E-PAYMENT REVIEW/ JUNE 2018

Fraud Volume Comparison by Day Q1 2018 Vs Q4 2017


NIBSS Ffraud Report Actual Loss Value Comparison by Day Q1 2018 Vs Q4 2017 [in Millions]

Defrauded Customers By Gender

59% Male

The analysis above is based on the BVN reported to have been linked to customers defrauded in the first quarter. Financial institutions reported 5,534 unique BVNs belonging to defrauded customers. About 46% of the victims live in only three of southwestern states which include Oyo, Ogun, and Lagos. The analysis also proves that more male customers are being defrauded than female. Customers between 20 and 40 years constitute about 57% of those defrauded within the quarter.

Analysis Of Unique Customers Defrauded Customers Distribution according to state of residence

41% Female

Fraudulent Customers In Q1 2018

Fraudsters By Gender

30

76% Male

32%

24% Female

Unique Customers Received Fraudulent Inflow

Above 30% Between 6% & 10% Between 1% and 5%

Fraudsters that reside in Lagos

Below 1% Top 10 States State Percentage Lagos 34.84 Oyo 5.84 Ogun 5.69 Rivers 5.26 FCT 5.24 Edo 4.35 Delta 3.51 Anambra 3.27 Abia 2.93 Enugu 2.84

In Q1 2018

5,534

Unique People Defrauded

35%

People defrauded that live in Lagos

Defrauded Customers By Age

Defrauded Customers By Age

Below 20 years (1.34%) Between 20 and 30 years (28.89%) Between 30 and 40 years (28.21%) Above 40 Years (41.56%) Below 20 years (2%) Between 20 and 30 years (62%) 40 /E-PAYMENT REVIEW/ JUNE 2018

Between 30 and 40 years (23%) Above 40 Years (13%)


Watchlisted Customers In Q1 2018

110 Unique Customers Received Fraudulent Inflow

34%

Fraudsters that reside in Lagos

Fraudsters By Gender

85% Male

Special Report USSD FRAUD Our mobile phone has become so indispensable such that many of our desired products and services delivery revolve around it. With the innovation and trending technology in the financial space, the SIM is capable of creating a loophole for the fraudsters to exploit. One of the growing menaces in the industry today in relation to Mobile fraud is SIM-SWAP. While the reason that underpins SIM swap is a laudable one, the identified loopholes for USSD transactions must be blocked. Mitigating efforts should include but not limited to the following:

15% Female Defrauded Customers By Age

1. Adherence to the regulatory framework for the USSD in the Nigerian Financial System 2. Adherence to the due process required for a SIM swap 3. Stringent penalties for any culprit 4. Collaborative support from Telco Fraud desks. In the case, where there are unusual patterns on customers' account via USSD, the Financial Institution should not simply rely only on placing a call to the customer especially if such transactions continue after confirmation. We have observed fraudsters consummating transactions from a hijacked phone number and pretending to be the actual customers for several days. A physical visit could have unraveled the stunt rapidly thereby minimizing loss.

Below 20 years (1%) Between 20 and 30 years (55%) Between 30 and 40 years (25%) Above 40 Years (20%) In Q1 2018, the financial institutions reported 309 unique customers that benefitted from fraudulent inflow. 9.4% of this set of customers reside in Anambra, 7.7% in Rivers and 5.5% in FCT. Almost one-quarter of these fraudsters are female while 62% of them are in their twenties. Out of the 309 fraudsters, only 110 customers were placed on the watchlist within the quarter. 85% of those watchlisted are male while more than half of the watchlisted customers are in their twenties.

CUSTOMER AWARENESS It is often said that ‘the customer is a king’ and apparently every business places a high premium on customer satisfaction. However, recent findings have shown that fraudsters now exploit these benefits. Therefore, there is need to continuously improve customer awareness with a view of eradicating some re-occurring ignorance that fraudsters leverage on. It has become essential for us to inform our customers not to "get help" or "provide help" at ATM locations. Fraudsters are exploiting the empathic nature of our customers at the ATMs by entreating customers to assist with cash withdrawals as they are currently not in possession of their ATM cards. This will require the fraudster to transfer money - usually fraudulent proceeds to the customer to assist with withdrawal. Also, some fraudsters are quite adept at switching ATM cards under the guise of assisting unsuspecting customers. With several customers falling victims to such schemes, customer enlightenment is paramount.

Fraud Interest Index (FII) Fraud Interest Index is a mathematical fraud model that shows the channels with best ROI for fraudsters. The greater the ROI, the higher the probability of investing in the business. Again, ATM emerged highest on the Fraud Interest Index. The ATM channel is still one of the most viable channels through which fraudulent proceeds could be made away with. Mobile, as anticipated, is steadily gaining fraudsters' interest. The need to enforce necessary controls to curb this growing menace is required right now. 41 /E-PAYMENT REVIEW/ JUNE 2018

Courtesy of Nigeria Inter-Bank Settlement System Plc (NIBSS).


42 /E-PAYMENT REVIEW/ JUNE 2018


Trends & Tactics Bankers grumble about Big Tech threat

TOP OFFICIALS AT THE US FEDERAL RESERVE AND SENIOR EUROPEAN bankers are voicing concerns about big tech's interest in financial services and how the likes of Amazon could be stepping onto their turf without proper oversight. Some of the top bankers in Europe have been calling on EU rulemakers to take a stand on tech firms offering finacial services, particularly in the open banking era, where banks are being forced to open up their data to third parties but without any reciprocity. "When a third party gets involved in the payments system, it is hard not to see a deposit-taking activity and we have done a lot of work to protect deposi-

tors in the past," said Jean Lemierre, BNP Paribas chairman in a speech at an event in Brussels. "The magic word here is ‘wallet’. For me ‘wallet’ is close to deposit, so [regulators] they have to take a view on this." Banco Santander executive chairman Ana Botin echoed same sentiment, insisting that while she is happy to compete with the big tech firms, it has to be "on the same terms — they are all taking deposits and making payments." However, regulators appear reluctant to act on the concerns: "We are reluctant to come up with any kind of regulation for fear of stifling innovation,” said Bill Coen, secretary-general of the Basel Committee on Banking Supervision. AUTOMATED BANKING

China opens first bank branch run by adorable robots TALKING TO A HUMAN FINANcial adviser at your bank has become a thing of the past. A state-owned bank in China has launched the world's first personless branch equipped with facialscanning software, a virtual reality room, a hologram machine, talking robots and touchscreens. Beijing-based China Construction Bank opened the branch in central Shanghai's Huangpu district in April to make banking more convenient, personalised, and efficient. It also reflects growing competition from cashless payment systems that are giving the banks a run for their money. Customers are greeted by robots who answer inquiries via voice recognition and are able to do most things a human assistant could, including opening accounts, transferring money and making investments. Visitors can swipe their national identification cards to enter the bank or scan their faces using the bank’s facial recognition device. Machines inside allow customers to buy gold, change currency, or scout real estate investments using virtual reality googles. The bank is not totally unstaffed. Guards still stand sentry, and there is a room equipped with teleconference equipment where VIP clients can request help from human employees based elsewhere.

GOOGLE-LG / COMPUTER WEEKLY

Number

DIGITAL PAYMENTS BELONG TO CHINA In China digital payment has seen rapid development, driven by improved Internet infrastructure, increased use of mobile phones and financial services innovation. The numbers are amazing.

1 2 3 $11.1 trillion

$10 billion

12.6%

Mobile payments processed by Chinese banks in in the first quarter of this year, according to the People’s Bank of China (PBOC), up 16.8% year on year, the central bank data showed.

Raised by Ant Financial, operator of China’s biggest online payment platform, Alipay in a funding round from a clutch of global and local investors raising its valuation to $150billion.

Card transactions in China in the first quarter of 2017 from a year earlier, while the number of bank cards in use went up 4.8 percent to 7 billion by the end of March, according to the PBOC.

43 /E-PAYMENT REVIEW/ JUNE 2018


Trends & Tactics BIOMETRICS

Finger vein payment piloted in Denmark DIGITAL PAYMENTS SPECIAlist, NETS, has begun testing finger vein payments at Copenhagen Business School (CBS) in Denmark. Students and visitors there are foregoing cash, cards and smartphones and buying lunch using just their finger. It is a new, faster and safer way of making payments that works by scanning the structure of veins in customers' fingers. Working with CBS, Smart Payments and Fingopay, Nets installed finger scanners at the check-outs in the school cafeteria. Anyone with a Dankort, the Danish domestic card scheme, can enrol in the system and link the unique pattern of veins in their finger to their account. Finger vein payment is similar to the biometric capabilities on smartphones, many of

which can now be unlocked, and particular applications accessed, with a fingerprint. It is even more secure than fingerprint biometrics because finger vein patterns are almost impossible to replicate and blood circulation must be detected for the payment to be authenticated. The payment process is very much like other contactless payments but the increased security creates one key difference – even high-value transactions do not require the extra step of PIN entry. "The pilot underway at CBS demonstrates how fast payments technology is developing. In 2017 we launched Dankort on the mobile using brand new technology, and now only one year later customers can become their Dankort themselves" said Jeppe Juul-Andersen, Vice President

of the Dankort sector. "Your means of payment may not be made of plastic in the future, as apps and infrastructures which enable consumers to pay using biometric identifiers are developed. We are excited to see how card holders find the finger vein payment experience. If they react positively, we will consider launching pilot schemes in other Nordic countries as well." Together with Smart Payments, a specialized independent innovations business founded by Nets, Nets is investigating several different solutions that will reshape the way we pay. Finger vein payments are as secure as purchases made with the physical Dankort. Users can unlink the finger scanning function from their Dankort at any time if they no longer wish to make use of the technology.

UNHACKABLE & UNLOSEABLE Design studio Layer has collaborated with fintech startup Trove to launch a digital wallet and app system that allow you to store your cryptocurrency without fear of loss or theft. Called Trove, the system keeps cryptocurrency offline, making it less susceptible to hackers, and also incorporates smart security systems, making it much harder to lose if you forget your password.

FINANCIAL INCLUSION

YOUTUBE - PIGZBE / DEZEEN

PayPal moves toward traditional banking ONLINE PAYMENTS COMPANY, PAYPAL IS EXPLORING WAYS TO ADD mainstream banking to its services. It has been quietly reaching out to groups of customers in recent months with an offer to add basic banking features to their digital wallet, according to The Wall Street Journal. Those services include Federal Deposit Insurance Corp. insurance for their balances, a debit card that can be used to withdraw cash at ATMs and the ability to direct-deposit their pay cheques. So far, PayPal has only been offering the features to a small group of customers. The new services are meant for customers who don’t have traditional bank accounts. According to Bill Ready, PayPal’s COO, the company isn’t looking to replace traditional banks anytime soon with the new service. Instead, it wants to offer banking options to customers that typically haven’t been able to take advantage of them. According to Ready, if you already have a bank account connected to your PayPal account, “this isn’t an account for you.”

FNB goes full digital edge SOUTH AFRICA'S FNB has become the nation's first bank to roll out mini ATMs that validate users via thumbprint. It has also revamped its mobile services, enabling small businesses to open accounts within minutes by taking selfies. The ATM was successfully piloted since November 2017 and FNB intends to install 50 of it in branches and merchant locations in townships and rural areas. The selfie feature lets SMEs switch or open an account in less than five minutes through self-authentication and digital KYC using the FNB app. It use biometrics to validate the business and its owner, while allowing SMEs to order and courier new cards, switch debit orders and set up digital banking immediately.

44 /E-PAYMENT REVIEW/ JUNE 2018

In brief

Children aged six and over can now own cryptocurrency using an app called Pigzbe, which functions as a digital piggy bank. Created by entrepreneur Filippo Yacob, the app teaches children about cryptocurrency and finance while encouraging them to save. It operates using a blockchain-enabled currency called Wollo, the first cryptocurrency targeted specifically towards children. Pigzbe uses an app to transfer money from parent to child. An immersive game version of the app is available for children, while adults use a simpler version of the app. VIRTUAL LAB Brazil's Central Bank has opened an innovation lab for creating new financial applications with the support of Amazon, Microsoft and IBM. It will operate as a virtual collaborative environment where banks, academia, startups and big tech can work on fresh ideas for expanding financial inclusion through the creation of payment applications. STARBUCKS RULES 23.4 million US consumers aged 14 and over will use Starbucks’ mobile app for PoS purchases at least once every six months this year, eMarketer has found. Apple Pay will be used by 22 million people, Google Pay by 11.1 million and Samsung Pay by 9.9 million. The ranking will remain unchanged through 2022,

eMarketer said, but competition is intensifying. FACECOIN Facebook is exploring the creation of its own cryptocurrency that would allow its users around the world to make electronic payments, according to people familiar with Facebook’s plans. HOLY BASKET The Church of England has introduced contactless card terminals at thousands of sites in an effort to make “donations and transactions faster and easier for their congregations.” 16,000 churches, cathedrals, and religious sites in the UK now accept contactless donations, including Apple Pay. Alison Davie, secretary at St George’s Church, Stamford in Lincolnshire, says the technology has been a “useful addition” to their church.


TAP DOGS FOR CONTACTLESS PAYMENT A UK Animal welfare charity, Blue Cross, enlisted some four-legged fundraisers, kitting out dogs with coats holding PayPal Here terminals that let animal lovers make £2 donations with a tap of their contactless cards. “With today’s increasingly cashless society, it made sense to introduce a contactless option to those wishing to give to Blue Cross," said Tracy Genever, Blue Cross head, education services.

BIG DATA

Hong Kong favours new lending rules

Microsoft to embed payments in Outlook

THE HONG KONG MONetary Authority (HKMA) is allowing banks to forgo traditional credit checks on some personal loans in favour of big data analysis. Under new guidelines, banks can carve out a portion of the personal lending portfolio (no more than 10% of their capital base) and apply different standards for personal loans applied for online or via mobile phone. Instead of collecting borrowers’ proof of income or address to assess their repayment ability, banks may adopt new credit risk management techniques, "such as big data and consumer behavioural analytics", to approve and manage the related credit risks. "The new guidelines will enable banks to be more innovative," said Arthur Yuen, deputy chief executive, HKMA." This is also a major development in banking supervision."

MICROSOFT IS to embed a payments panel into Outlook to enable users to pay bills and invoices directly from their inbox. The tech giant is at pains to point out that the service is intended to streamline the payments experience within Outlook and that the company is not acting as a bill pay agent. Instead Payments in Outlook will be supported by a number of payments processors. The new feature will roll out in phases, initially to a limited number of Outlook.com customers and will be available more broadly in the months. ahead.

MOBILE MONEY

Visa, Mastercard push for single payment button Some large retailers not sold on the idea IN APRIL, VISA AND MASTERCARD, THE world’s largest card networks, told an industry conference they were working together on a buy button that would eventually replace Visa Checkout and Mastercard Masterpass, their current digital payment initiatives. The aim, according to the payment networks, is to simplify the checkout process, It would also make cards less vulnerable to fraud through the use of a unique token for online transactions, which decreases the chance of cards being intercepted and reused. The strategy is seen as a sign of how difficult the payments realm has become and shows the companies are looking for new ways to compete for online customers’ attention against PayPal and other payment firms. PayPal remains the giant in digital-wallet payments. About 64% of consumers used PayPal to make online or mobile payments at least once in the past year, compared to 22% for Visa Checkout and 8% for Masterpass, according to a 2018 survey from Bernstein Research.

ECOMMERCE

BLUECROSS / EMVCO

EMVCo releases QR Payment Mark EMVCO, THE GLOBAL TECHNICAL BODY THAT MANAGES THE EMV Specifications, has created a QR Payment Mark to promote global acceptance and interoperability across EMV QR Code payments. It also developed reproduction requirements and a free licensing structure to enable all implementers of EMV QR Code solutions to use the mark. The QR Payment Mark may be used to inform consumers that a merchant accepts EMV QR Code payment solutions. Supplemental messaging to consumers will confirm whether merchant-presented transactions, consumer-presented transactions, or both, are supported. The QR Payment Mark may also be used as an application indicator on a consumer mobile device when initiating a consumer-presented transaction. A royalty-free trademark license agreement and reproduction requirements are available in EMVCo’s Trademark Centre. 45 /E-PAYMENT REVIEW/ JUNE 2018

The button is still being developed. To implement the change, several steps will need to take place, including getting merchants to agree to replace the networks’ current payment buttons on their websites’ checkout pages. But some large retailers are not convinced. According to The Wall Street Journal, representatives of large retailers, including Walmart and Home Depot, recently met with US federal regulators to voice concern that Visa and Mastercard’s move could prohibit them from routing their debit card transactions to lower-cost networks. There have also been calls requesting that regulators “closely review” standards that the large card networks are implementing to ensure they won't be “used to anti-competitive ends.” The networks said that the retailers’ concerns are unwarranted. In fact, a Mastercard spokesperson said that tokenization won’t be mandatory, so that debit card purchases made through the single-pay tab will allow merchants to route the transaction to whatever network they want.

By the Numbers

239 billion

Mobile payment transactions handled by non-banking institutions in China last year, while banks processed just 37.5 billion according to the Payment & Clearing Association of China.

2.1 billion

Consumers worldwide that will use a mobile wallet to make a payment or send

money in 2019, according to Juniper Research.

85 million

number of card-accepting merchant outlets worldwide by 2022, according to RBR. the number has doubled in Asia, Europe and Africa since 2016.

42%

Mobile payment users who would not recommend the service, up from 31% in 2017, Auriemma Consulting said.


The Gimlet Eye

As cryptocurrencies rise, is there a future for banking?

DNA INDIA

By Antonio Fatás & Beatrice Weder di Mauro DO YOU VALUE BITCOIN IN DOLLARS OR DOLLARS IN BITcoin? Few serious economists imagine that the new cryptocurrencies, for all the hype, will make national currencies redundant. By and large they are right, because conventional money actually does a pretty good job. The U.S. dollar and other reserve currencies have historically performed well as a medium of exchange and as a store of value — the two principal functions of a currency. Bitcoin and its derivatives perform poorly on both accounts and will not disrupt money as we know it. But that doesn’t mean that new technologies aren’t going to usher in a lot of disruption to the financial system. Traditional economists (and, yes, that label could well describe both of us) often ignore a crucial separation between money (the “what”) and the payment technology (the “how”). This confusion originates in the fact that for older forms of money - gold or bank notes - there is no distinction between the “what” and the “how”; you simply pay by handing dollar bills or gold coins to the seller. Today, however, we pay out physical cash less and less often. Instead, when we transact, we usually transfer digital code in exchange for the good or service we’re buying. And it is through the technology that digitizes money that new entrants are challenging the financial system. We’ve already seen this sort of change in the developing world, where not everyone has access to a bank account. In East Africa, for example, mobile phone companies leapfrogged banks as payment intermediaries because they made it possible for people to transfer cashconvertible phone credits to each other. That meant that people could use phone credits as a digital medium of exchange and that the payment infrastructure became the mobile network. Of course, in advanced economies, most consumers have access to a bank account with debit and credit cards, which means that they are already engaging in transfers of digital money. This made traditional banks in the U.S. and Europe far less vulnerable to disruptive innovators, even though their e-payment technologies may in some cases be clunky and unreliable. What’s more, to compete directly with banks in a developed economy, you had to demonstrate that your technol-

ogy was compatible with the existing infrastructure and pass all the regulatory hurdles to be recognized as a bank. This is where bitcoin came in. The advantage of cryptocurrencies is not that they are electronic currencies; dollars, euros, yen, and yuan are all e-currencies today. Rather, the advantage is that blockchain technology offers a complete, selfcontained alternative to the traditional payment transfer system; it is as if all bitcoin users are banking with the same bank. And because cryptocurrencies were not initially regulated, there was no need to go through any of the regulatory processes to get started as a cryptocurrency bank equivalent. THE ADVANTAGE IS That’s just THAT BLOCKCHAIN what two TECHNOLOGY OFFERS startups A COMPLETE, SELFdid. Circle, CONTAINED ALTERNAfounded TIVE TO THE TRADIin 2013, TIONAL PAYMENT provided a TRANSFER SYSTEM peer-to-peer payment system using bitcoin. Ripple, launched in 2012, provided a cross-border payment system that initially relied on a cryptocurrency (XRP) as the payment vehicle. Since XRP also relies on a blockchain technology (a more efficient one than bitcoin’s, in fact), it would also provide a central clearing system. So what? Traditional banks provide very similar services by relying on realtime gross inter-bank settlement process-

46 /E-PAYMENT REVIEW/ JUNE 2018

es through a central bank. But banks face two difficulties: changing legacy systems and coordinating across the established payment networks is costly and takes time. And in the case of international transactions, they face the difficulty of managing liquidity pools in different currencies, as there is no central bank of the world. In this environment, a brandnew system based on a cryptocurrency (a “global currency”) at first looks like a winning proposition. The trouble is that using bitcoin and its ilk requires users to cope with another currency, an exchange rate, and all the attendant uncertainty about value, which runs into concerns about the storage value of money. This necessarily limits the appeal of startups like Circle and Ripple - which is precisely why they have moved away from cryptocurrencies and are looking for ways to apply their technology to traditional currencies and link directly with banks and central banks. Fintech companies in this space will be aided by new regulation, which may prove to be the real disruptor. Both the Open Banking initiative in the UK and the PSD2 directive of the European Union now require banks to provide access, through APIs, to customers’ accounts. This is a critical change because it enables parties other than the banks holding money to effect transfers: Individuals can use their preferred smartphone app to make payments without having to embrace a world with separate money balances and possibly separate currencies. The app will access the relevant accounts through the APIs and transactions can be completed. In effect, the new regulations will enable a separation of the functions of money. Commercial banks may continue to hold our money balances in traditional currencies and make loans to businesses with those balances, but transactions may be intermediated by a separate payment technology, at least in the eye of the final user. And if we want payment systems to be integrated, is there any need for multiple intermediaries? Why not simply make payment transfer a central bank function instead? If every individual had accounts at the central bank, and these were linked across countries, that would create a centralized ledger for an entire economy, which would certainly increase the speed, safety, and efficiency of payments. Central banks are considering this idea but so far have concluded that the risks to the financial system are very high and the benefits are uncertain. If it happened, though, the financial system would without doubt be profoundly changed. Fatás is a professor at INSEAD. di Mauro is the Chaired Professor of Economic Policy and International Macroeconomics at the University of Mainz in Germany. Culled from hbr.com


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48 /E-PAYMENT REVIEW/ JUNE 2018

E-payment Review june 2018  
E-payment Review june 2018  
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