By Babajide Komolafe
Bank customers have, many times, experienced the frustration of not being able to use their debit or credit cards on ATM or POS, irrespective of the b
anks that issued the cards or the banks that own the ATM or POS. Consequently banks’ customers have had to carry many cards belonging to different banks or card scheme e.g. Interswitch, E-Transact, Valucard, Visa, MasterCard, etc.
To address this problem (known in e-payment parlance as non-interoperability) the Bankers Committee, in 2005, initiated the establishment of the National Central Switch (NCS), to be operated by Nigeria Interbank Settlement System (NIBSS) which would connect all the banks and card schemes (switches) hence making it possible for card users to use their cards on any payment device irrespective of the owner.
Last week, electronic payment providers in the country, under the auspices of E-Payment Providers Association of Nigeria (E-PPAN), met and reviewed the implementation of the NCS. Among other things, they expressed dissatisfaction with the manner the NCS is being implemented by NIBSS.
But, Mr. Paul Lawal, Managing Director/Chief Executive of NIBSS, addresses the concerns of the e-payment providers, saying their complaints are tantamount to double talk.
What was the extent of consultation and discussion with e-payment providers before the NCS was established and to what extent did the guidelines reflect issues and concerns raised during those discussions?
The Nigeria Central Switch is the initiative of the Bankers Committee who set up NIBSS. NIBSS had actually wanted to do retail electronic payment but the technology that we had then couldn’t support it. We then advertised for vendors to the right technology, but the Bankers Committee said we should hold on because as at that time there were about four switches in existence and they were having problems of interconnectivity and interoperability.
So the Bankers Committee set up a sub-committee to look at how best to address the issues so as to come up with recommendations. The sub-committee went to work and took representations from different parts of the world, and decided that a central switch is the best way to go.
To achieve that, three approaches were recommended by the sub-committee. One was to set up a new company to be owned by all the banks, the second was to set up a subsidiary of NIBSS for the central switch and the third one was to ask NIBSS to develop the central switch from its resources, and this was approved by the Bankers Committee.
What are the objectives of the NCS and its benefits especially to the banking public?
The primary objective of the Nigeria Central Switch is interoperability – any payment device will accept any card from any switch or bank. The other is to be the gateway for foreign electronic payment transactions. As I mentioned earlier, there were about four schemes that were already running and were issuing their cards. And there were customer frustrations, you get to this portal they say ‘oh sorry, we are e-tranzact, or we don’t take e-tranzact cards here. Oh this is Interswitch, or we don’t have Interswitch portal here or this is Valucard and the fourth one was Smartpay’.
What will happen when you have interoperability is that there would be a central switch sitting in the middle of all these switches. That was the situation and there are many other switches. So we are like the centre of the wheel. So if a transaction comes to Switch 1 and it is the card of Switch 3, Switch 1 must accept it, but its machine will say ‘oh, this is not my card’ and routes the transaction to the central switch, just like the phone 0803 and 0805.
If you call 0805 on a 0803 SIM card, it will read that this is not my card but it is a card in Nigeria and it will route it to 0803. If it is 0805, it will take it to the appropriate switch. That is what the central switch does. So any payment device will accept any card issued by any licensed switch in Nigeria.
If the NCS does not exist, if you take a card here, you can achieve it in another way, but how?
Every switch will have to connect to all other switches and to all the banks. This requires enormous deployment of technology and massive infrastructure with unimaginable cost implications, especially if you are just coming into the market. Maybe you have a good idea and want to establish a switch, you need a lot clout to connect to all the banks.
But all these things were studied by the sub-committee of the Bankers Committee – all the switches, banks, people from the international community were all there.
It is a massive infrastructure that the public will not even know what is happening. So whether we take this channel (multiple connections among switches) or the central switch which the Bankers Committee approved, you just connect to the central switch and it will help you route the transactions.
When switches continue to increase, it may be year N, Switch N, and another switch comes into the market it comes straight to NCS, not to the banks but connects to NCS and, off course, the banks would acquire their cards, it would just market, the banks will issue those cards to their customers.
So each of the banks will give you cards that have to do with the new scheme which once it is linked to the NCS and you take the card of the scheme to this portal (of another scheme) that has been there for 10 years, you start enjoying the benefits of the established infrastructure that is there. You just go there and the transactions will go through the central switch and when it gets there, it just routes it to the new scheme.
This is the background of the Nigeria Central Switch. The NIBSS was mandated by the Bankers Committee to develop a central switch for Nigeria with the primary aim of ensuring interoperability in the Nigerian retail electronic payment and also to serve as the gateway for transactions outside Nigeria. Apart from these two critical objectives, there are many other benefits of the central switch which may be taken for granted but they are there.
We ensure local interoperability while serving as an international gateway. If you have a card that is drawing its fund in Nigeria and you are outside Nigeria and you are using it as a Nigerian, by the time everything takes off, once you plug it internationally, we will be plugged to the main switch internationally and once we see it and say it’s a Nigerian card, we route it to the relevant switch and they approve it. That means you can use your card in Ghana, South Africa or London.
Why are operators complaining of not being carried along?
When this concept was approved by the Bankers Committee, everybody was aware and in 2007, NIBSS took it upon itself and wrote to them to connect to the NCS but they held back. This is because if you are having a situation where you have a near monopoly of a market, you would not like a situation where anybody can come tomorrow and play in that market.
Recently, in a media publication, the CEO of one of the switches was asked his reaction to the directive that all switches should connect to the NCS and he said thus “the issue is not whether to comply or not. Since the regulators have said so, we will comply, in fact, we have already complied but how can one comply without your customers or the organisation suffering? I have been having sleepless nights over the issue”.
Some may be feeling they have a good segment of the market, but we are not talking of who has what segment of the market; we are talking of equi_distance to all market players. The Central Switch is a national infrastructure to make for speedy growth of the retail electronic payment in Nigeria, speedy growth, the cheapest for the country.
The Central Switch has been running within NIBSS for about three years running, and we power it with electricity, generators and inverters. We have been spending a lot of money running this thing and when we tell our colleagues in the other payment switches, they drag. When Deputy Governor got to CBN, he sent a circular that all switches must connect to the central switch but they there was no operational guidelines. That was after one year that the thing has been running.
Later, a committee was formed to come up with operational. All licensed switches apart from Chams, were members of the committee. The licensed switches – Valucard, Interswitch, e-tranzact and Card Technologies – were involved in evolving the operational guidelines of the NCS. When they finished their job, it was handed over to the CBN since they are the regulator, and the CBN released the document for everybody to go with.
There are complaints about the model of the NCS. Is the model to connect to existing switches and, if so, why mandate the banks to also connect to it?
In a situation, as it exits where, assuming all the switches are connected to all the banks, the implication is that, if you don’t have NCS and if the new switch wants to operate in the market, it has only two options, either to connect to all the banks or connect to existing switch by connecting to your rival because he is carrying his own card and you are carrying your own card.
And that has been happening. People have brought ideas to some of the switches and when they get to them, they may give them rates that will not make the business idea work, or may be delayed. So it is either you connect to any of these existing switches that are connected to the banks or you do your connections. And most of the new switches want to do their connections.
So if you have the NCS, which is at the centre and is connected to all the switches and banks, instead of Chams connecting to all the banks, NCS, on behalf of the new switches that are yet to come up, will link you to the switches. If NCS is not connected to the banks, it will depend on the communication line of a switch.
But the other switches see this as a threat to their operations as they see the NCS as competing with them?
NIBSS and NCS will not create a card of our own since we are not in competition with anyone. But we are going to create a structure that will make it convenient and easy for any bank customer to access any other electronic device in Nigeria.
NIBSS is not owned by anybody, no individual has shares in it, it is owned by the whole banking system, if you like, the whole Nigeria. CBN paid for its shares. This is not a regulatory ownership, the only thing regulatory is the CBN and it is the chairman of NIBSS.
It is so interesting that the whole industry created something that is all about providing a one point connection for interoperability in the banking system. And if we don’t connect to banks, then new switches will have to depend on existing switches or pay for the services. The switches know they can frustrate any new initiative by telling you to pay this fees, or that the service points are not too good, or they will see you as a competitor. But we don’t have any choice than to make our services available.
What about the issue of value proposition. Some operators said that there is no value proposition?
You see, it’s like talking with the two sides of the mouth. We have one section of the people saying ‘are we not going to be competitors, are we going to steal the market?’ while another is saying we are not bringing value proposition. So it’s double talk.
I say the NCS is an infrastructure to create interoperability, have I told them I am going to give them value or have I not given them value. Our aim is not to come and compete on products, but to create a common infrastructure to grow the retail electronic payment in Nigeria. That is the objective of those who set it up. The same value proposition that has been proposed will go round. What we want is for you to derive benefits from any card you have in any location.
We are not saying we are creating a central switch so that we can create a card that will make you buy things from the moon. We are saying that the same card that you have can be used anywhere. We are saying the country will save a lot of money; we are saying best economical approach to resolving the electronic payment system in Nigeria. We are saying less frustration for the Nigerian banking public because they don’t have to care where they have to buy, they will just carry their card and it is accepted anywhere. That is the value proposition
Some are concerned that NIBSS might not have the capacity in terms of technology to handle the enormous volume of transactions expected from the switches?
The technology we are using is the same thing they are using in Europe. NIBSS’s board went to countries where these things are well used and we are using solutions being used by VISA in Europe and America and that solution is Base 24 EPS (enterprise solution).
Go to the internet and you will see that we are using Base 24 EPS. And we are using HP Non-Stop hardware. HP Non-Stop is like having one server inside one server box, which operate at default levels, many default levels with high level of redundancy. We can’t even use a tenth of our capacity.
When did the switches connect to the NCS and what is the estimate of the volume of transactions so far on the NCS?
No, there is a difference between connection and transaction. Connection is a road that has been built to my village, but has the road been opened to carry people early in the morning to Lagos? They have not opened the roads. We are going to test run the road; we have been test running all the switches to be sure that the road is good. We have to test, look at impact analysis, the transaction volume, its stability, its ability to talk to A and B simultaneously.
Is the NCS going to be run for profit?
Have we been making profit? I have infrastructure, I have been developing and running it for close to three years now and we have been incurring expense. In fact, our software is running to the third year already without income. NCS is relying on NIBSS operations to survive, if not, it would have been depending on grants or subventions. It is relying on NIBSS operations. It is not secret, it is written in the Bankers Committee document that NIBSS is already running, it has its overhead, it has its company secretary, it has its accountants, it has its own office, why do you want to create the same thing to be owned by the same bank. That is the whole essence of it.
Off course, we don’t want to go back to our owners, the banks, to ask for money to buy another generator. No, we would not run it like that, it will be sustainable. NCS would be run to be self sustaining and as a going concern with recourse to subsidy and grants from government. No because that is the alternative.