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New products heighten competition for $4.3 bn e-payment market

By Babajide Komolafe
Electronic payment firms have intensified competition for Nigeria’s $4.3 billion electronic payment market with new products aimed at increasing market share.

Within the space of four weeks in February, MasterCard/Interswitch, Standard Chartered Bank, 3Line Card Management and First Bank introduced new electronic payment products in an attempt to make e-payment more attractive to the banked and unbanked.

MasterCard in alliance with Interswitch introduced MasterCard Verve card, a naira debit card, which can be used to make payment or access cash in 30.9 million MasterCard acceptance locations across 210 markets worldwide.

The same week saw Standard Chartered Bank introduce the Naira Visa debit card, which can also be used to pay or access cash in Nigeria and outside the country from over 29 million outlets worldwide, including over one million ATMs on the Visa Network. First Bank on its part unveiled a biometric automated teller machine, aimed at boosting security of electronic payment transactions by its customers.

Similarly, 3Line Card Management, an electronic payment processor for low value transactions, introduced the Freedom Network and Freedom Cards aimed at providing access to financial services to the under-banked and underserved communities.

The target of these new products is the bourgeoning $4.3 billion electronic payment market in Nigeria, which has been enjoying phenomenal growth since 2005.

From 2005 to 2009, Nigeria’s e-payment market grew at an average of 76 per cent in terms of value of transactions from N42 billion to N645 billion. The volume of transactions grew at an average of 1,230 per cent per annum to 114.6 million from 1.89 million.

But with about 130 million Nigerians outside the banking system, and with the economy still heavily cash-based, the prospect that this phenomenal growth will persist is very high.

“The untapped opportunities in the e-payment industry are enormous and we are just scratching the surface.” Chuma Ezirim, Head E-Business Group of FirstBank said in reference to the future growth prospect of the market.

Explaining further he said, “In 2005, the average cash disbursement per ATM was N1million per day. Today, some ATMs dispense more than N8m in a day.”

“Out of a population of N150m people, about 70million are bankable but we have less than 20 million bank accounts.

At a five-year target of 200 per cent growth in the number of accounts, we can grow the number of accounts to a minimum of 50 million. We have less than 12 million active accounts in the industry today, with about 7 million active cards issued. If the market is worth about $4.3billion with about 7 million cards in circulation, you could imagine the impact of a 200 per cent growth in the number of active cards.”

This growth potential is the driving force behind the new products from electronic payment services providers.

Mastercard/Visa International
It prompted MasterCard, a global leader in electronic payment not only to make Nigeria the hub of its Indian Ocean, East and West Africa Area and recently appointed a Nigerian, Mr. Daniel Monehin as Area Head, but also to enter into alliance with Interswitch, the nation’s foremost e-payment switching company, to develop the MasterCard Verve card.

“We believe this is where the growth is”, said Michael Miebach, President, Middle East and Africa division of Mastercard.
Speaking at the launching of the card, he said, “This is a big launch for MasterCard, it’s very significant to us because Nigeria is a very strategic market.

“Our focus is developing payment in Africa specially. And you cannot talk about Africa without talking about Nigeria as that will be like missing the 800 pound gorilla in the room”, Monehin said.

In an interview with Vanguard, he said “It is interesting, even Nigerians are saying why are you here, why are you not in Kenya, why are you not in Ghana, everybody is moving out, but MasterCard is moving in because we believe in Nigeria, we believe in what is being done by the government of Nigeria.

And we want to support it, we want to be a part of that success story because we know we are getting in on the ground floor now, and when it is developed others will want to come in and it would probably be too late for them. But we want to be part of the story, building it from the ground for them.”

But MasterCard is not the only global e-payment firm interested in the country. Its global rival, Visa International is also interested and has an established grip on Nigeria through Valucard, its Nigerian partner.

Last year, the company recorded around 200 per cent growth in card numbers in Nigeria, while value of transactions on Visa cards in Nigeria grew by 350 per cent.

“Nigeria remains a strategic focus market for us and we will continue to grow our presence and business there. We will continue to develop new products and services in association with our client financial institutions.” said Ade Ashaye, Area Head, Nigeria for Visa International.

“We welcome our competitor’s presence in the market as this is instrumental in growing a stable electronic payment environment in Nigeria,” he said in an email response to Vanguard.

In fact, the MasterCard Verve card was in response to a similar card, the Naira Visa Debit card, earlier developed and introduced by Visa in Nigeria.

“This is part of competition”, Monehin said.

Though he said that the MasterCard Verve card is different and offers more benefits, the two cards basically serve the
same purpose – access to local and foreign transactions through one payment card.

While the focus of the two global giants is the $139.8 million foreign denominated segment of the e-payment market in Nigeria, the target of local banks and e-payment service providers is the huge untapped segment represented by the under-banked and under-served.

The need to capture this untapped market is the driving force behind the introduction of Freedom Network and Card by 3Line Card Management and Biometric ATM by FirstBank.

First Bank’s Biometric ATM
“The Biometric ATM solution is available to our existing cardholders, who may wish to add biometric (finger print) authentication as part of their transaction approval process on our ATMs in addition to PIN selection, while systematically new cardholders would be issued cards with only Biometric authentication functionality,” Bisi Onasanya, Managing Director/Chief Executive, FirstBank, said at the launching of the ATM in Lagos.

“The use of customers’ Biometric features for authentication is quite secure and also addresses challenges of migrating diverse segments of customers to electronic channels which indeed provides enormous conveniences to our invaluable customers.

“The Biometric ATM scheme will drive financial inclusion, a Central Bank initiative to address the banking needs of the unbanked population.

“In this first phase, this biometric ATM would be available to customers who have cards; it would be a second factor authentication for card usage. The second phase will be for customers who are illiterate, customers who cannot read and the elderly ones who cannot input their PIN numbers, it would be cardless and in this case, they would just put their finger prints and they would be able to withdraw and do transactions on it,” he explained.

Affirming the leadership position of FirstBank in the e-payment market, Onasanya said, “First Bank’s technology today will match that of anybody, anywhere in Nigeria. We are even benchmarking our technology standard against international standard today.

“I mean come into Marina banking hall and show me any banking hall that is better. I think the people who talk about first bank as being an old generation bank are those who have not taken time to come into First Bank in the past six months and see what First Bank looks like.

“I am proud and you can convince yourself by going in and see that a First Bank branch is as good as the branch of any other bank in Nigeria as of today. Now in terms of technology, we are proud to say we are leaders in technology.

“People who have access and make use of our technological products will confirm that we have the best internet banking solution in the country today. That is incontestable. And for the first time in Nigeria, you have just seen me concluding a transaction successfully using biometrics.

That is an innovation also in the industry. We don’t make noise but we encourage our customers to come and try these solutions and be the voice of the bank in telling other people how fantastic and how well First Bank is doing in terms of modernisation.”

The Freedom Network and Freedom Card initiatives of 3Line are however most novel of these new products especially in terms of methodology and strategy for attracting the unbanked.

The Freedom Network, according to Funke Ade-Ojo, General Manager, 3Line, is a community of banks, service providers, government agencies and merchants that offer instant financial services such as cash withdrawal, money transfer, airtime top-ups, ticketing, pay-as-you-go, vehicle insurance and utility bill payment at authorised retail shops and Freedom Network services points within the neighbourhoods.

“The Freedom Network’s approach to bank the informal sector of the economy especially the under-banked is through the use of specially designed Point of Sale (PoS) devices to provide universal service-access to financial services, light banking services that is simply known as Street Banking”, she said

Street Banking is a customer- friendly and cost effective way of providing secure light banking services (such as cash deposit, cash withdrawal, funds transfer, e-Government services, Utility payment) to groups of people in a community using merchants within same community who are known and trusted.

These services are accessed via Freedom Card, a multifunction card, which functions as an electronic purse with a virtual account. “It is designed for the millions who do not have a bank account. With Freedom card, these unbanked can access financial services and also enjoy the convenience and comfort of electronic banking,” said Funke Ade-Ojo.

The e-payment market in Nigeria though have been recording phenomena growth, the ultimate objective of a cash-less payment system is however far from being achieved. This is because most e-payment transactions are for cash withdrawal through ATMs.

Confirming this trend, a recent survey by ThinQThanQ, the research and database unit of Financialtechnology publication, reveals that 74 per cent of cardholders use their cards only for cash withdrawal through ATM. This percentage might however significantly reduce should the Freedom Network initiative succeed with its Street Banking mission, whereby the nearest supermarket or petrol station functions as a mini bank where people can transfer funds, access cash, and also pay for goods and services.


Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.