In a bid to enhance development of financial technologies that will facilitate payment and also increase financial inclusion, the Nigeria Interbank Settlement System and the Central Bank of Nigeria recently collaborated with fintech entrepreneurs to inaugurate the Association of Financial Services Innovators (FSI). The group among other things will, over time, manage the regulatory sandbox developed and introduced by CBN and NIBSS to facilitate testing and deployment of financial techonolgies.
In this interview, Managing Director/Chief Executive Officer of NIBSS, Mr. Ade Shonubi, explains the purpose of FSI and operations of the regulatory sandbox. He also speaks on topical issues such as crytocurrencies and slow growth rate of electronic transactions last year. Excerpts:
WHAT is the rationale behind NIBSS’s support for Financial Services Innovators’ Association that is being launched today?
What used to happen before was that few companies, usually the larger ones, used to come to NIBSS and say we have an idea, it involves payment, and how do we connect to the payment system? The Central Bank has regulation as to who can come into the payment system. The question is do you get into the payment system first before you then come up with ideas that can acquire payment or is there any way if I have an idea I can test it and then go to the CBN and say licence me so that I can be part of the payment system.
That was the challenge. One or two of them were complaining about that ‘when we go to the bigger companies, they actually take our ideas, they don’t recognize it, they convert it to their own and they use.’ That got us thinking. Coincidentally at the same time, CBN had as one of its objectives to drive financial inclusion and use technology companies, Fintechs. So the two of us came together to talk about how to encourage these people to have their own association. We don’t want to create an association for them because it must be self sustaining and they must believe in it. If they don’t believe in it, if they are not the ones driving after a while it would just die and become a pressure group.
That is what led to it. To show our commitment to them, we offered to support the association for the first one year and in addition create what is now being called the sandbox where anybody who is in Nigeria. We are also conscious of the fact that if we do not manage the people who go there, we may find people in Ukraine, Russia taking our knowledge, building solutions and then coming to sell it to us. We wanted to limit it to any Nigerian. The only way we could do that was BVN. So if you go to their website anybody can download the documentation as to how to build the application but you cannot test it if you are not a Nigerian.
So you need to put your BVN. Why we ask of BVN is so that one or two people don’t manipulate or take it over and they are the only one using it to run like 20 different tests and the limited resources can then not go round. Our hope is that all these small guys can test and they can either go to CBN and say I know I have a solution. I can now afford to be licensed or when they are going to the big companies, it is not ‘I need you’, it is, ‘I have something that I can say can work and if you don’t like it I can go to anybody else, I can plug it into the payment system and it will work. So that is what the main drivers are.
Anytime we meet even if you go online, you check the NIBSS website, BVN is only 33 million. I say it every time, it does not make sense, even if our population is 180 million, it doesn’t matter, 33 million is too small. It is people like them (fintechs) that would be able to create a small application. It can only work for ten thousand people because their own cost is not high. It is not like the big companies. They are close to the people of the associations and the cooperatives. So they are more likely to make it work and bring these people in, so it is going to be harder for the big companies.
We don’t want a repeat of when we adopted GSM and there were only international companies. Remove the dust now, other than Glo what is left? Meanwhile, it is Nigerians and a lot of money that have been paid is going out. Almost all of the applications, we are using, the new ideas, are copied from abroad. I don’t mind, but if we are the ones copying and we are not paying licensing fees to them outside I won’t mind as much but we are paying. So let’s grow our guys.
Tonnes of them don’t have any jobs. That is another problem we have, that we are turning out graduates but we are not giving them employment or employment opportunities nor are we making them employable. Many of them go and take all these courses. Now is the chance for some of them to grow with it. But the primary thing is you must take ownership. We support but you must take ownership. You must run it yourself and everybody must have a common voice. So that is what we saw.
In the nearest future you should know, with sandbox and this platform we should be expecting an outburst of financial technological innovation that can help financial inclusion. Yes if they get it right, I expect. Our own role is to provide them that support. The CBN doesn’t want to say but they have been very active in listening and promoting many of the ideas they have even the unlicensed ones, and I know for a fact that they are looking at it internally. They are not a pressure group, they are not going out to say. ‘Oh this is what we should be doing’. They are only suggesting that look this is what we are seeing as users, please consider it. So that is on that side
On being able to innovate, the sandbox will give everybody a chance to do that. I am very hopeful that we will now see a lot of people converting ideas into good products or quickly killing bad ideas. Once the ideas donot work, you just move on, don’t spend time and efforts, limited resources, trying to take it forward when it doesn’t work.
For fintech start ups that want to join the platform, what do they need to do?
It is individuals, the people that join. Just go online and register. That is it
So it is not for corporate organizations?
If you are a corporate, you need to sign up with them as a partner and why we wanted that is that, we want to make it easy for people to join but we also want the association to sustain it. So rather than charging membership from individuals some of whom may be students why don’t you have a corporate who realizes that an opportunity is created for them to meet a pool of talents. Whether it is talents you can hire or talents that have ideas you can work with. So pay something to keep the association going and then you can become a partner.
This sandbox who will be managing it, CBN or NIBSS?
For now we put everything in place. The server is NIBSS, applications is NIBSS. APIs is NIBSS. Everything in it so far is us (NIBSS). But we hope that we can encourage other companies that have platforms to also put their APIs on. But it has to start from somewhere. We told them that we will hand it over to them. We will continue to run it. Pay for the infrastructure. But it is through their own website that you access it so that others can whether it is international, Visa or Mastercards putting on their APIs, whether it is local, Interswitch or whatever putting on their APIs and it is not only NIBSS, anybody can go in there and try anything.
There are lots of people out there who do don’t know about this initiative yest. Some of them are still in the universities. So how will you drive awareness?
You know me I am an old man. So all these social media things I don’t understand. Once they have sorted it out, if they have a plan to go to the social media, whatsapp or Facebook, and the young men in Flutterwaves, they are one of the biggest payments companies that people don’t know. We have Querush there, Mush. We have Obadare, all of them are successful in their own right. And that is why I was happy that, it wasn’t us anymore, my company. But it now we. What can we do? In some ways they are protecting their own future as well because they will not always ever have the best of ideas but if they associate with this people they will learn. They are already involve in social media and we are hoping they will use it to thrive some of the awareness as well.
Who monitors what goes on in the sandbox?
What we have is, on the sandbox when you sign in, for a limited period of time you can test. After that time we will delete you. But you can try anything. Whether it works or it fails it doesn’t matter. It is a practice area. You can do rubbish we don’t mind. Even if you bring the whole system down, we will re-format; put it up because it is a text environment. So it won’t matter so much. We will be monitoring the people that are on. That is what we would be trying to do.
Do you see the FinTechs taking over the business of the banks?
I don’t see the Fintechs taking over the business of the banks. What I see is a collaboration whereby the customer get the best based on what the banks can provide efficiently and what the Fintechs can provide efficiently. The Fintechs are not good at managing liquidity and money and getting the best value out of money but they are able to automate processes and to bring in whether it is artificial intelligence or logic to a system. I don’t see them replacing banks. I don’t. I see them encouraging banks to up their games.
In those days, banks use to hire consultants like Author Anderson to review their processes and then find somebody to build the reviewed process. What we are finding with fintechs is that, outside they have built the improved process and are now telling the banks to adopt it. But it does not remove, by law the relationship, from the money moving perspective, it is still the banks. I don’t see it changing. I hear people talk about cryptocurrency, it will not play a significant part in the world for their local transactions.
No government in the world will give up its ability to generate or create its own currency with third parties it does not know. So we will have cryptocurrency for selected use the same way even today I can buy dollars when I want to send somebody to buy something for me in America. But for my day to day, it is Naira. The only way you have local cryptocurrency is if the central bank issues it itself. But not that anyone of those out there will come in.
So will the banks be threatened by the Fintechs? Yes. I think there is even other business that is easier for the Fintechs to get involved in. Insurance, anything that requires a lot of technical use is actually easier. Even in some aspects of health, but the money bit of the business is banks, which is why they are focusing on banks. It is a collaboration that will happen. It is not one taking over from the other. The trend for e-payment transactions last year was that, yes there was still growth but the rate of growth slowed. What happened last year that slowed down the growth rate of e-payment transactions? Why the slow pace of growth?
We also noticed slow pace of growth in BVN enrolment. Why is this so?
Starting with transactions, if you look in absolute terms, the growth in 2017 was more than the growth in 2016. But the base had increased. So if you look in absolute terms there were a lot more transactions. It is because the base has been increasing over time so that is why we are seeing a slowdown in the build up. But there is a lot more transactions in 2017 than in 2016. We think that will happen for a while. But are we going to back to such massive growth? Now that goes back to your question on the BVN; Almost all bank customers now have BVN. The number of account continues to grow but the numbers of individuals that have account are not going as fast.
So unless we bring more people in you will find you and I will be doing more transaction but at some point, all my payments are electronic. So there is no more growth in electronic transactions.
So now I am still doing some cash, but more and more we we are doing cards, we are doing transfers. Soon those of us that have bank accounts will only be doing electronic payments. So, what next?
Those who are outside the banking space will continue to do business even though with cash. So the focus has to do with, how do we increase the 33 million to 40-50 million? How do we bring people in, into the banking space and then we will begin to see the growth again pick up significantly and that is one of the aims this year from the CBN to the banking industry to focus on financial inclusion and getting more customers into the banking system.