Global e-payment experts who converged at the second E-Payment Providers Association of Nigeria (E-PPAN) Techno-Interactive conference in Lagos recently agreed among other issues that the Nigeria Central Switch (NCS) should not be a profit oriented concern.
To address the challenges of non-interoperability of payment schemes in the country, the Bankers Committee, in 2005, initiated the establishment of the NCS to be operated by the Nigeria Interbank Settlement System (NIBSS) and to connect all payment switches; hence, making it possible for banks customers to use their cards on all payment devices irrespective of the owner.
Mrs. Bridget Morris, Africa’s leading transaction switching expert, whose paper ‘Switching, Interoperability and Interconnectivity’ was presented by Mrs. Onajite Regha, CEO of E-PPAN argued that NCS as a transfer systems, which exist between the banks are ‘infrastructure’ companies and should not be for profit companies because in this scenario the owners and customers are the same entities, namely, the banks.
“I would suggest that Interswitch, ValueCard and eTranzact and others should really be categorised as Payment Service Providers or Payment ‘Schemes.’ They need to be ‘for profit’ entities. They are providing payment services and gateways into the main clearing and settlement systems. They are not guaranteeing settlement and finality of payment themselves”, she said.
She explained that often Central Banks set-up or own these interbank switches and operates them with nominal fees and not for profit. According to her many countries consider that Central Bank’s business is about monetary policy, interest and exchange rates, and not about operating switches; so the switch company is usually separated off and run by the retail banks. They focus on clearing and settling of retail payments which is considered to be the business of retail banks not Central Banks.
She however, commended Mr. Sanusi Lamido, governor of Central Bank of Nigeria (CBN) for making difficult and positive gains in consolidating the banking industry and tackling bad loan books. According to her, this ‘tough’ action is provoking much international admiration. “We need to do likewise in the payments industry. We, in Africa, need to be seen to adhere closely to ‘best practice’ wherever possible in order to convince the rest of the world of our credibility. Central EFT switches and retail payments clearing houses and RTGS systems are the assurances that foreign partners look for”, she submitted.
Mr. Kyari Abba Bukar, managing director of ValuCard Nigeria who chaired the events that brought together banks, payment scheme operators and the media said interoperability and interconnectivity is not only desirable but achievable in the system. However, he argued that achieving the objective rests on three critical pillars. These are common and appropriate understanding by all industry stakeholders of the concept of interoperability; common and appropriate understanding of the roles and functions of payment card industry players; and strict adherence to professionalism and the distinct responsibilities of the different players built on the concept of separation of roles.
He noted that NCS should connect to other switches in order to ensure that when an issuer and acquirer are connected to different switches, the NCS will switch transactions between the different switches. However, where primary switches exist, NCS should not see transactions between issuers and acquirers that are connected to the same primary switch, as that will translate to competition with primary switches.
Primary switches should not establish connection with each other. If such happens, it would amount to elimination of the central switch. “As a monopoly, a central switch must not promote any card or payment scheme or engage in processing and other services of other industry players,” he said.
However, Mr. Akeem Lawal, chief technology & operations officer at Interswitch said it is imperative for industry stakeholders to determine the standards, rules, regulations and enforcement procedures for the management of the NCS before it commences operations. He maintained that interoperability and interconnectivity of payment scheme differs from country to country, depending on the history and development of the payment systems.
Lessons from other Countries
Nigeria CommunicationsWeek findings revealed that different country achieved interoperability and interconnectivity of their payment system in peculiar manners, depending on the history and growth of the system.
South Africa
The big four banks (Nedbank, absa, Standard Bank and First National Bank) have a central switch called BANKSERV through which they connect to VISA and MasterCard. The smaller banks either use BANKSERV or connect through local third party processors.
Canada
In Canada, there is a proliferation of different payment switches with direct interconnect amongst payment schemes
France
France operates a classic model of a central switch. All banks in the country connect to a central switch and card network known as Carte Bancaire. Most banks connect to VISA and MasterCard through this network while some banks connect directly.
United States
In the United States, there is a proliferation of payment schemes with bilateral interconnect agreements among them. No attempt has been made to implement a central switch.
In his own contribution, Mr. Adesola Adeyiga, head strategy and new business at eTranzact insist that the buy-in of all players is one of the critical factors for successful implementation of NCS. Other factors he listed include minimum standard for integration, regulation, dispute resolution management, across switch transactions settlement standard and transaction charges and fees.
Mr. Francis Ebuechi, CEO of Chams Switch, however, warned that NCS should not be seen as competing with existing switches. The roles for switches, issuers, financial institutions, Independent Service Operators (ISOs) and central switch should be clearly defined.
However, stakeholders at the conference were unhappy that NIBBS, the operators of the NCS were not present. “It is a shame that operators of the NCS who typically should be here to answer attendees’ questions in order to fuller understanding of the strategy, objectives and visions, were absent. An operator should be where its customers are and especially in a forum like this where your customers will be sitting. I think it is a big indictment on the part of that organisation”, head of E-Business of one of the big banks who was also at the meeting, said.
