“No country can function optimally without an efficient financial system”.
The introduction of technology into various aspects of our lives has made it easy to carry on day to day activities. In the financial ecosystem, most African countries including Nigeria have adopted technology to help individual consumers and businesses as well as banks in eliminating or reducing some of the problems inherent in the settlement and payment process. This has given rise to various Payment Service Provider (PSPs) companies, who have primarily developed technologies to enhance electronic payment for consumers and businesses.
Early on in 2023, Nigeria experienced a shortage in the circulation of cash in the economy as a result of the introduction of the newly designed Naira notes on some denominations of its currency and as part of the efforts of the Central Bank of Nigeria (CBN) to implement its cashless policy. Majority of Nigerians especially the unbanked, and those living in rural areas of the country where left stranded.
There was an unexpected shift and reliance on electronic payment systems to conduct and conclude transactions. This was met with a lot of resistance, discomfort, inaccessibility and unreliability on traditional banking platforms to complete said transactions. Incidents of failed transactions, delayed confirmation, multiple deductions, fake alerts and other technological glitches became the reality of the average Nigerian.
This incident revealed a number of lacunas that existed in the Nigeria banking system and technologies used to facilitate the delivery of financial services and it also showed that cash usage is still very high and relied upon in Nigeria. Several existing PSPs and new startup PSPs rose to the occasion to close this vacuum and provide payment assurance, ease and reliability in providing financial services in the electronic payment space.
Despite the growing number of PSPs and new technologies, these companies are confronted with several challenges which can be broadly classified into four categories; infrastructure, legal and regulatory, security and socio-cultural issues.
In this Article, we examine some of the challenges faced by PSPs are proffer recommendations to solve these problems.
1. Infrastructure: Inadequate technology infrastructure remains the most challenging problem for PSPs. These companies are often forced to deployed software from other countries to enhance network connectivity, transaction processing, speed and efficiency. The result of this, is often at a higher cost to the company.
2. Power outage: As a developing country, Nigeria is still plagued with frequent power outages. This puts a strain on the ease of doing business and running an efficient e-payment and e-banking platform.
3. Regulatory environment: PSPs are faced with a multiplicity and lack of a codified regulation that are required to operate a seamless and effective electronic payment system in the country. Striking the balance between promoting innovation and promoting financial stability requires a carefully crafted legal and regulatory framework. The CBN has taken giant strides in the last few years in formulating policies for the regulation and supervision of PSPs. The most common regulatory rules are anti-money laundering and combating the financing of terrorisms (AML/CFT) regulations and the Nigerian Data Protection Act, 2023 for the data privacy and protection of consumers.
4. Cyber-security issues: PSPs face various cyber-security issues from fraud, hacking, charge-backs, card data security, personal data theft, technical integration especially in the case of multiple currency and payment methods. Having a certified and experienced Compliance Officer and Payment Card Industry Data Security Standard (PCI DSS) payment processor risk management staff can help monitor and stop these fraudulent and security breaches before they occur.
5. Low financial inclusion: Despite the large population, Nigeria has a low level of financial inclusion, with many people still outside the formal banking system. PSPs struggle with finding ways to reach this under-served population and provide them with affordable and accessible payment options.
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6. Low/lack of strategic collaborations: PSPs face a major difficulty in establishing strategic partnerships. Notwithstanding the significant efforts of Fintech companies in providing an enhanced consumer experience, the role of traditional banks should not be jettisoned or overlooked. Traditional banks, other technology companies such as data analytics and cloud software providers, marketing firms and the Government are encouraged to form a strong alliance that will build stronger consumer trust and higher levels of efficiency in providing solutions to the customer’s needs/problems.
7. Limited consumer trust: Cash still remains the most popular payment tender, despite the increase in the introduction of electronic payment platforms in Nigeria. Traditional banks have a greater level of consumer trust over Fintech companies. This is a defining difference between the two service providers . The lack of awareness of the benefits of new technologies, fear of risk and fraud, resistance to new payment mechanisms, lack of trained key personnel in the organization for marketing purposes is a huge challenge that PSPs have to overcome.
Conclusion
PSPs have the potential of helping achieve economic and efficient financial transactions and enhance real-time reporting of AML/CFT transactions and improve the overall quality of financial reporting system in Nigeria. Now more than ever, there is a need for the government to remove barriers to innovation, including regulatory barriers to pave way for rapid development and advancement of PSPs in Nigeria.
The government should provide leadership and support for these companies by enacting and continuously review existing regulations to meet with current realities. These rules should be standardized with adequate stakeholder contribution in the formulation of the policies.
Collaborative efforts should be made by the government, PSPs and other relevant stakeholders in the sensitization of consumers especially for low income consumers (in unbanked areas of the country), for them to begin to recognize and see the migration of payment systems towards a cashless economy as a more convenient and easy way of receiving and making payments.
Government, financial and other institutional investors should invest in the necessary infrastructure by promoting the development of adequate technologies, training and recruitment of technological experts in Nigeria.
