Menace of fraud in e-payment system

The menace of e-fraud in e-payment system has posed a great challenge to electronic payment service. This needs collective efforts by stakeholders in the financial industry such as customers, banks and financial sector regulators in addressing the menace.

This according to the Central Bank of Nigeria (CBN) is the biggest challenge facing the electronic payment service.

CBN Director, Banking & Payments System Department, ‘Dipo Fatokun who spoke at the Finance Correspondents Association of Nigeria (FICAN) Bi-Monthly Forum in Lagos, said fraud not only leads to loss of funds, but reduces confidence of customers using e-channels.

He maintained that e-fraud has never been completely eliminated, even as bank customers lost over N2 billion to e-fraud last year.

Speaking on the theme: “Electronic Payments Industry’s Performance and Regulatory Issues”, Fatokun described e-payment as any form of payment that allows the use of electronics system to initiate, authorize and confirm the transfer of money between two parties.

The transaction reason, he said, could be for the payment for goods and services, settlement of obligations, gifts among others.

He explained that e-payments are driven by a network of interconnected systems, which make it possible for exchanges of value between payer and payee, sender and receiver or donor and receiver.

“Banks, Payment Service Providers (PSPs), Financial Authorities and Central Banks play various roles in developing the payments system infrastructure to drive electronic payments, that is nationally utilized.

The e-payments industry refers to all stakeholders, operators, regulators, infrastructures, merchants, retailers and the final consumers of the payments products and services. Payment technologies and platforms bind the industry together in a tight ecosystem,” he said.

Speaking further, the Director disclosed that global non-cash (electronic payment) transaction volumes grew at 8.9 per cent to reach $387.3 billion in 2014, an increase, driven by accelerated growth in developing markets.

“Cards have been the fastest growing payments instrument since 2010, as cheque use has declined consistently and significantly.

Debit cards accounted for the highest share (45.7 per cent) of global e-payment transactions and were also the fastest growing (12.8 per cent) payments instrument in 2014,” he stressed.

According to him, global non-cash volumes are estimated to have grown by 10.1 per cent to reach $426.3 billion in 2015, aided by high growth in emerging economies across the world, including Africa even as the Nigerian e-payments industry has been evolving in line with the evolution in global payments in both Wholesale and Retail systems.

“Banks, PSPs, and the CBN have played various roles in developing the payments system and creating products and channels for electronic payments.

The Retail Payments Transformation Programme of the CBN has led to the introduction of various electronic payments products and services by operators in the industry.

The electronic products are gradually reducing the usage of cheques and cash, as noticed consistently in the annual performance report since the inception of the Cash-less Policy in 2012,” he added.

He said the volume and value of transactions based on cheques and National Electronic Funds Transfer (NEFT) have been consistently reducing annually since 2013, while same data for the Nigeria Interbank Settlement System- NIBSS Instant Payment (NIP), Automated Teller Machine (ATM), and mobile money channels have been on the increase.

This is an indication of users’ preference for instant value channels over non-instant payment channels.

“The ATM Channel accounts for the highest volume of transactions, while the NIP accounts for the highest value of transactions annually.

This is because the ATM is usually the e-payment channel that new and lower value account holders always interface with, while corporates and upwardly mobile middle class customers make transfers using NIP,” he said.

The CBN director disclosed that banks and other e-payment service providers operate in a highly regulated environment.

“Regulation is necessary to ensure that operators focus on delivering products and services that enable compliance, efficiency, financial stability and a positive customer experience.

The attempt to regulate electronic payments in Nigeria started with the CBN Electronic Banking Guidelines, issued in August 2003,” stated Fatokun.

Also, in furtherance of its effort to promote and facilitate the development of efficient and effective systems for the settlement of transactions, including the development of electronic payments system, the CBN has since 2008, issued and reviewed several e-payment related framework, guidelines and circulars.

He also stated that the Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC) would soon come up with regulations to tighten the process of Subscriber Identification Module (SIM) card swap for telecom subscribers.

“Some of the fraud we are still battling with is the issue of SIM swap. We have heard of instances where people would say for three days my phone did not work.

And because many of us carry more than one phone, if one is not working, at least one will work.

In order to address this holistically, the CBN director advised banks and other e-payments service providers to develop a vision and programmes for compliance with regulations.

“Operators should inculcate a proactive and collaborative compliance mindset in their people and processes, to achieve efficient adoption of regulatory practices requirements into day-to-day operations.

Collaboration between regulators and operators is a key strategy to achieving an effective policy formulation and regulation.

Holistic approach, anticipation of regulatory actions, industry collaboration and dialogue are the best ways for the industry stakeholders to maximize Return on Investment in compliance efforts,” he stated.

He however, stated that the CBN: FinTechs Won’t Usurp Banks’ Traditional Roles

The Central Bank of Nigeria (CBN) has assured that Financial Technology (FinTech) companies will not take over the roles played by commercial banks in delivering services customers.

He pointed out that the demand for the services of FinTechs will continue to rise, even as they need commercial banks’ to enable them operate effectively.

Fatokun noted that the increasing roles of FinTech companies in the payment system will allow banks to focus more on their traditional roles of financial intermediation.

Stating that the need for collaboration between the FinTechs and banks will always continue to be on the rise, he said “none can displace the other. There will be more prominence for the FinTechs going forward.”

The CBN director explained that banks in developed world are now focusing on their core functions and leaving other roles to service providers. “FinTechs have always been in existence, it is just that more prominence is being given to their roles.

In some jurisdictions FinTechs are being allowed, or plans are under way to allow them connect to the central bank which, previously, was the exclusive preserve of the commercial banks,” he said.

Continuing, he said: “The fear has always be there that FinTechs will take over the roles of the banks and that a time will come when there will be no bank.

Fintechs are not licenced as financial institutions, they cannot take deposits, they can make payments out of bank accounts. They can only facilitate payments or make it easier but the banks will still continue to play a very big role”.

“Banks provide hundreds of services outside of payments. They open Letters of Credit, give out loans and you can only give loans if you take deposits.

They banks provide guarantee, either an advance payment guarantee or a performance bond for contractors. For you to do that you need to be a licenced financial institution,” he said.

In order to address this problem, he said that the Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC) would soon come up with regulations to tighten the process of Subscriber Identification Module (SIM) card swap for telecom subscribers.