Shonubi: No Central Bank Will Give up Its Currency for Cryptocurrencies

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The CEO of the Nigeria Interbank Settlement System, Mr. Ade Shonubi, in this interview, argues that financial technology companies will not take over the business of deposit money banks. He also shed more light on the Association of Financial Service Innovators. Obinna Chima presents the excerpts:

We have the big fintech companies and globally it has been projected that in the next 10 years, fintechs would take over about 50 per cent of the businesses of the banks. Do you foresee this happening?

I don’t see it. I don’t see the fintechs taking over the business of the banks. What I see is a collaboration, whereby the customer gets 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 can automate processes and bring in, whether it is artificial intelligence or logic to a system. I don’t see them replacing banks. I see them encouraging the banks to up their game. In those days, banks used to hire consultants like Arthur Anderson to review their processes. But what we are finding with fintechs is that outside, they have built the improved processes and are now telling the banks to adopt it. But by law, the relationship from a money-making perspective is still with the banks.

I hear people talk about crypto-currencies. It will not play a significant part in any part of the world for their local transactions. No government in the world would give up its ability to generate and create its own currencies to third parties it does not know. So, we would have crypto-currencies for selected users, same way today I can buy dollars when I want to send somebody to buy something for me in the United States of America. But my day to day transaction is naira.

So, the only way you can have local cryptocurrencies is if the central bank of that country issues it, not that any one of those out there would come. So, would the banks be threatened by the fintechs? Yes. And I think there even other businesses that are easier for the fintechs to get involved in – insurance, anything that requires a lot of technicalities, even in some aspect of health. But the money aspect of the business is with the banks, which is why they are focusing on the banks. So, what I foresee is collaboration and not one taking the business of the other.

Since last year, the trend of e-payment adoption as well as BVN registration appeared to have slowed down. What was responsible for that?

So, starting with transactions, if you look in absolute terms, the growth in 2017 was more than the growth in 2016, but the base increased. So, if you look in absolute terms, there were lots more transactions. It is because the base has been increasing over time. So, that is why we are seeing a slowdown in the rate of adoption. You would have seen a lot more transactions in 2017 than in 2016 and we think that would happen for a while. The only way we would go back to such massive growth, which is now a response to the question on BVN, almost all bank customers now have BVN.

The number of accounts continue to grow, but the number of individuals that have accounts are not growing fast. So, unless we bring more people in, you and I would be doing more transactions, but at some points there won’t growth in electronic transactions. Soon, those of us that have bank accounts would only be doing electronic. So, what next? Those who are outside the banking space continue to do business, even though with cash. So, the focus must be how do we increase the 33 million that have BVN to 40 million or even 50 million? How do we bring people into the banking space? So that we can see the growth pick up significantly. And that is why one of the aims of the Central Bank of Nigeria and the banking industry this year is to focus on financial inclusion and get more customers into the banking system.

What is the rationale behind NIBSS and the CBN supporting the launch of the association of Financial Service Innovators?

What used to happen before was that a few companies, particularly the larger ones, would come to NIBSS and say they say they have ideas that involve the payment system and would want to know how they can connect such ideas to the payment system. Now, the CBN has regulations 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 require payment? Is there any way that if I have an idea, I can test it, before I can go to the CBN to ask for licence before I can be part of the payment system? So, that was a challenge and few of them were complaining that when they go to the bigger companies, they actually take their ideas, they don’t recognise it, they convert it into their own and they use it. So, that got us thinking.

Incidentally, at the same time, the CBN had as one of its objectives, to drive financial inclusion and to use fintechs. So, the two us coming together, we started talking about how we can encourage these people to have their own association. We don’t want to create an association for them because it must be sustaining and they must believe in it. If they are not the ones driving it, after all, it would just die and become a pressure group. So, that was what led to it. And to show our commitment to them, we offered to support the association for the first one year and in addition, create what is now called the sandbox.

We are also conscious of the fact that if we don’t manage the people we put there, we might find a situation whereby someone who is in Ukraine or Russia will be taking our knowledge, build solutions and come back to sell to us. So, we decided to limit it to any Nigerian. The only way we could do that is through the BVN. So, if you go to the website of the association, 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.

Also, while we ask for BVN is so that one or two persons don’t manipulate or take over the system and are the only one using it, running several different technology and the limited resources cannot go round. Our hope is that the small players can test and either go to the CBN to ask to be licenced or when they are going to the big companies, it will no longer be for their support, but to show them what they have developed.

So, that is the drive behind the association. If you go online today, the number of registered BVN is only 33 million and I have been saying it that 33 million is too small for a 180 million population. It is people like these start-ups that are fintechs, that would be able to create small applications that may only work for 10,000 people because their cost is not high. They are close to the people and so are more likely to make it work and bring more people into the banking system. It is going to be harder for the big companies.

We don’t want a repeat of when we brought in GSM and it was only the international companies. Remove the doors now, other than Globalcom, who else is left? Almost all the applications we are using were copied from abroad. I don’t mind, but if we are the ones copying and we are not paying licencing fees outside, I won’t mind as well. But we are paying. So, let’s groom these young ones.

A lot of them don’t have jobs, which is another problem we have. We are churning out graduates without giving them employment, employment opportunities, nor are we making them employable. Now is the time for many of them to show what they know. That is the primary thing, but they must take ownership. We support them, but they must take ownership. Everybody must have ownership.

So in the nearest future, we expect a significant improvement in the adoption of fintech with initiatives like this?

If they get it right, I expect that. Our role is to provide them with that support. I know the CBN is looking at it internally. They are not a pressure group. The sandbox will give everybody opportunity. I am very hopeful that we would see a lot of people converting their ideas into good products.

For a start-up that wants to join the association, what are the requirements?

It is the individual that join. Just go online and register. If you are a corporate, then you need to sign up with them as a partner. We want to make it easy for people to join, but we also want the association to sustain itself.