Simplifying Nigeria’s Payment System

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Obinna Chima writes on the benefits of the recently introduced Nigeria Quick Response Code in the country, which is expected to improve settlement, promote financial inclusion, help bring cash-related activities into the ecosystem for a better economy and reduce the cost of processing cash

There is no doubt that over the years, Nigeria has made noticeable progress in its desire to create a robust payment system through several reforms targeted at restoring confidence in the system.
Indeed, a sound payment system infrastructure, where operators and customers can transact business with confidence and convenience, trust and timeliness, underpins many of these reforms.

For instance, in 2007, the Central Bank of Nigeria (CBN) launched the Payment Systems Vision 2020 which identified series of recommendations to increase the resilience of the payment system infrastructure and work-streams to encourage the usage of electronic payment methods were inaugurated.
Since then, the country has continued to introduce initiatives that would help simply payments and deepen financial inclusion.

One of such was the recent launch the Nigeria Quick Response (NQR) Code, a Quick Response (QR) code-driven payment solution by the Nigeria Interbank Settlement System Plc (NIBSS) and the Central Bank of Nigeria (CBN).

The solution is expected to aid financial inclusion in Nigeria.
Globally, QR codes are a kind of matrix barcode representing information presented as square grids, made up of black squares against a contrasting background, which can be scanned by imaging device, processed and transmitted by appropriate technology.

These codes can be used to present, capture and transmit payments information across payments infrastructure.
The technology further enables the mobile channel to facilitate payments and presents another veritable avenue for promoting electronic payments for micro and small enterprises.

From restaurants and hospitality, to government and safety information, QR codes have empowered anyone with a smartphone to easily access information and content.
In addition, QR codes have also become a way for companies to tell brand stories, from packaging, luxury, fashion, artists, among others.

In 2020, Ghana launched a universal QR code payment solution, which made it the first African country to introduce a universal QR code.
The importance of QR codes when it comes to digital and cashless payments is why some payments companies have been working over the years to increase its adoption across the world, for both merchants and consumers.

Benefits of the NQR
The Deputy Governor, Financial System Stability Directorate, CBN and Chairman of NIBSS, Mrs. Aishah Ahmad, hailed the introduction of the payment solution.
She pointed out that the Nigerian payment system has evolved significantly over the past decade with wide spread technological advancement supported by deliberate enabling regulation.
This, according to her, had facilitated the growth and proliferation of innovative financial products, services and channels.

“Indeed, Nigeria has leapfrogged a number of advanced economies in the area of financial innovation.
“Covid-19 pandemic has also accentuated the situation with more opportunities for financial institutions and other players within the payment ecosystem to innovate and provide more options for payments and settlements.
“Globally, there has been a major shift from contact to contactless options with a number of countries like china Thailand, Malaysia, India Singapore, Ghana and Nigeria pioneering groundbreaking solutions in this regard,” she said.

She added: “The CBN in response to these market developments released the response to development released the framework for QR code payments for Nigeria in January 2021, as part of efforts to further deepen the adoption of electronic payments in the country.

“The framework stipulates acceptable standards for implementation and interoperability roles and responsibility of participants for QR code schemes in the Nigerian system amongst others.
“The NQR payment solution coming soon after the QR code framework would bridge an urgent gap within Nigeria’s fast evolving payment landscape.

“It would unify QR code scheme across the country, offer a robust payment platform that delivers instant value from p2b and B2B transactions and a more improved customer experience.
“The scheme would also allow a more convenient and integrated process leveraging Application Programming Interface (API).”

Furthermore, she said this would reduce the cost of financial services, deepen financial inclusion and grow economic and business activities to increase payment activities and merchant outlets.
To the CEO of NIBSS, Mr. Premier Oiwoh, with more people being able to pay for goods and services with just their smartphones, the NQR payment is about recreating the Nigerian payment experience whilst deepening financial inclusion in the country.

Digital transactions supported through the NQR code payments will promote and enhance consumer payment experience while driving growth for business owners, Oiwoh added.
The payment solution made available by banks and other financial institutions has also been hailed by financial experts as the ‘future of payments’.

It is expected to unlock a wealth of extra benefits that will transform the way Nigerians choose to pay for goods and services at all levels.
“As consumers and merchants alike move towards technology-driven solutions, QR Codes are growing increasingly important.
“Nigeria demonstrates yet again that it has a forward-looking financial services industry, as it drives towards a truly cashless and contactless society with NQR,” Oiwoh further said.

The NIBSS boss stressed that the NQR is an alternative to cash transaction. According to him, most SMEs and service providers in the country today require instant payment and that is why people still rely on cash.
Therefore, to solve cash problem in the society, the NQR was developed to meet a lot of Nigerians’ needs by understanding the ecosystem and working to ensure that the product meets the needs of the ecosystem.
The payment platform is faster in terms of payment process.

The buyer does not need to reveal his/her account number to the seller. It just requires scanning and the payment is done and the buyer and seller get their alert instantly, he said.
“In the area of value, we are looking at efficiency. It is faster and safer means of payment. With the pandemic, the product provides a better means of payment rather than touching cash or any other device.
“The consumer is in control of his/her mobile phone and from the phone, the buyer can just scan and make the payment,” he explained.

He added: “NIBSS will be working with banks as we don’t have direct interface with merchants. Basically I am providing a platform to support payment system.

“The banks understand the logic behind this. Everybody in the banking system today needs NQR. Today, there are 113 million accounts in the industry and if this is reduced, you can get the ration per bank.
“If those banks decide to focus on their customers, a lot of banks today are uploading and the merchants are, I think the banks will devise strategies to go in to the ecosystem.

“It is all about safety nets and understanding. I believe that most traders who understand the value to adopt the system for payment than carrying cash.
He anticipates that in two years, the NQR would be available everywhere in the country.
“It is all about experience, user friendliness and simplicity. It just requires three steps to make payment which are scan, confirm the amount and put your pin.

“The way we designed it, we don’t have to build a technology that will scare people, it is a technology very simple and easy to use with the right safety net embedded.
“My greatest joy will be farmers as well being able to use it to sell their produce. It will definitely happen because it is all about awareness, adoption and comfort. We need to understand the local market and design product and services that meet the market,” he insisted.

The Quick Response Code Framework
Acknowledging the significance of this solution, the Central Bank of Nigeria in January 2021, unveiled a framework for QR code payments, directing all issuers, acquirers, switches, processors and other participants in the country to ensure full interoperability of the schemes.

The CBN stated that the guidelines were in furtherance of its mandate to ensure the safety and stability of the Nigerian financial system, promote the use and adoption of electronic payments and foster innovation in the payments system.

The framework provides regulatory guidance for the operation of the scheme and aims to ensure the adoption of appropriate QR code standards for safe and efficient payments services in Nigeria.

The apex bank, in a circular titled: “Framework for Quick Response (QR) Code Payments in Nigeria,” stipulated the acceptable QR code standards for implementing QR payments in Nigeria; interoperability of QR payments; roles and responsibilities of participants as well as risk management principles for QR code payments.

The CBN, however, warned that it will sanction any party that fails to comply accordingly with the QR regime, adding that all consumer complaints shall be resolved in accordance with the CBN Consumer Protection Regulation.

The guidelines provide that issuers and acquirers shall clearly define risk management policy and guidelines for the operation of the QR code scheme.
It stated: “QR codes shall, at a minimum, be encrypted (AES) and/or signed; QR codes payments applications, updates and patches shall be duly certified by the Payment Terminal Service Aggregator (PTSA); issuers and acquirers, shall agree minimum due diligence guidance for merchant on-boarding without prejudice to the KYC/AML requirements of the bank; issuers and acquirers shall ensure that only PTSA certified QR code shall be utilised; issuers and acquirers shall ensure behavioural monitoring and fraud management systems are implemented to prevent, detect and mitigate fraud and money laundering.”

Conclusion
Clearly, the NQR code is expected to be a game-changer in retail proximity payments, and this may have real consequences for large-scale adoption of digital financial services among financially underserved populations.
Given their frequency, retail payments have greater potential to get people into the habit of using digital financial services.

Indeed, with this solution, users do not need financial education to use QR codes for payments.
They simply launch an app, scan a QR code and enter their e-PIN. If using a printed QR code, they also enter their transaction amount.

The fact that a user’s phone vibrates when a transaction is completed, and that he or she gets a visual receipt on their phone, adds immediacy and physicality to the payment experience in a way a card purchase never could.
And the effort required of the merchant to complete a transaction is close to zero.