The document outlines a four-stage model for reforming national payment systems. Stage 1 involves banking system reform, with the central bank playing a key role. Stage 2 is payment system planning to identify user needs. Stage 3 establishes an institutional framework through legal and regulatory changes. Stage 4 builds payment infrastructure, prioritizing retail payments, large-value transactions, and coordinating settlement processes. The document also discusses challenges facing Nigeria's payment system, like infrastructure issues, and opportunities to expand card payments and mobile money through cooperation among stakeholders.
2. Presentation Outline
Setting the stage…
Elements of a national payment system
National payment systems: the change drivers
Why reform the national payment systems?
A model for national payment reform
A four-stage, 14-step guideline
Problems, Opportunities & Prospects
Question & Answer
4. Elements of a National Payment
System
Payment instruments used to initiate and direct the
transfer of funds between the accounts of payers and payees
at financial institutions;
Network arrangements for transacting and clearing
payment instruments, processing and communicating
payment information, and transferring the funds between the
paying and receiving institutions;
Institutions that provide payment accounts, instruments
and services to consumers and businesses and organisations
that operate payment transaction, clearing and settlement
service networks for those financial institutions;
Market conventions, regulations and contractual
arrangements for producing, pricing, delivering and
acquiring the various payment instruments and services; and
Laws, standards, rules and procedures set by
legislators, courts, regulators and payment organisations that
define and govern the mechanics of the payment transfer
process and the conduct of payment service markets.
5. Elements of a National Payment
System (graphical illustration)
A complex interaction of instruments, institutions, networks, rules, etc.
6. National Payment Systems:
the change drivers…
an increasing awareness of payment system
risks and concerns about financial stability;
new developments and increasing user needs
in the financial and non-financial sectors
requiring new cost-efficient payment
instruments and services;
a policy decision to comply with international
standards for payment systems, sometimes
related to a country’s entry into regional or
global trade and financial arrangements; or
evolving central bank responsibilities and
payment needs.
7. Why countries reform the
National Payment Systems
To broaden the range of payment instruments
and services;
To better contain legal, operational, financial and
systemic risks in payment infrastructures;
To enhance the interoperability and resiliency of
banking, payment and securities infrastructures;
To improve cost efficiency, particularly in terms
of operating costs and liquidity usage, and
access to settlement credit for financial
institutions;
To create a more suitable oversight and
regulatory regime for the national payment
system; and
To establish more efficient and better organised
markets for delivering and pricing payment
9. A model for National Payment
Systems reform
BANKING
SYSTEM
REFORM
PAYMENT
SYSTEM
PLANNING
ESTABLISH
INSTITUTIONAL
FRAMEWORK
INFRASTRUCTURE
BUILD
PAYMENT
INFRASTRUCTURE
Stage 1
Stage 2
Stage 3
Stage 4
10. Stage 1:
Banking System Reform
Step 1: Keep the Central Bank at the centre
Central Bank possible roles include issuer of
money, primary creator of liquidity, interbank
settlement agent, provider of payment services,
adviser on legislation, overseer, banking
supervisor, catalyst and user.
Step 2: Promote sound banking system
There is need for banks; who are the principal
providers of the payment accounts, instruments
and services; to act cooperatively in the overall
interest of the payment system.
11. Stage 2:
Payment System Planning
Step 3: Recognise complexity
The payment system should be seen broadly as a full
set of instruments, networks, rules, procedures &
institutions that ensure circulation of money.
Step 4: Focus on Needs
Identify, and be guided by, the payment needs of all
users in the system and by capabilities of the
economy.
Step 5: Set Clear priorities
Plan & prioritize development efforts.
Step 6: Implementation is key
Develop a clear execution/implementation plan.
12. Stage 3:
Establish institutional framework
Step 7: Promote market developments
Expand & strengthen market arrangements.
Step 8: Involve relevant stakeholders
Effective & extensive consultation is key.
Step 9: Cooperate with other authorities
Central Bank must liaise with other authorities
including the NFIU, SEC, NDIC, etc.
Step 10: Promote legal certainty
Develop sound, transparent legal framework for
the system.
13. Stage 4:
Build payment infrastructure
Step 11: For Retail-give more choice to people
Extend choice & coverage of non-cash payments.
Step 12: For Large value-build business case
RTGS should be based on needs & growth in
time-critical interbank payments.
Step 13: Securities-plan with payment system
Coordinate securities & large-value payment
infrastructure.
Step 14: Coordinate settlement process
Coordinate settlement processes to properly
manage related liquidity needs & settlement
risks.
15. Generic issues/problems in
national payment system
reforms
Limited vision and leadership for
development due to a narrow view as to
what constitutes a national payment
system;
Limited knowledge of emerging payment
needs and system capabilities;
Weak support and commitment from
stakeholders due to inadequate
consultation;
Limited development resources; and
Legal, regulatory, public policy and market
barriers to ongoing development of the
national payment system.
16. Specific challenges to reforming
payment system in Nigeria
Poor state of infrastructure especially electricity
and telecomms (data services);
Low banking penetration especially of rural
communities where majority of the population
lives;
Low consumer confidence in non-cash payment
instruments especially cheques & cards due to
frauds & history of failures;
Low level of terminal deployment for accepting
non-cash payments at merchant locations; and
High investment value and long payback period
has historically served as disincentive to
potential innovators in the payment system
space.
17. Opportunities for payment
system reforms in Nigeria
Let me start by acknowledging that a lot is
already happening here…
There are opportunities to deepen card-based
payment through:
Further consumer education/awareness;
Increasing reliability & security to prevent frauds;
Integrating MFBs into the system in rural areas;
Deploying low-cost merchant terminals;
Integration with mobile phone operators (mobile
payments)
Other short-term opportunities include:
Increasing reliability of cheque-based payments;
Reducing payment switching cost for low-value
transactions; and
Enforcing blacklist of system abuse(e.g. dud cheques).
18. Prospects for change:
Keeping end-user in focus
End-user demands are largely:
High availability & choice of instruments;
Information: on benefits, costs, and risks;
Low user costs;
Interoperability among rival networks for
the same type of instruments e.g. cards;
High information security; and
Low legal risk.
19. Prospects for change:
Notes for service providers
Financial institutions demand the
following from service providers:
Equitable access to services;
Low network participation fees;
Fast and predictable delivery of
transaction, clearing & settlement
services;
Low settlement risk; and
Settlement finality or non-repudiation
especially for large-value payments.
20. Closing remarks
Nigeria must continue on the path of
reform in the banking & payment space
beyond current Government;
Existing reform agenda should be
reviewed periodically for consistency with
regional projects e.g. the WAEMU-RTGS
project;
Service providers such as Interswitch, e-
Transact, Visa/Valucard must cooperate
more in the interest of the system; and
Stakeholder early involvement/buy-in and
End-user education is key to success.