E-Payment Review, December 2019

E-PAYMENT REVIEW

Vol. 09. No. 03 December 2019

e u s s I g n i d n e L e h T FAST CASH

How optimized processes are speeding up digital loan approvals and why banks are missing from the scenario + Interview: Chinedu Onuoha, Group Head, Digital Banking Business Development at Access Bank 1 /E-PAYMENT REVIEW/ DECEMBER 2019

2 /E-PAYMENT REVIEW/ DECEMBER 2019

EPAYMENTREVIEW.COM

E-PAYMENT REVIEW Vol. 09 No. 03 | | Dec 2019

Brown N. Ugbaja Editor Chioma Nwabufo Editorial Assistant EDITORIAL & DESIGN SERVICES Precise Definitions Ltd.

Published By the Electronic Payment Providers Association Of Nigeria (E-PPAN).

E-PPAN TRUSTEES Adedotun Sulaiman Chairman, Financial Reporting Council of Nigeria

Tunde Lemo Federal Roads Maintenance Agency (FERMA)

Mitchell Elegbe Managing Director/CEO Interswitch Transnational

Senator Ayo Arise Chairman, Fortunes Games

Niyi Ajao Deputy Managing Director, NIBSS Plc

Demola Aladekomo Chairman, SmartCity Resorts & Director, Chams

Agada Apochi Managing Director Unified Payments Services

GOVERNING BOARD Macaulay Atasie Managing Director Nextzon Business Services

Kofo Akinkugbe Managing Director/CEO SecureID Nigeria Limited

Stanley Jacob Chairman of the Committee of e-Banking Industry Heads (CeBIH) Chukwuma Ezirim Group Executive, E-Business & Retail Products, First Bank of Nigeria ALTERNATE BOARD Eme Godwin Head, Legal, Etranzact International

Bob Nwojo Head, eChannels Services, First Bank of Nigeria Gbenga Haastrup General Legal Counsel & Chief Compliance Officer, Interswitch Ochanya Dan-Ugo Chief Risk Officer, Unified Payments Services Bami Akinlade Head, Information Technology, SecureID

D ECEM B ER 2019

In This Issue 4 | To Our Readers

fintech

12 Questions

NeFF Insight

6 | Eric Chijioke, Chief Technology Officer of Paga

Talking Points

9 | Price tag of Africa's broadband dream, digits

10 | Interswitch's unicorn profile, Kenya gets digital credit platform for MSMEs 11 | Appointments, Twitter's JacK Dorsey's plans for Africa, tracker

26 | Challenges of financial services integration and how to overcome them 27 | Bold agenda from NeFF's annual general meeting

Secure Access

28 | PCI DSS compliance declines, Mastercard launches Threat Scan, in short, fraud by numbers 29 | Risk levels rising, Angola's data protection agency, threat level, scientists make quantum chip

COVER

NIBSS Fraud Report

Q&A: Funds at your disposal

30 | Q3 2019 fraud benchmarks

Trends & Tactics Enterprise Q&A

VENTUREBURN / AFROTRIBUNE

12 | SecureID's CEO, Kofo Akinkugbe reflects on the future narrative on payment

Viewpoint

25 | How mobile data can fuel future of

35 | Tech-powered bank of the future, payment numbers, banks lose quarter of payment instruments to non-bank entities 36 | Apple rules mobile payment, Uber Money arrives, China

The power of digital lending

Digitization of lending process brings a number of useful benefits that could transform banking and help it meet CBN regulation | 14 Maria Rotilu, Country Managing Director of Branch on how her firm capitalizes on customer demands to be at the forefront of lending | 18

12 Questions: Funds at your disposal

Peggy Chukwuma-Nwosu of CRC Credit Bureau on market impact of her agency in the execution of real time assessment of creditworthiness | 20

OFFSHORING HOMEMADE DIGITAL LENDING

Lidya's CEO Tunde Kehinde and co-founder Ercin Eksin at the Web Summit in Lisbon, Portugal in November.

The company has made an expansion into Europe with the launch of SME lending in Poland and the Czech Republic.

Interview: Creating a better borrower experience

Access Bank's Chinedu Onuoha on how Nigeria's leading financial institution creates superior customer experience in digital lending | 22 universal QR code, card numbers, hunger for cash, EU plans rival payment scheme

37 | Consumers value bank branches, briefly, new standards for digital payment

The Gimlet Eye 38 | You and me and use of big data

COVER: Peer-to-peer digital lending vector.

Courtesy of cashwagon. com.ph.

E-PAYMENT REVIEW (ISSN: 2360-9818) is published every quarter by the E-Payment Providers Association of Nigeria, 1 Rachael Nwangwu Close, Lekki Phase 1, Lagos. Š Vol. 09 No. 03. December 2019. All rights reserved. The opinions expressed do not necessarily reflect E-PPAN’s policy. E-PPAN accepts no responsibility for views expressed by contributors. Printed in Nigeria.

3 /E-PAYMENT REVIEW/ DECEMBER 2019

TO O U R R E A D ERS

In control of the borrowing experience

TONYELUMELUFOUNDATION / AFRICANEWS

I

N RECENT TIMES, FINANCIAL technology (fintech) has contributed immensely to the refining of people’s lives. In the financial services arena, it has greatly, within a very short time, lent to the delivery of a more personalized and intuitive banking experience. Due to the near universal presence of mobile devices and internet innovations, advances in automation are uniting with financial services to proliferate ‘banking’ experiences in frequently underbanked markets in places like Africa, Asia and Latin America. As of 2018, more than a third of internet users worldwide used a mobile payment service. This impressive user figure is the outcome of services frequently offered by fintech purveyors who are enabling consumers to send, receive, store and use money in ways that make it instantly available, constantly accessible, and able to benefit and sustain a healthy digital economy.

An increasFintechs ing number of fintechs worldmake accesswide support ing financial a smogasbord services less of digital payintimidating. ment options, the most common ones being mobile apps for online transactions, mobile wallets, credit & debit cards used on Point of Sale devices, online shopping and payments using QR code. Now owing to fintech efforts, lending is seeing a lot of unexpected changes in terms of customer demand and expectations, disbursement methodology, government regulations and competition.

Startups that work at the intersection of technology and the financial sector are building products and value propositions around crediting solutions and using them to disrupt traditional lending. Today in Nigeria, there are over a dozen lending platforms that help connect lenders and borrowers.

These startups are enabling borrowers to apply for and access loans from any internet connected device, at any location, anytime of the day or night.

Their solution requires no upfront capital, works with the lending policies that are already in place and supports business and consumer lending products. Their business model

allows borrowers to avoid lengthy banking approval and creditworthiness assessment. Unlike the traditional system of lending that counts on excessive manual work and involve obsolete methods of identifying the borrower’s creditworthiness, digital lending minimizes paperwork for disbursal, renewal, and administration of loans. In fact, its true nature is in its name. Digital lending means loans are originated and disbursed using technologies like data analytics, psychometric tests, social media habits and more. The quick approval (or denial) of loans through digital processes saves borrowers plenty of time and paperwork thereby improving the overall customer experience.

Lending is a widely understood concept - financial institutions lend money to people for personal uses; and to businesses so that they can undertake projects or build new products. But due to the age-long conservative disposition of banks, most people find walking into a bank and sitting with a loan officer very intimidating – they fear rejection. The same notion is why online dating is popular - walking up to someone and asking for a date is very intimidating - people fear rejection.

Owing to traditional guardrails built to protect against non-performing loans, rejection has been baked into the relationship of banks and their customers when it comes to lending.

This is part of what set the stage for the emergence of fintechs and their services. Fintechs make accessing financial services less intimidating.

People can apply for a lending product on their own and skip some of the upfront awkwardness. The value is based on driving an easy upfront online experience with a fast decision turnaround time. This is why fintechs are growing.

So why don’t all financial services institutions provide digital lending?

This is the question that this issue sets out to answer especially at a time that the Central Bank of Nigeria is pushing banks to lend more.

Feel free let us know your thoughts on this issue.

gbaa

Brown . U

Editor

“Entrepreneurship is a long-term journey. There is no quick fix. You will make mistakes. You will have challenges. For you to succeed along this journey, you must be disciplined, make sacrifices and save today to achieve your goals.”

TONY O. ELUMELU, Chairman, United Bank for Africa (UBA) at the Youth Konnect Forum in Cabo Verde in October.

150,000,000

Nigerians in the financial system who are at risk of being defrauded through telecom platforms, according to Prof. Umar Danbatta, Executive Vice Chairman of the Nigerian Communications Commission in an address at the inauguration of a multi-sectoral committee on e-fraud in November at Abuja.

INSPIRING ENTREPRENEURS Jack Ma, Founder of Alibaba Group and the Jack Ma Foundation (front middle) with the 10 entrepreneurs from across Africa who were awarded $1 million in prize money at the first Africa Netpreneur Prize Initiative a flagship scheme of his foundation to support African entrepreneurs who are building sustainable and inclusive projects.

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12 Questions Eric Chijioke Chief Technical Officer of Paga talks about the road

LOLA EKUGO

" L OW- F R I C T I O N AC C E S S T O F I N A N C I A L S E RV I C E S I S F U N DA M E N TA L T O M AC RO E C O N O M I C D E V E L O P M E N T A N D I M P ROV E D S TA N DA R D S O F L I V I N G "

that took him to software engineering, the mindset of progress needed for developing local IT content for Africa and tools he can't do without

TELL US ABOUT THE JOURNEY YOU HAVE TAKEN TO get to where you are now in your career?

I began my professional career as a mechanical and instrumentation engineer. Throughout my childhood, schooling and even early startout as an engineer, I was very much into computers and software and took every opportunity I could to use them in academic, professional and personal work. It took working as an instrumentation engineer for a couple of years for me to realize that I was far more fulfilled building software systems. Since then, my career has been a journey of learning and taking calculated leaps to stay engaged in opportunities that allow me push my limits as a technician and manager, and to make impact at scale through it.

I went to school in the United States and worked with a .com-era company there that produced enterprise risk management solutions and risk management systems for banks, insurance companies, and organizations like the World Bank. That’s where I honed my skill in enterprise software engineering and architecture. I left the company in 2004 and moved to Ethiopia to work as the lead software architect in the development of the country’s Integrated Finance Management Information System (IFMIS), a Harvard Kennedy School project. This phase of my career afforded me insights into how to develop appropriate software, at scale, in an environment with mixed infrastructural capacity and a user base of non-tech-savvy population.

In 2008, a group of us from the project started a software engineering firm called Apposit to tackle projects in Africa that required large-scale but world-class, software engineering. We saw a gap there that was being inadequately filled by unsuitable off-the-shelf, expensive software imports, and immature home-grown solutions. I was a managing partner at Apposit. It was in that year that I met Tayo Oviosu (Paga co-founder and CEO), just as the Paga venture was concretizing, and over the course of a year or so, transitioned from the role of a “friendly tech adviser”, to the company's CTO, still based out of Ethiopia, leading a product development team located there and in Nigeria. I think the summary of my career trajectory has been to follow and combine my passions, which include software architecture and growth in ways that continue to challenge me.

What’s the best thing about being part of the electronic payment revolution in Nigeria?

Paga is at the forefront of that revolution and working in product development/technology for the company means that I occupy an exciting position in that revolution. That is unbelievably exciting and yet sobering. Exciting, because of the opportunities for real impact, innovation and social change. Sobering, because the same scale of impact is accompanied by a responsibility to our users and agents as well as the business and technical challenges of operating in Nigeria.

More than ever before, my work is changing lives for the better in a very tangible way. It is awesome to be a part of that revolution.

Paga has been involved in the Nigerian payment market for 10 years now. As its CTO, how would you define your company’s approach to innovation?

Innovation is one of Paga’s core values. This is likely the belief in many other companies. But simply stating it doesn’t mean very much. For us, innovation is a process and for it to be successful, it needs to be part of a company's culture and must be intentionally institutionalized in its processes. At Paga, there are a few key tenets to our practice of innovation.

We are open to ideas and change from literally anywhere and are able to capture great ideas in an actionable way.

Innovation requires a solid understanding of your market and the feedback from that market. Innovation for its own sake could be wasteful in a business context, so you need strong processes to make sure that your innovation is moving you in the right direction from your market’s perspective. Effective innovation requires strong processes and it takes careful intent and continuous introspection to setup processes that support innovation. This becomes more and more difficult yet important as a company and its services grow.

How has mobile payment improved customer service to a level that today’s consumers are comfortable with?

I would like to broaden the question to include improvements in customer experience and not just customer service. Customer experience refers to all the experiences and sentiments a customer has about a service as opposed to the experience they have in dealing with a specific problem.

Perhaps the most fundamental benefit of mobile payments is improved access to financial services. By its very definition, mobility implies the ability to access something anywhere, easily. Paga and many other payments companies in Nigeria are creating new ways to access financial services such that they truly are available to large portions of the population who didn't have that access before.

However, accessibility, doesn’t simply mean connectivity, so a large part of the innovation is not just introducing financial services on new channels such as USSD or phone apps, but also making those services work intuitively for the widely-varied market that is Nigeria. Low-friction access to a wide set of appropriate financial services is fundamental to macroeconomic development and improved standards of living; and mobile payments, when done properly would be a big part of that.

In the Paga landscape, which segment of customers are you currently focusing on to grow your market and services?

The Paga landscape has a broad set of market segments ranging from unbanked to banked customers; individuals to businesses and each requires differing services, products and channels to suit its needs. The Paga organizational structure is set up to enable us to execute effectively across several of these segments simultaneously without losing too much focus. We continue to grow our agent network rapidly, while at the same time growing self-transacting customers and merchant payment use cases.

Who was an influential boss for you and what lessons did they teach you about management and leadership?

Jonathan York was my boss at my first job as a software engineer. He was a young and brilliant technologist, only a couple years older than me but had a management maturity that belied his age. Working with him, I learnt about leading by example, letting others grow, and managing effectively without overt exertion of authority. Working with Tayo and Jay Alabraba (Paga co-founder), I am learning a lot about inclusive leadership; how to lead and manage better, not just by example, but also by harnessing the collective spirit and energy of diverse talents and perspectives for decision making and large-scale growth.

What is that one ritual you do unfailingly everyday?

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What do you wish you had more time to do?

I adopted a practice for managing my thoughts and notes called bullet journaling and I use it religiously now.

Ironically, despite being a techie, I prefer to write notes on paper because it gives more tangibility and permanence to my thoughts. I struggle with many of the classic challenges of managing analogue to-do lists and generally organizing and referencing written notes. Bullet journaling provides me a near-complete solution to those challenges, while improving my ability to be intentional about my thoughts and priorities.

What are your predictions on the most impactful disruptions we will see happen in the market with payments and financial services in three years?

Three years feels like a fairly short time-frame for major disruptions, but the pace of change is increasing. I believe over that timeframe the most significant changes, in the context of Nigeria, will be around deeper integration of low-friction payments into the places where people already play eg. social media platforms; continued breakthroughs with blockchain-based payment networks that will reduce the cost of transactions and better targeted financial-services products that meet the customized needs of individual segments of the market.

What’s your smartest work-related shortcut or productivity hack?

I have what I call a business make-time, which is where I block-off a regular and long chunk of time, for example all

day, one day a week, in which I am not available for meetings and not working in operational things like coding. but rather on the management side like strategy sessions, thinking, recruitment, process improvement. Operations will take over your life if you let them and while they are critical in keeping the business running, they aren’t so good at innovating to grow the business in new ways.

What apps/software/tools can’t you live without?

I’ll highlight the following: IntelliJ IDEA (Java IDE), Slack (enterprise communication tool), Jira (work process/case management solution), Spotify, Strava (run/exercise tracking app), Password Manager, Kindle (eReader) and Google G-Suite.

What advice did you learn early on that has served you well throughout your career?

Respect your elders.

Bonus question: What is something you do better than others – the secret of your success?

I think I am able to operate effectively in different areas of a business and at levels of abstraction. What I mean is that I’m pretty comfortable “in the weeds” technically and dealing with large-scale software abstractions while also comfortable thinking about business strategy, processes and other non-technical concepts. I think my engineering background has given me a problem-solving mental approach that works well in a wide variety of circumstances but could be quite useless in others.

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"Innovation is a process and for it to be successful, it needs to be part of a company's culture and must be intentionally institutionalized in its processes."

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TALKING POINTS

BANKING, BEER AND MUSIC COMBINATION Herbert Wigwe, Access Bank MD/CEO speaking at an event to launch Access The Stars, a new talent hunt sponsored by Star Lager Beer and Access Bank to discover new music talents across the country with N150 million up for grabs by the winners of the hunt. “Both our brands share a long history of creating excellent musical experiences for not just own customers, but the wider Nigerian audience and this is us expanding on that," Wigwe said.

Broadband moonshot for Africa is a $100 billion tab

ACCESS BANK

A

CROSS AFRICA, WHERE LESS THAN A THIRD of the population has access to broadband connectivity, achieving universal, affordable, and good quality internet access by 2030 will require an investment of $100 billion. This is among the conclusions of a report from The Broadband for All Working Group, which was launched at the Annual Meetings of the World Bank Group in October.

The report called for urgent action to close the internet access gap while providing practical insights and suggestions and an action plan for universal broadband connectivity on the continent. About 1.1 billion more Africans need to come online and this will require exceptional and coordinated efforts from a broad array of stakeholders.

"The digital agenda is first and foremost a growth and jobs agenda," said Makhtar Diop, the World Bank's Vice President for Infrastructure. "The working-age population in Africa is expected to increase by some 450 million people between 2015 and 2035. If current trends continue, less

than one quarter will find stable jobs. Broadening internet access means creating millions of job opportunities."

While the number of broadband connections in Africa crossed 400 million in 2018, the regional average penetration rate - including 3G and 4G connections - was only 25% in 2018. Mobile broadband coverage is still at 70% of the population. The report said that reaching eveybody will require allocating 80% of all required investments to directly rolling out and maintaining broadband infrastructure. Another 20% consists in building user skills and local content foundations, while another 2-4% will be allocated to setting up appropriate regulatory framework.

While the private sector has driven most successful broadband initiatives, public agencies play a crucial role by implementing effective sector regulation, addressing potential market failures, and creating the conditions for an open, competitive broadband sector.

"In large parts of Africa, we are witnessing a lack of progress in extending access and network coverage. Affordability

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NIBSS DIGITS

N84.86 TRILLION

Value of transactions on the Nigeria Interbank Settlement System's (NIBSS) Instant Payments from January to October 2019.

909.66 MILLION

Volume of money transfers recorded in the first 10 months of 2019.

38.8%

Growth rate of PoS transactions in first 10 months of 2019 reaching a value of N2.52 trillion.

TALKING POINTS is also declining in many nations.

Promoting greater digital inclusion is going to require more effective and innovative collaboration," said Doreen Bogdan-Martin, Executive Director of the Broadband Commission for Sustainable Development and Director of ITU's Telecommunication Development Bureau. "We need to leverage our strengths and expertise.

Governments can help with policies enabling new technologies, new business models and investment. The right policies will, in turn, provide the private sector with the incentives to build out infrastructure and explore new technologies and applications that will drive demand."

Connecting people in rural and remote areas who live out of reach of mobile networks will require strong private sector involvement, innovative business models, and alternative technologies, such as satellite and Wi-Fi based solutions, the report said.

"Let us be clear: no single actor will be able to meet Africa's 2030 target and carry the burden of a $100 billion investment funding requirement alone.

All stakeholders must work together to make sure that every African has affordable and reliable access to the internet," said Hafez Ghanem, the World Bank's Vice President for the Africa Region. Stakeholders include: the African Union; regional economic communities; governments, investment agencies; regulators; multilateral and regional development banks; the United Nations; the private sector; civil society groups and nongovernmental organizations.

The Working Group on Broadband for All: A Digital Moonshot Infrastructure for Africa, led by the World Bank, was established in 2018 under the Broadband Commission for Sustainable Development to identify investment requirements and policy roadmaps to increase connectivity to reach full coverage in Africa. The report drew upon the expertise of broadband commissioners and experts from around the world.

(L-R) Kayode Akinkugbe, MD/CEO, FBN Quest Merchant Bank; John Maguire, CFO, Interswitch; Mitchell Elegbe, GMD, Interswitch and Kobby Bentsi-Enchill, ED, Stanbic IBTC Capital at the bond issue signing ceremony in October.

Unicorn status makes Interswitch most valuable African fintech

AFRICA-FOCUSED GROUP VALUED AT $1BILLION AFTER VISA REPORTEDLY ACQUIRES STAKE Deal stands Interswitch as Africa’s first home-grown tech unicorn and marks another milestone in the fast-growing African digital payment market

T

OP PAYMENT COMpany, Interswitch, has reached “unicorn” status with a valuation above $1 billion following a recent bond placement in the Nigeria stock market and the acquisition of a minority equity interest in the company by Visa.

Interswitch raised N23 billion through the issuance of a series 1, fixed rate, senior, unsecured callable bonds in October via a special purpose vehicle, Interswitch Africa One Plc. Investor participation in the bond was restricted to qualified institutional investors as defined by the Securities and Exchange Commission (SEC), with a proposed allocation of 64 cent to pension fund managers, seven per cent to asset managers and 20 per cent to commercial banks.

The bond saw an oversubscription rate that the company

INTERSWITCE / KBC

Kenya creates digital credit platform for MSMEs

T

HE KENYA BANKERS Association (KBA) has floated a credit platform for small and mediumsized enterprises (SMEs). Christened Stawi, the mobile loan product allows SMEs to access

KBA Chairman, Joshua Oigara (centre), KBA ViceChairman, John Gachora (left) and KBA CEO, Habil Olaka (right), at the launch of the Stawi.

said demonstrated investor confidence in the Interswitch brand, business model and long-term strategy, supported by strong domestic ratings from both Moody’s and Agusto & Co. “Diversifying our funding sources through the inclusion of these bonds will enable us achieve our strategic objectives and vision," said Mitchell Elegbe, Interswitch founder and Group Managing Director.

Interswitch was propelled into unicorn territory following Visa's acquisition of significant interest in the payments processor. The US-based multinational reportedly invested $200 million in Interswitch in return for a 20% stake. The deal is expected to close in the first quarter of 2020.

Founded in 2002 by Elegbe, Interswitch led the digitization of Nigeria’s payment system. It has

unsecured credit of between 30,000 shillings ($300) and $2,500 at an interest rate of 9 percent with repayment periods of one month to a year.

Kenya President Uhuru Kenyatta who unveiled the product said that Stawi is a culmination of efforts by government and the banking sector to provide affordable access to credit for SMEs. He expressed optimism that the service will help boost enterprise in the country by making access to credit cheaper and faster.

"Stawi will offer a longer repayment period to small business borrowers, thus making it easier for them to

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since grown into a large Africafocused infrastructure company with a home-grown menu of online consumer payment platforms, switching services and a debit card scheme with more than 19 million active cards.

Interswitch is keeping up a frenetic pace in business activities recently that includes the launch of Verve cards in Ghana, marking the card scheme's 10th anniversary and the purchase of a 60% stake in eClat Healthcare Limited, a Nigeria-based health technology company.

There are reports that the company is poised to go public next year on the London Stock Exchange. The plan has been delayed for several years, which Interswitch executives blamed on Nigeria’s recent recession.

Analysts believe a successful IPO would create more momentum for startup investment in Africa.

better manage their cash flows; and, therefore, grow their businesses to the next level," he said, noting that 80 percent of all businesses in the country are SMEs. The Central Bank of Kenya, the NCBA Bank, Cooperative Bank, Diamond Trust Bank and Kenya Commercial Bank committed 10 billion Kenyan shillings ($97 million) to the scheme to target a fast-growing but traditionally underserved SMEsegment. Over 100,000 customers borrowed 100 million shillings during Stawi's trial phase started in May, said KBA chairman Joshua Oigara.

Peter Ndegwa named new CEO of Safaricom

APPOINTMENTS

NDEGWA WHO IS CEO OF DIAGEO CONTINENTAL EUROPE WILL START THE JOB ON APRIL 1

ADEBAYO ADEDEJI

N

IGERIA’S MOST PROMInent online travel booking agency, Wakanow, has appointed its Chief Commercial Officer Adebayo Adedeji to the position of interim CEO following the exit of the company's founder and CEO Obinna Ekezie.

Adedeji has about 19 years of experience in finance and has held positions in companies like Texas Instruments, Ecobank, BK Global Food and Walmart.

He holds a Masters of Business Administration in Finance from Clark Atlanta University, Georgia.

LAURENCE DO REGO

E

COBANK TRANSNATIONAL Incorporated has appointed Laurence do Rego its Group Chief Regulatory and Compliance Officer. A banker with decades of experience, she joined Ecobank in 2002 as financial controller for Ecobank Benin and has held other positions within the group including as CFO, executive director and more recently senior advisor to the Group Chief Executive Officer (GCEO). Filings to the Nigerian Stock Exchange show Laurence would report directly to the GCEO, Ade Ayeyemi.

OLUSOLA TENIOLA

A

4AI, THE ALLIANCE for Affordable Internet has appointed Olusola Teniola, President of the Association of Telecommunication Companies of Nigeria as new National Coordinator for Nigeria. He replaces Dr. Ernest Ndukwe, who led the coalition from its inception in 2015. Olusola has over 23 years of global ICT experience working in strategic management positions at companies. like British Telecom, Vodafone, Cisco Inc. and Alcatel-Lucent Technologies.

Kenyan national Peter Ndegwa will take the helm at Safaricom, East Africa’s largest telecoms firm and most profitable company, on April 1, 2020. He was selected following a lengthy search for a successor to former CEO, Bob Collymore who died in July.

“We are confident that Peter will carry on our vision of transforming lives, meeting our customers’ needs and holding us to our new commitment of being Simple, Transparent and Honest,” said Nicholas Nganga, Safaricom Chairman.

Ndegwa is the Managing Director of Diageo Continental

WAKANOW / NATIONALBUSEXTRA / OKIBATA / SAFARICOM / UNILAG

Twitter CEO Jack Dorsey to live in Africa JACK DORSEY, CEO OF Twitter and payments processor Square, who came on a four nation visit to Africa in November, has pledged to live on the continent for six months next year in order to get a good perspective of what it is like to be an entrepreneur here.

“I want to understand the challenges of starting a company here and figure out a way I can support,” he said at a town hall meeting with local entrepreneurs organized by Techpoint.

“I want to live here for three to six months next year, full time, no traveling.”

His itinerary, during his visit, included Ethiopia, South Africa, Nigeria, and Ghana and was part of his listening and learning tour across Africa. While in Nigeria, he and his entourage visited tech incubators and tech companies meeting entrepreneurs and fellow bitcoin and cryptocurrency enthusiasts.

They also made a stopover at the University of Lagos and were received by the Vice Chancellor, Prof. Oluwatoyin Ogundipe.

At CcHub, they met with developers and had a Q&A session

Ndegwa

Europe, a multinational alcoholic beverages maker with operations in Europe, Russia, and North Africa. He has worked for Diageo in Kenya, Nigeria, and Ghana.

He holds an MBA from the London Business School and an Economics degree from the University of Nairobi.

TRACKER

Binance opens fiat-to-crypto gateway for Nigerians

Twitter CEO Jack Dorsey (left) snaps a selfie with his team, students and staff of the University of Lagos. Vice Chancellor, Prof. Toyin Ogundipe is in suit.

with startups from the CcHub portfolio where he learnt more about their work and shared his experience on building both Twitter and Square. Dorsey spoke of about his plans to recruit Nigerians to operate remotely for his companies even though he believes that the country still does not have enough Twitter users.

"Speaking specifically about Nigeria, in the future, many of our customers will be from here than there are today. There

is a massive opportunity here for Twitter because Nigeria has many technical talents and impactful public conversations happen here too," he said.

A long time cryptocurrency advocate, many analysts believe Dorsey's visit to Africa was to scope out interest in using crypto to solve day-to-day problems. He attended a town hall meeting in Ghana where he expressed his views on the cryptocurrency situation and the challenges surfacing.

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Cryptocurrency exchange Binance has added support for the naira to its direct fiat-to-crypto trading facility. Made possible by payments network Flutterwave, this means Nigerians can now use the naira to purchase bitcoin along with Binance’s dollar-backed stablecoin and Binance coin. The naira will also be supported as a trading pair on the exchange. Users will pay 1.4 percent of the total amount deposited as fees with maximum amount allowed per deposit pegged at N430,000, while the minimum is ten naira.

Agent-centric OPay raises $120 million in Series B round OPay, the startup incubated by Norwegian-based consumer internet outfit Opera, has raised $120 million in a Series B funding round joined by a host of Chinese investors. The new funding will be used to continue its diversification and entrance into new African markets. The round was joined by Meituan-Dianping, DragonBall Capital, GaoRong Capital, Source Code Capital, SoftBank Ventures Asia, Bertelsmann Asia Investments, Redpoint China, IDG Capital, Sequoia Capital China and GSR Ventures.

ENTERPRISE Q&A

Staying ahead of the curve KOFO AKINKUGBE, MANAGING DIRECTOR/CEO, SECUREID ON HOW HER COMPANY CREATES INTELLIGENT SOLUTIONS THAT ADDRESS PAYMENT NEEDS

T

SECUREID LIMITED

HE ELECTRONIC payment industry predicts that payments will shift to a complete mobile form factor.

What would a scenario like that mean for your business?

SecureID is an innovative company that has played and continues to play a key role in digital payments in Africa. We empower banks and payment brands in the digital ecosystem to enable consumers to confidently use electronic payments in all aspects of their transaction journey.

We understand the changing dynamics of the ecosystem and we know mobile payment is not restricted to just the mobile device, but instead it is being built into the overall experience of consumers’ interaction with money. That is why SecureID is not only interested in following the trends but leading in innovation. When payment shifts to the mobile form factor, SecureID will change its service offerings to ensure it leads in an ever-changing payment industry.

What is SecureID’s role in the making of payment cards?

SecureID is a digital security and card technology company with a state of the art manufacturing plant for payment cards in Nigeria.

Our facilities are equipped with end-to-end card manufacturing and personalization systems that enable us to produce over 200 million cards annually. We bring exceptional value to our customers across industries, including government agencies, businesses and banks. Our role involves offering full cycle of card issuance and management to enable our customers provide their services effectively.

Does mobile payment

threaten your business as a manufacturer of the physical, tangible card?

Mobile payment certainly will grow, but it is obvious that consumer familiarity with cards as a payments system is what's driving demand for electronic payment, not true consumer interest in adopting mobile-based payments methods. We expect that for a few years, increase in the use of mobile payments will actually have a positive impact on cards issuance as the level of financial inclusion rises above the 20% of Nigerians that are banked.

So as a card manufacturer, we are still going to be making cards because we foresee a need for it that stretches into the future.

For now, people want cards to use on the ATM and PoS. Mind you we don’t only do manufacturing, we do personalization and we offer other solutions and services that are part of the natural evolution of digital services. So, for the next few years we can say no, we don’t feel threatened. No one knows how the future will play out but we know change is constant so we expect and will be ready for the change.

What other verticals o are part of SecureID’s business?

Our products and services include provision of superior end-to end identity management and digital security solutions to public, private, finance, telecoms and retail sectors. With the rise of digital transactions and financial inclusion for the unbanked, SecureID currently offers digital payments solutions for revenue collections.

for PoS transactions as well as withdrawal of cash from ATMs. It can also be used to authorize Web transactions. But we want the card to do more particularly in contactless payments and loyalty programmes that reward card.

What have been some of the challenges that you face today in improving the card user experience?

One of the advantages of a card is that it can be used

What do you think is going to be the key trends in identity technology over the next five years?

I think licenses and credentials for identity on

Kofo Akinkugbe, Founder/Managing Director, SecureID

mobile; robust security measures in response to people’s demands for trust and national ID card programmes will help ID technologies to gain traction.

Contactless devices will play a role here too.

What’s the best thing about being part of the electronic payment revolution in Nigeria?

I would say having the honour of leading the kind of change that affects the

12 /E-PAYMENT REVIEW/ DECEMBER 2019

everyday life of Nigerians.

What major milestones did SecureID achieve this year? What are your goals for 2020?

This year we achieved the Mastercard Global Vendor Certification that assesses card production quality and inaugurated a card quality management test laboratory. Our major goal for next year is to partake in the production of the Nigerian ePassport.

security

13 /E-PAYMENT REVIEW/ DECEMBER 2019

COVER

THE DIGITAL LENDING SPHERE OF INFLUENCE THE LENDING MARKET IS FOCUSED ON BORROWERS NOW AND THE BUSINESS VALUE OF THIS SHIFT IS MORE THAN REAL FOR BANKS AND FINTECHS

GETTY IMAGES

ARTICLE AND INTERVIEWS BY BROWN N. UGBAJA

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W N

WHEN IT COMES TO DIGITAL FINANCIAL SERVICES, pedigrees don't often show the presence of a trait across generations. In less than one full deade, traditional banks have watched as firms powered by digital technology tore through what was once special and reserved territory. If there is one trait that demonstrates the disruptive character of financial technology (fintech), it is lending. Before its emergence and eventual global ubiquity, the state of play in loan issuance in a financial institution was a chain of actions that occurred in denouement sequences that in some cases resulted in getting a loan amount sanctioned but in most cases led to bitter frustrations. The entire processes and time taken to avail a loan involved several crucial steps. All put together, those steps in banking vernacular are commonly referred to as loan origination – a progression that involves filling of loan application, submission of relevant documents, collection and validation of supporting data, screening, negotiation of loan terms, then approval or rejection of the borrower’s loan application.

Delivering on this traditional necessity in all cases is a cumbersome exercise. When you unhook the parts of the chain, what jumps at you is a process so unwieldy that it consumes a lot time and satiates both lenders and borrowers. It usually takes 35-40 days for the completion of a process (from application filing to sanctioning or rejecting the loan). The volume of paperwork necessary to the procedure makes it tedious for banks to handle various types of loans at the same time. Added to that is the fact that streamlining the documents can be a real mess and committing even a small error might result in a major issue.

What goes unsaid is that this manual loan processes are generally prone to errors while the uncertainties around them and the delays at times cause irreversible losses. In a recent interview, Abubakar Suleiman, Managing Director of Sterling Bank summed up to TechCabal why it is very expensive to lend manually. He said the workforce required to accomplish the task is usually very sizeable. Besides for borrowers, if a loan eventually gets approved, they find they fine prints are riddled with hidden fees and preclosure charges that ultimately make credit less affordable to many credit-starved consumers and businesses.

This was the scenario that fintech changed. It threw out the old playbook and reinvented lending in a way that made obtaining credit (any form of it) easy and instant. Using digital technologies, software solutions and business models, composed of end-to-end techniques via the Internet, fintech eliminated the challenges faced in the loan origination process and fermented a revolutionary digital near-utopianism: products designed to connect consumers with their finances instantly.

The outcome is an avalanche of companies and services that use new digital tools to change the way consumers access their finances. From mobile payment apps to insurance, betting, investments, even money itself (think cryptocurrency). fintech has disrupted traditional financial and banking complexity. In 2019, it is possible to manage funds, trade stocks, buy insurance, pay for anything under the sun (often on a smartphone) because of fintech companies and applications.

The adoption of digital technology to improve loan acqu-

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MASHABLE

COVER

isition and servicing is just the latest use case.

Day by day, fintech provides a nimble selection of methods to make lending more and more digital: that means available, accessible, instant, ergonomic and transparent. On the lending arena, a new breed of fintech-powered lending companies has arisen to exploit the gaps created by traditionally out-of-date systems and sluggish pace of modernization by legacy financial institutions to optimize loan processing times; to de-mystify the dogmas weaved around lending and to deepen credit penetration to the underserved segments of the population. Their systems feature a suite of options designed with an aim to simplify the entire loan process, deliver operational efficiencies, eliminate the occurrence of an error, make reporting and analytics integration process simpler, and much more. Employing artificial intelligence, big data and proprietary algorithm that looks beyond traditional ways of assessing the borrower, these companies have advanced their ability to disrupt previously une-

ABUBAKAR SULEIMAN Managing Director and Chief Executive Officer of Sterling Bank.

xplored avenues in alternative finance and credit underwriting.

Traditionally, it has been rather difficult for certain subsets of society and markets to have access to loans. Due to mutable risk factors, orthodox lenders routinely take a long time to approve loans for customers with unconventional risk markers. They screen loan applications based on criteria that include income, employment, financial status, credit score, guarantors and available collateral. As a consequence, billions of people around the world face problems because of a lack of easy access to credit. For many of these billions, including small and medium-sized enterprises (SMEs), long wait times for loans can be 16 /E-PAYMENT REVIEW/ DECEMBER 2019

potentially catastrophic.

Today, because of fintech the heartache of waiting for weeks or months on end to hear back on loan applications from a bank is coming to an end especially for the unserved segments of the market and those underserved by banks.

Thanks to the emergence of automated decision engines that leverage the power of data and new set of rules to optimize business decisions, the new ecosystem has a different set of parameters for executing responsible and transparent loan agreements that generate economic value.

Carbon was among the first fintech companies to buck the trend and challenge the orthodox thinking on instant lending in Nigeria.

Formerly going by the name of Paylater, its fully digital process made the loan lifecycle quicker, simpler and easier. A product of One Finance & Investments, it specifically catered to people who have formal bank accounts, but still remain underserved by their banks. It gave these customers uncollateralized, short-term loans.

“We founded One Finance because we felt that there was a space in consumer lending that the banks were not filling… Our idea was to give consumer loans to salaried employees and we did that in Lagos using agent network,” said Chijioke Dozie, co-founder and CEO of One Finance in a 2017 interview with E-Payment Review.

“They will go to offices and try to sell loans and of course we have an online presence but towards the end of 2015, we realized that was not a scalable model. We were not a bank and we didn’t have the resources to hire thousands of agents, so we decided to use technology to scale.

We created Paylater in 2016 which allows us to easily disburse loans to anyone within five minutes.”

Using an arcane model that can surmised from its original name, Carbon provides credit - from loan origination to disbursement - through a quick procedure that took less than five minutes: three minutes to decide, one minute to transfer the money and zero human touch. And all these happen on the mobile phone.

The idea which Dozie said came to him when he was employed at the International Finance Corporation (IFC) in South Africa took off with the company disbursing N1000 daily loans to people who applied for the credit on their phones. Within a few months, the starting amount increased to N10, 000 and reached over a million naira for individuals with verifiable employment. Requirements for accessing the loan include the borrower's Bank Verification Number (BVN), a passport photograph and a verifiable address. Interest rate mottled between 12 - 15% depending on risk level while loan tenure stretched from three to 12 months. Recently, the company forayed into enterprise lending with Carbon for Business to serve startups and SMEs. Since Carbon berthed on the financial services territory, the loans’ market has grown significantly in terms of volume, value and players.

An array of lending startups now dot the space, offering personalized loans that are vastly different from the sort of bank loans that proved so inaccessible for many decades. Companies like Branch, RenMoney, Page Financials, KwikMoney, FairPay and a few others offer various consumer credit services. Others like Lidya, Eazzicash, KiaKia, C24 and QuickCheck have plat-

forms that offer personalized loans and lines of credit to small and midsize businesses.

Lending is about generating economic benefit through the funding of enterprises, while ensuring the lender can make a profit, create shareholder value, and manage risk. Assessing the creditworthiness of any business can be a challenging task. So it was for banks who by their nature ocupied a special place in the lending space. Now they have been knocked off that pedestal by the preternatural audacity of digital technology. Fintechs have been able to redefine the meaning of worthiness and collateral.

By combining analytics with big data fintechs their platforms use automated verification processes and real-time underwriting tools souped with artificial intelligence and machine learning capabilities to generate valuable insights in their assessment of borrowers and lending decisions.

These tools work best for decisions that need to be made recurrently and speedily with information that is available electronically. They are able to take a specific set of criteria and make a decision about the validity of a loan’s risk profile, all without the need for human intervention. This allows decisions to be made in a matter of minutes as opposed to weeks or even months.

By aiding consumers and businesses with finance, these platforms are helping in employment generation and the overall financial growth of the country. Meanwhile, as digital finance takes centre stage in the global push for financial inclusion, these loan platforms now offer a way for Nigerians to develop a good credit history that can further help them in obtaining credit from other outlets in the future.

What has been more surprising is that as the fintech insurgents continue to encroach on their turf, banks have been sluggish in keeping them at bay. While they are digitalizing their activities, they have largely focused on the most frequent customer transactions, such as transfers, payments and others. With regards to the lending arena, they have taken a back seat. Even in the digitizing of their operations, what they have done for the most part have involved automating previous paper-based processes. Bugged down by legacy systems, they are creating digital lending options that are slower and have more friction than the competition.

The fact is banks in Nigeria are among the most reluctant lenders in major emerging markets, according to data compiled by Bloomberg.

With an average loan-to-deposit ratio (LDR) below 60%, they trail banks across Africa whose ratio hover around 78%. South Africa’s LDR is above 90% while it is 76% in Kenya. Calculations by business news website, Proshare, showed that First Bank, UBA, Union Bank and Zenith Bank provided less than 51% of their deposits as loans in the first quarter of 2019.

Banks procrastination extends from a reluctance to lend to the kind of patrons that indulge the fintech companies - individual consumers and small businesses. If you own a small business and need financing for a new project or expansion there’s an 80% probability that the money to accomplish it will not come from a bank loan. There are a variety of reasons for banks disinclination to honour loan requests: a lack of consistent cash flow, insufficient collateral, insufficient credit and economic concerns

Lending by numbers

N1.84 trillion

Loans disbursed by 10 Nigerian banks in the first three quarters of 2019 bringing their gross loans by September to N13.55 trillion, according to financial data compiled by Nairametrics.

N459.7 billion

Lending to manufacturing in Nigeria from May to the end of October 2019, the most the sector has received in two decades, Governor of the Central Bank of Nigeria, Godwin Emefiele told reporters im Abuja in November.

11%

Non-performing loans as a percentage of total credit in the Nigerian banking industry in the first quarter of 2019, a decline from 14% same time in 2018, according to the National Bureau of Statistics.

are among explanations banks give for declining loan applications. For institutions that thrive on always looking out for their own interests, these are very genuine excuses. Banks have been reluctant to lend for fear of incurring non-performing loans (NPL). According to the National Bureau of Statistics, the percentage of NPL as part of total credit in the Nigerian banking industry declined to 11% in the first quarter of 2019 from 14% a year ago. Anxiety about NPL is why banks prefer to pour their money into high open market operations and treasury bills, which yield as high as 17% on average and have been adjudged, one of the globes highest rates.

Now, the Central Bank of Nigeria (CBN) wants them to stop doing that. Towards the middle of the year, the apex bank began persuading banks to consider moving away from investing in high-yielding securities and kicking funds over to the private sector. particularly SMEs, which have grown to become the linchpin of the economy. At its meeting in May, the Monetary Policy Committee urged banks to increase lending to businesses to help stimulate the economy. “For us to achieve growth those whose responsibility it is to provide credit must be seen to perform that responsibility,’’ CBN Governor Godwin Emefiele told reporters after the meeting.

Since then the CBN has kept up the pressure on banks to force them to meet commitments to make credit available to businesses. In a July 03 letter, the CBN asked banks to maintain a minimum loan to deposit ratio of 60 per cent by September 30, 2019 or risk increases on their additional Cash Reserve Requirement (CRR) equal to 50% of the lending shortfall of the target LDR. The loans were necessary “to ramp up growth of the Nigerian economy through investment in 17 /E-PAYMENT REVIEW/ DECEMBER 2019

the real sector,” the letter, which was signed by Ahmad Abdullahi, director of banking supervision at the CBN said. “To encourage SMEs, retail, mortgage and consumer lending, these sectors shall be assigned a weight of 150% in computing the LDR for this purpose. The CBN shall provide a framework for classification of enterprises/businesses that fall under these categories.”

Days after the letter was issued, the CBN trimmed the size of interest-bearing deposits it would hold for banks and stopped them from buying treasury bills for themselves at an open market auction. It will later fine 12 banks about N499.1 billion for breaching the LDR order. Those affected included Citibank (N100.7 billion); First Bank of Nigeria (N74,6 billion); FBNQuest Merchant Bank (N2.6 billion); First City Monument Bank, (N14.3 billion) and Guaranty Trust Bank (N25.1 billion). Others were Jaiz Bank (N7.5 billion); Keystone Bank (N4.1 billion); Rand Merchant Bank (N2.8 billion); Standard Chartered Bank (N30 billion); SunTrust Bank (N1.7 billion); United Bank for Africa (N99.6 billion) and Zenith Bank (N135.6 billion). The banks will lose the money at source from their CRR with the CBN. The pressure campaign seemed to have worked. Between the period in May when the MPC voiced its concerns and September that was supposed to be the deadline for banks to raise their LDR, the credit market boasted a loan-to-deposit ratio of 5.33% growth. Loans issued by banks rose from N15.57 trillion to N16.40 trillion, according to the CBN, whose reaction to this good news was to elevate the LDR to 65% and offer a December 2019 deadline for compliance.

Overall, what the results indicate is that the lending market is about to see some serious action – some of it competitive and the rest complementary. Traditional financial institutions laissez faire disposition to the rise of digital lending derives from the well-known general belief that fintech platforms will never eliminate them from the lending ecosystem. What this proves is that such outlook was the wrong attitude. Despite being asked to provide the shot in the arm that would strengthen the economy, banks have a supreme duty to fortify the lending environment. Many analysts believe that the strategies that traditional banking institutions would adopt towards meeting the LDR requirement would result in fierce competition between them and fintech players.

Some financial industry watchers are optimistic that the pressure to build their credit ratio would open the door to full scale collaboration between banks and non-banks in a way that would totally remodel financial services in Nigeria. There is not much option left for them in the scenario that the CBN wants. As Sterling Bank’s CEO Suleiman opined to Techcabal, there are only two approaches banks can follow to meet the LDR requirement: they could say no to customer deposits or open the taps and lend more. In fact, banks are enthusiastic to keep the taps open.

When you step away from the statistical noise, what confronts you is an array of digital lending products that banks are deploying to the benefit of their various customer classes.

The problem is that these products are ringed-fenced with too much cautiousness. Mindful

COVER of incurring any volume of non-performing loans, banks over-engineer these products to reflect each bank’s relative proficiency in credit analysis and loan monitoring. This in effect excludes those who are supposed to benefit from these loans. Thus, the high ratio of exclusion by the financial institutions appears to result from assuming more inherent credit risk, not from inefficiency at lending.

That said, established banks are playing digital lending catch up. They have begun investing in their own digital transformation.

To better position themselves in this new digital era they are plying funds and human resources into emerging technologies such as mobility, artificial intelligence, machine learning, and big data analytics to help them develop a deeper and broader understanding of what the market really needs and the kind of solutions that address those needs. Some banks have reenergized their innovation agenda to offer loan products in a way that mixes credit risk consciousness and lending efficiency so finely that they are viewed as conceptually sound, well-accepted and widely used.

"For us to achieve growth, those whose responsibility it is to provide credit must be seen to perform that responsibility.’’

DIAMOND BANK - YOUTUBE

GODWIN EMEFIELE Governor of the Central Bank of Nigeria (CBN) One example is GTBank’s QuickCredit, which was launched in 2018 to offer instant loans to its salary account holders and small businesses. Accessible through the GTBank mobile app, website, GTWorld and Habari app. It promises funds of between N10,000 and N5 million at an interest rate of 1.75% monthly or 21% annually. Also, Sterling Bank has Specta, a digital lending platform that uses the bank’s proprietary credit scoring engine to calculate borrowers’ creditworthiness and issue loans to customers of any bank. Specta has provided over N40 billion in loans since it launched last year.

“We are currently lending about N8 billion a month and we are projecting N10 billion per month,” said Suleiman in quotes published

by Techcabal.

Then there is Access Bank whose digital lending portfolio has reached a record N1 billion in daily loan value. PayDay Loan its flagship loan product was named E-Payment Review’s Innovation of the Year in 2018. Access Bank depends on algorithms and deep machine learning capabilities to offer multi-tenured digital loan variants that fit the needs of its diverse retail customer segments.

“We are at the forefront of digital lending across the continent. This is a deliberate choice we made when we introduced the first USSD based digital lending product in Nigeria based on our deep understanding of

Q&A

Alternative lending is remaking credit CEO OF BRANCH NIGERIA MARIA ROTILU ON HOW HER COMPANY IS TRANSFORMING CREDIT JOURNEYS AND CUSTOMER EXPERIENCE IN ITS DIGITAL LENDING MARKETS

T

ELL US A BIT ABOUT YOURself and your career.

I’ve worked with and consulted for multinationals on both strategy and operations for over eight years. My background in science and my skills in finance, made it easier for me to get into the digital financial services industry. I have a bachelor's degree in Computer Science from Covenant University and I'm a Certified Chartered Accountant with the Association of Certified Chartered Accountants in the UK. I previously held management consulting roles at Deloitte with a focus on financial services. I later joined Uber and left as the country manager for Nigeria. There is so much opportunity for growth in offering world class financial services to the mobile generation. It’s been a great journey so far, and I am excited to continue unlocking value for our users at Branch.

Talk us through the thought process behind Branch International and its business model.

Branch is a mobile financial services provider for high-growth, emerging markets. Our main service is lending and our goal over time is to expand to other financial services such as savings, money transfers and payments. With the explicit permission of our customers, we use data science to analyze smartphone data to determine loan eligibility. Our machine learning algorithms process thousands of data points to create personalized loan options in a matter of seconds. To use Branch, customers need to download the app from the Google Play store. It takes just seconds to sign up, add your information and select an offered loan amount and terms. The application takes just a couple of clicks and approval happens in less than a day. Funds are then deposited straight to a customer’s bank account. With Branch, there is no paperwork, no guarantors and no hidden charges or late fees.

We have operated in the Nigerian market for about two years and to date, have disbursed over N15 billion in loans. We offer loans ranging from N1,000 to N200,000. We are in five countries so far -- Nigeria, Kenya, Tanzania, India and Mexico -- and have plans to further expand within Africa, Asia and Latin America over the next several years What are you excited about within the alternative lending industry in Nigeria?

What's exciting is an “emerging middle class” taking root in cities around the world with a resulting increase in credit demand.

Smartphone adoption has accelerated in recent years mostly driven by dropping device prices and growing internet penetration. This presents a great opportunity for companies like Branch to reach and serve even more Nigerians 18 /E-PAYMENT REVIEW/ DECEMBER 2019

with efficient and low-cost services.

Your website notes that you’ve provided over $350 million in about 15 million loans to three million plus customers online.

Why is it that you can do those kinds of numbers but banks cannot?

Branch is disrupting the financial services space in Africa by replacing physical branches and traditional underwriting processes using a proprietary machine-learning algorithm to make lending decisions. There are two reasons why we think Branch has seen much success here. The first involves market factors. Nigeria has seen accelerating smartphone adoption, a high appetite for world-class financial services, and an increasing acceptance and propensity to use mobile financial technologies. This is at a time that the high cost of credit and the riskaverse traditional lender lock out many potential customers from access to basic financing.

This presents Branch with an opportunity to build products that solve this need in the Nigerian market. By using data science as the backbone of our loan products, we’re able to dramatically reduce the cost and speed of delivering financial services in Nigeria and our other markets. The bigger reason that we think customers have come to love Branch is because of the product and the experience we’re building. The company’s growth has been spurred by its policy of offering lower interest rates and longer repayment terms to customers who have reached higher credit limits, thereby encouraging repeat uptake.

What are the challenges that Branch faces and what future do you see for the company?

For the most part, Nigeria has been such an exciting and wonderful market for our business. Since launching two years ago, we have seen strong growth and a true need for the Branch product in the market. Of course, all businesses have challenges so they are not unique to us. The tech space in Nigeria is still in its nascent stage so product interest, operating structures and regulatory frameworks will keep evolving. We are more focused on improving the product to better serve our customers. We are excited to see how offering fair, transparent loans -- through an app in just minutes -- is clearly meeting the needs of customers and we want to extend that to more people.

Are you partnering with any big banks? If yes, How does the relationship work? How do they leverage you? How do you leverage them?

We do not have a partnership with any bank at the moment.

How do you see competition in this mar-

or professions who use your services more than others?

Based on data we collected during user research, which we perform regularly, seven out of ten users report using Branch to fund small business needs and meet financial obligations. These are often informal businesses. Our customers find short term investments for loans in the range of N3,000 to N200,000 to be very valuable. In both quantitative and qualitative research, we’ve noted strong uses for cash float such as fuel for transportation drivers, fabric for clothing producers, ingredients for the production of prepared foods, materials for beauty and hair services, and tools or materials for vocations. These goods don’t require large investment, but can be prohibitively expensive for businesses in developing markets who can't access short term credit.

How does Branch International mitigate the risk of borrowers defaulting on loans?

We leverage cutting-edge technology to improve the risk associated with lending in emerging markets. In Nigeria, there are no robust credit bureaus, but thanks to growing internet and smartphone penetration, we are able to evaluate users based on digital information to determine their creditworthiness before they are granted a loan. Controlling our default rate is one of our key business priorities. We have a healthy default rate that is sub -10 percent depending on the maturity of the market. It’s also worth noting that nearly 90 percent of firsttime borrowers repay and take out a secondary loan. For customers who delay in repayment, we deploy a variety of loan recovery strategies to recoup the funds, while keeping the customers’ interest at heart. If a customer defaults, that customer is reported to the credit bureau for blacklisting and may no longer access loans from other lenders. When they repay, however, the blacklisting is reversed, and their names cleared from the credit bureau.

ket? Are you worried that larger financial institutions may attempt to take a bigger stake in the digital lending industry?

For decades, both formal and informal lenders have played a role in increasing access to capital -- when it is needed most. However, we are now at a point in history when financial services can penetrate the hardest to reach places on earth, thanks to technology and the increased usage of mobile devices. In Nigeria, many customers lack the traditional credit histories that would allow them to access traditional options for capital, and traditional financial institutions are unable to underwrite these customers. The process of getting a loan for some customers is very challenging and lengthy. It requires paperwork, col-

lateral, guarantors, in-person meetings and more.

Branch and other financial technology services have fundamentally changed how customers in this market can access credit. They choose Branch because they expect speed, transparency and convenience from their financial partner. Loan application and approval are fast and happen all on the phone. That said, Nigeria is a large market and millions of people, especially those in the informal sector are yet to have easy access to credit, so it'll require more players to adequately serve everyone who needs credit and we expect more entrants into the space in the coming years.

Are there people in certain kinds of businesses 19 /E-PAYMENT REVIEW/ DECEMBER 2019

Branch seems like a good example of the fintech companies stealthily disrupting parts of the financial system.

How do you think your company will change in the next five to ten years?

The vision for Branch in Nigeria is to offer long sought after, best-in-class financial services to the mobile generation Nigerians irrespective of where they are located. So in the next five to ten years, we want to see everyone, everywhere have access to capital and world-class, modern financial services via their smartphones. Loans are just the beginning for Branch. We’re continually improving our products and we hope to add savings and payments products in the future. Plus, we’re also looking to launch into even more markets.

COVER 12 QUESTIONS

Peggy Chukwuma-Nwosu Head of Business Development at CRC Credit Bureau on credit reporting flow, fintech scoring models and steps being taken to build a climate of credit in Nigeria

C

DAILYPOST.NG

OULD YOU tell us a bit about yourself and your career?

I am the head of business development responsible for expanding the bureau's business and managing relations among members of the bureau. I hold both a Bachelor of Arts and Master of Arts degrees in English Language from the University of Lagos.

I am an alumna of the Lagos Business School (LBS) and also hold an Msc. Human Resources Management and Development degree from University of Leicester, United Kingdom. I have gained over 17 years work experience in the financial service industry especially in areas like banking operations, relationship management and team building. have facilitated several customer service monitoring and evaluation sessions.

What problem does CRC Credit Bureau solve in Nigeria’s banking sector and the alternative lending space?

CRC Credit Bureau helps lenders, both banks and fintech, make informed decisions in their lending processes. We have developed about thirteen different credit monitoring products and services that are available to both individuals and corporate organizations alike. One solution we proffer to our customers is using our robust data base for lead generation for their marketing activities and we also offer skip tracing services for lenders who are looking for borrowers who have absconded without paying back their loans. The solu-

tion wades through our large database that cuts across different sectors of the economy. These are just some of the various products and services that CRC Credit Bureau offers in the Nigerian Banking sector and alternative lending space to boost their decision making.

A credit rating agency, such as yours, is expected to help provide trust and confidence in financial markets by rating borrowers on their creditworthiness. How much data analysis is involved in your credit analysis?

CRC has over 30 million credit records in our repository and it is growing every day. We also have a customer database of over 1500 institutions as at June 2019, from different sectors of the economy. This information is made available to other credit grantors to use in conjunction with other relevant criteria to boost their decisionmaking process when offering loans or post-paid products and services.

There is no more lending in the dark.

How did credit data reporting come to evolve in the Nigerian market, and where does it stand compared to the rest of the world?

Credit data reporting in Nigeria is still relatively young but it is gaining acceptance in the Nigerian economy with the support of the government and the Central Bank of Nigeria (CBN).

A formal recognition of credit bureaus started in Nigeria in 2008 when the CBN issued official guidelines on their licensing and registration.

The CBN mandated all banks and financial institutions under their jurisdiction to use at least two of the licensed credit bureaus, one of which is CRC, when making lending decisions. They are required to submit data which includes both negative and positive information regularly. No matter how small, any information on lending

20 /E-PAYMENT REVIEW/ DECEMBER 2019

�

We currently have data from all sectors of the economy and as more data comes into the bureau, it enhances even more access to finance."

amounts to credit data.

They are also required to check on the platforms of at least two credit bureaus before granting loans. In 2017, the Credit Reporting Act was passed into law and signed by the Acting President, Professor Yemi Osinbajo on May 30 of that year.

In comparison to the rest of the world, when it comes to data submission, we are doing well

but there is still room for improvement regarding regular and complete data submission from institutions. Regarding general public awareness on the existence of credit reporting, we at CRC are doing as much as we can to sensitize the general public and we will continue to do so, and we acknowledge that this will be an ongoing process.

What is the average credit score in Nigeria and what does it mean to lenders?

A credit score is a threedigit number that summarizes the credit risk of an individual at a point in time (probability that a borrower will pay back a loan). The CRC Score which is powered

by FICO (the Fair Isaac Corporation) which is used in over 90 countries worldwide ranges from 300- 850. The average credit score is between 620-679 and this shows that the risk of a borrower not paying back a loan is not too high. We need to clarify here, that a credit score is just one of the many criteria used by lenders to decide if they will extend a loan or not.

However, the credit score does have some influence on the outcomes of lending decisions.

How does the use of credit score models in the online market address lending access?

Credit scoring models help lenders make swift decision based on preapproved risk levels. With API (Application Program Interface) integrations and connections, lenders can approve or reject loan requests within seconds.

What have you seen changing in the credit reporting flow in recent years with financial technology companies coming into play? What changed in the handling of data and the way institutions assess data

as opposed to before the time when fintechs were not in place?

I can only speak for CRC and we have always had API integration options for our institutional members who wish to have it. With the entrance of fintechs, consumers now can use digital means to access finance within seconds through USSD short codes and mobile applications. These means that fintechs need to be able to access data from the credit bureaus in a matter of seconds and that technology is available as we speak.

Let’s say I am applying for a financial product from a certain fintech company and that company is your client.

What is CRC Credit Bureau’s playbook here?

The fintech in question will connect to the CRC database via an API to understand your credit behaviour and include this data in the decisionmaking process. Upon disbursement of the loan, they will provide CRC the information on your demographic data and terms of credit which is placed on the database.

This data must be updated going forward till the loan has been fully repaid, this will become part of your credit history.

Is the Nigerian market properly prepped to become a credit-based economy?

Nigeria has always been a credit-based economy, however there was no database, where this information was kept.

So, the credit history/ performance of people and businesses was not readily available to other credit grantors to enable them to make informed credit decisions. We currently have data from all sectors of the economy and as more data comes into the bureau, it enhances even more access to finance for those who honour their obligations and prevent default-

ers from enjoying access to credit or post-paid services.

What steps are being taken to build a climate of credit market awareness and financial literacy in Nigeria?

CRC has taken many steps to create as much awareness as possible about credit by organizing specific industry events to sensitize these organizations on the existence of credit monitoring and the value it brings to the financial health of their businesses. We are also running a massive marketing communications campaign using traditional media to sensitize the general public on credit monitoring and specifically credit scores and why they need to know what their credit scores are. All these goes along with our regular social media and email marketing activities to promote and educate the public on credit market awareness and financial literacy. The CBN has also done a lot in creating awareness about credit monitoring in Nigeria.

What are some challenges you expect in the digital lending space going forward?

Data submission and updating of data by financial institutions could be a challenge because as we speak, lender bring in their data once a month but in the nearest future, we foresee data submission becoming a daily, even hourly process in the digital lending space. At CRC, we are fully preparing for that future, technology wise.

In your opinion, what is the most important attribute for an online lender to have in order to maintain its relationships long-term with clients?

Speed, efficiency, ease of use of the applications/ platforms, competitive interest rates and swift turnaround time on dispute resolutions.

21 /E-PAYMENT REVIEW/ DECEMBER 2019

our operating environment. In the past two years, we have disbursed over 3.5 million loans to individuals,” said Victor Etuokwu, Access Bank’s Executive Director, Retail Banking in a press statement. “We acknowledge it is no mean feat when compared to where the market is coming from, but this is still a scratch in the overall potential of this market. This year alone we have disbursed over N45b in over 2 million disbursements to individuals and have recently witnessed a spike in our volumes hitting N1billion daily.”

The above examples are conservative loan instruments that in their basic character are mostly tied to salaries. But beyond a cursory assessment, banks appear to be leaning on them to change their old processes, which were built on generations of difficult-to-integrate legacy technologies. But it also highlights their basic difference from fintech or non-bank entities in both innovation and risk appetite. This means that the kind of progress that loan consumers expect from financial institutions are being hampered mostly by an incumbent culture, that in its mentality, is not optimized for today’s digital marketplace.

The challenge for most banks is being able to develop digital solutions that extend beyond basic transactional thinking. While there has been some progress in improving lending processes in particular with personal credit, many more complex types of loans, such as mortgages and small business loans, continue to lack digital solutions. Meanwhile, fintech lenders are creating demand for marginal credit risk, personal loans and even digital small business and commercial loans that are not tied to any form of collateral.

What that indicates is that the banks do not even realize they are already in competition with non-banks.

Yes, banks operate with an entirely different set of dynamics - they have strong existing relationships with customers that have been in place for years, if not decades and they still retain the lion’s share of accounts across the spectrum of financial services. But there is a sticky correlation between that power of incumbency and a financial environment that is responsive to the needs of every consumer segment. An acute lack of response was what birthed fintech in the first place.

This much smaller and more flexible startups pioneered digital-first solutions that simplify the application, closing and disbursement processes; they offer effective services, either directly to consumers (B2C) or to businesses (B2B). Fintechs are creating new models to make lending decisions, source capital and service loans. This is what allows even inexperienced borrowers to comfortably navigate the financing process. And they are also more lenient on the borrower profiles that they will lend to even borrowers with a poor credit history.

In Nigeria, the need for technological disruption in the banking sector is all the more acute, given that over 36.8% of the country’s population still remains financially excluded. Due to this massive market size, alternative lending companies are in a position to threaten traditional incumbents. Unless the latter update their lending practices, fintech technologies could potentially overhaul legacy processes and gain a greater percentage of the overall market share.

Conversely, fintechs and banks have opportunities to survive and thrive in a lending arena that runs on new-school ideas. Their success or failure depends on a capacity to keep a careful ear out for the voice of the customer and a sharp focus on constantly evolving imperatives. However, collaboration between them would be a great example of how companies can work together to provide innovative solutions to old problems.

Cover Interview

Access Bank Is Delivering Next Generation Lending Experience Chinedu Onuoha, Group Head, Digital Banking Business Development at Access Bank on his financial services group's plan to provide digital loans to every adult Nigerian

C CHINEDU ONUOHA - STUDIO24

CHINEDU ONUOHA TRAINED AS A MATHEmatician and software developer, and has been in banking and IT consulting all through his professional life. His roles have largely centred around development and monetization of technology. He is driven by the desire to democratize access to financial services leveraging technology. This is at the heart of his current role in Access Bank.

Can you take us through Access Bank’s digital loans portfolio and how you are positioning these loans in the current lending landscape?

Our objective is to ensure that there is a digital loan product for every adult Nigerian who has a proven means of livelihood. We know that every individual at one point or another requires some form of financial support.

Our flagship PayDay loan product is tailored to help individuals meet their urgent cash needs. The tenor for this loan is 30 days. We also have loans with tenors of 3 months and 6 months.As you know, we are at the fore front of the digitization effort in Nigeria. Part of the role we have taken upon ourselves is to open up access to phone ownership. To realise this, we have launched a 12-month device ownership scheme where any salary earning customer of Access Bank can select a phone of his choice from our QuickBucks app and walk into any of our partner outlets across the country to pick up the 22 /E-PAYMENT REVIEW/ NOVEMBER DECEMBER 2019

23 /E-PAYMENT REVIEW/ NOVEMBER DECEMBER 2019

Cover interview phone.

Describe the most important milestone you’ve accomplished in the past two quarters of the year.

How much have you lent out to customers so far this year?

In the past two years, we have given out about 3 million loans to individuals. We acknowledge it is not a mean fit when compared to where the market is coming from, but this is still a scratch in the overall potential of this market. This year alone we have give out about N40 billion in over 1.6 million disbursements.

We have talked to several lending providers and the central aspect of their business seem to be relying on data to give more people access to credit and a great customer experience. How do you make the best use of data provided by people online and how do you create the best value out of it? Are all your lending decisions based entirely on a data model?

Our lending business is centered around our ability to predict customer behaviour. When you are banking over 31 million individuals, you have a unique advantage. This also comes with a very high sense of responsibility. In learning our customer’s financial behaviours, we are able to set criteria for our lending decisions.

One of the beautiful things about our digital lending products is the instantaneity of our offerings. We are able to achieve this because of our algorithms which can analyze and profile customer data before the requests can be initiated. This way decisioning becomes a very simple and fast activity. Yes, data analysis is at the heart of our digital lending business.

Online lending is often defined by information asymmetry when lenders do not have enough information about loan takers. What factors do you take into account when making a loan decision in the Nigerian market? What are the red flags you watch out for?

As I mentioned earlier, Access Bank currently banks over 31 million Nigerians. To a great extent, we have sufficient data to understand the behavioir of our customers. Key to our success is the constant analyses of customer behaviours and the fine-tuning of our algorithms as new insights emerge. Now, beyond our internal records, we also rely heavily on credit bureau checks and other available credible data sources outside of our bank. Macro-economic statistics is also a critical data source for consumer lending in general. We take inputs from these sources to shape our risk appetite which is reflected in the decisioning algorithms.

The wild growth of digital lending has exposed a multitude of problems especially rising default rates among borrowers and a narrowing credit risk appetite. Give us an insight into your default rate and what happens when a customer can’t repay a loan?

Available statistics indicate that access to credit in Nigeria is still very low. Less than 5% of Nigerians currently have access to credit. Now this challenges the notion that online lending is going through a wild growth phase. Most of the customers are first time borrowers. Same applies to some of the lenders, especially the non-bank lenders. Each of them will go through the learning process.

At Access Bank, we invest resources to understand our customers. This helps us to create algorithms that significantly reduce the risk of default. But where that should arise, the Bank has its normal ways of engaging and encouraging customers to pay back. Interestingly,

we also take a global mandate from customers which empowers the bank to make collections from other BVN linked accounts of the customer.

N1 billion Value of loan disbursements to individuals and businesses

by Access Bank daily. This year it has given out over N45 billion in over two million loans.

”

In the next 10 years, every adult Nigerian will have access to credit. We would have achieved a good level of efficiency in determining the credit rating of every individual.

Loan defaulting will have real and decisive consequences.

Accessibility will be a nonissue."

24 /E-PAYMENT REVIEW/ DECEMBER 2019

Do you see the regulatory environment as compatible with the goals of improving access to financial services for consumers?

Most definitely! Already we see that the Central Bank of Nigeria (CBN) doing a lot to promote and have financial institutions implement financial inclusion strategies with their lending products. Through this there is a lot of programmes for the banked, un-banked and under-banked population here in Nigeria.

The CBN has also supported digital lending through the introduction of regulations that would enable banks to debit accounts tied to defaulting customers' BVN for overdue loan repayments. This will help reduce non-performing loans within the lending sector and promote a good lending culture.

If you could share with us some of the frustrations you have experienced in the lending market, what would they be?

When you make a decision to go into a business you love, you cannot at the same breadth be talking about frustrations. Are there challenges? Oh Yes, quite a number of them. One of the key issues for anybody playing in the digital space is scarcity of technology resources. Our talented technology experts are leaving the country in droves. Another issue is the level of financial awareness in Nigeria. Some people do not yet understand that credit comes with an obligation to repay. The indications from all these mean are that we, the players in the digital lending space, have to start investing in solving these problems. We are already investing in the incubation of technology talents through Africa Fintech Foundry (AFF). We are also coming up with initiatives to increase financial literacy especially as it relates to credit.

Who are your main competitors? Banks or fintechs?

How are you planning to take a slice of their pie?

We are not yet looking at the market through those lenses. We have taken it upon ourselves to deepen the market through product and technology innovation.

A few years ago, we started experimenting with giving out loans through USSD. Having made a success of it, the market is following suit. We are also introducing a number of products and targeting a number of segments. We expect both the fintechs and other banks to follow. As the market is still almost virgin, there is room for more players in the market. In fact, the more the merrier.

Paint us a picture of how much different you think the banking and financial world will look five or 10 years from now. What emerging trends in the lending space are you seeing and which of these do you find most interesting for your customers?

In the next 10 years, every adult Nigerian will have access to credit. We would have achieved a good level of efficiency in determining the credit rating of every individual. Loan defaulting will have real and decisive consequences. Accessibility will be a non-issue.

On the brighter side, improvements in lending and financial discipline of individuals will ultimately result in improvements in quality of lives. People will no longer be limited by the cash in their pocket but the size of their dreams and their ability to demonstrate a life worth investing in. The good customers will have access to more credit. The not so good customers will be made to pay more.

VIEWPOINT

Strength in numbers: How mobile data can fuel future of fintech

By MURILO MENEZES

B

DEVICEMAGIC

ANKS AND MOBILE OPERATORS have a lot more in common than you might think. They both have global distribution networks and a system of financial clearing houses that settle charges between the individual companies on the network. This means I can use my credit card globally just as easily as I can my phone, and in both cases, I can settle my bill when I get back home. But while the underlying financial and mobile networks are the same all around the world - and are established to serve ‘everybody’ - there is an entire tier of customers banks are not reaching. According to the World Bank, around 68 percent of the world’s adult population (3.9bn) have no access to traditional financial services. What’s more, that ‘under-banked’ population is concentrated in the developing market economies.

But that underserved banking population is a tier of customer that the mobile operator has successfully reached with its pre-paid mobile subscription model – in fact, in developing markets the majority of users (often more than 80 percent) are pre-paid subscribers. There is an underlying strength in those mobile consumers that could help bridge the financial market divide. Crucially, the mobile operators have a solid relationship with this pre-paid customer base. These are people who typically top-up their balance at least once a week, and the operators have the same visibility of a phone’s usage, its data consumption, spending patterns and the financial capability for these pre-paid customers to start building a payment history for the individual mobile number.

The economic opportunity Banks, financial technology companies, and investors alike are beginning to realise the enormous opportunity that could be created by ‘including’ the underbanked within the global economic network. Bringing this underserved population into the formal financial economy creates billions of dollars in potential revenue and drive significant economic growth.

This has led to countless industry players beginning to tussle for market share across the world’s emerging markets. For example, in June, the African Development Bank (ADB) launched a fund focused exclusively on providing access to digital financial services for at least 320 million more Africans. Meanwhile, in the Philippines, the country’s seventh-largest bank has partnered with Temenos to help rural banks offer digital banking to the underbanked in remote communities; while over in Brazil the credit bureau Quod is looking to leverage both positive and negative consumer credit information to assess consumer creditworthiness.

But for financial institutions the core issue remains – large segments of the population they want to target across Asia, Latin America

and Africa are still mostly invisible to their systems. Without knowing enough about the individual, the risks are too high to provide them with a bank account or a loan. And the individuals themselves are unable to prove to wary providers that they are trustworthy. To top it all off, institutions don’t know where to even find these customers in the first place.

Some emerging fintech providers are attempting to create new credit scoring systems based on alternative data sources ranging from a customer’s social media profiles, to payment histories with utility providers or ecommerce platforms. These alternative data streams, that are fragmented by market, do not provide the same reliability indicators around the propensity to make regular payments which form

185 MILLION UNIQUE MOBILE SUBSCRIBERS IN WEST AFRICA AT THE END OF 2018, ACCORDING TO THE GSMA, WHICH EXPECTS THE NUMBER TO REACH 248 MILLION BY 2025. the key element for establishing creditworthiness and financial trust. By themselves, none of these alternative sources have the depth, scale or rigour to truly engineer out risk and deliver enough impact to make financial inclusion a profitable business strategy.

The power of mobile What many are coming to realize, is that the patterns of behaviour that can be associated with a mobile phone number, even in the prepaid market, can go a long way towards building the financial identities that can unlock the market. However, extracting that data requires both mobile and financial market expertise and understanding. Therefore, to access this 25 /E-PAYMENT REVIEW/ DECEMBER 2019

alternative source of financial information and build new services, fintech providers need to recognize that mobile operators have the information they need, and find a way to connect with them quickly.

Mobile operators certainly have a great advantage. Collectively, the operators and their shared network represent the largest distributor of consumer services in the world. The global mobile network can provide alternative data that will fuel the future of fintech services.

It’s a great source outside of traditional banking with the scale, depth and quality of data that can enable financial institutions to expand their customer base and include underserved populations into the formal financial economy for the first time.

Operators know an awful lot about their customers’ spending habits and their patterns of behaviour – such as when someone tops up, how much they invest at a time, and how low they let their balance go before topping up.

They also know how they typically use their mobile: just calls, text and internet browsing, or are they making purchases using their pre-paid mobile balance?

Collecting, understanding and analysing this highly valuable data and then being able to turn it into actionable information and insight represents an enormous new business opportunity for the operators and for their fintech partners.

There is real strength and value in the numbers, and in particular in the data within the numbers. The operators and their partners that best learn how to extract and use that information will be the ones that fuel a fintech future for hundreds of millions of customers.

Murilo Menezes is Vice President for Latin America at Juvo Mobile Inc. First appeared in finextra.com

NEFF INSIGHT

D

INVESTDATA.COM.NG

IGITAL FINANCIAL Services (DFS) is rapidly entrenching itself into the financial services mix; both in terms of the bouquet of financial services offered by the more traditional institutions such as deposit taking banks, and by fintech companies whose sole existence centre on digital finance.

There is no better breeding ground for DFS than in emerging markets, where according to McKinsey, there are 1.6 billion potential customers. In Nigeria, McKinsey estimates that DFS has the potential to increase GDP by 12.4% and create 3 million jobs by 2025.

The Central Bank of Nigeria (CBN) has recognized the need to encourage DFS and is leading the change. Following its guidelines on mobile money in the past years, mobile money has grown modestly with more than 20 providers, most of them non-banks.

The CBN has also relaxed some of its regulations, particularly removing restrictions on actors who may participate in the DFS and mobile money space, notable among them are telecommunications companies (telcos). For other smaller fintechs, the CBN in conjunction with the Nigeria InterBank Settlement System (NIBSS) launched a regulatory sandbox to drive innovation in DFS. In addition, the revised financial inclusion strategy which aims to further open up the industry and drive innovation through competition can only advance the relatively nascent DFS industry.

But challenges limit its adoption in Nigeria Despite these efforts, several key challenges remain. According to a Lagos Business School survey in 2016, the challenges faced by mobile money operators included low customer patronage and margins, poor mobile network connectivity, regulatory issues stemming from the absence of a national identity management system for enforcing Know-Your-Customer (KYC) requirements, and poor awareness of mobile money services. On the consumer end, trust plays a significant role in reluctance to adopt DFS. One of the key threats to the rapid advancement of DFS is the fraud that could occur due to the absence of end-toend encryption, especially for Short Message Service (SMS)/Unstructured Supplementary Service Data

Overcoming fraud demons in Africa's digital financial services integration (USSD) based transactions where transfer of information from the user to base station travels as plain text, leaving the system vulnerable to man-in-the-middle attacks.

This means, while the communications between the service providers are unreadable if intercepted, inputs into a customer’s mobile phone such as the personal identity number (PIN) can be read if intercepted. This leaves the system vulnerable to man-in-themiddle attacks, where an actor can enter the system where it is unencrypted, steal the unmasked PIN and transact on the customer’s account. Further compounding the issue is the lack of sophistication of the PIN selection and use requirements; four digits and numeric values only which makes it easier for an interloper to guess, and the lack of requirement for periodic changes to the PIN. The regulator and operators may put various tools in place to avoid these attacks. These are two, and even three factor authen-

tication systems which require a PIN, a fixed password, a onetime password, secret questions or some combination thereof.

However, excessive security features on the consumer-end also hamper the use of DFS which are supposed to provide a simple way to transact. Overburdening the transaction with layers of security steps at the consumer end may serve as a deterrent both for those seeking convenience and for the financially and digitally illiterate who are unable to perform complex operations on their mobile phones. Nevertheless, providing a secure channel for this group to transact is key. These customers, if faced with fraud, are unaware of means to seek redress and are likely to completely abandon the service.

Strengthening the weakest link As a result, to mitigate the risk of these attacks, the best solution is to ensure end-to-end encryption of all mobile money transactions.

26 /E-PAYMENT REVIEW/ DECEMBER 2019

8.5 million

Active mobile money accounts as at December 2018, according to the Nigeria Inter-Bank Settlement System (NIBSS).

80%

Financial inclusion target that the Central Bank of Nigeria (CBN) aims to attain by the year 2020.

With end-to-end encryption, the data transferred from the mobile phone to the base station and subsequently to the mobile money systems maintains its integrity and confidentiality while access to that data remains controlled.

The CBN regulations for mobile money mandate this end-toend encryption, even though in practice, it has not been implemented. The transfer of data from the mobile to the base station

PAYMENT SECURI STRATEGY FORMULATION

From left: Olusegun Olatona, Head, Bank-wide Operations, Keystone Bank; Rakiya Muhammed, Director, Information Technology Department, CBN; Sam Okojere, Director, Payments System Management Department, CBN; Nosa Anderson, Group Head, Enterprise Risk Management, Unified Payments System; David Isiavwe, Group Head, Operations and Technology, Ecobank and DCP Emeka Nwonyi, Planning Research and Statistics, Police Force Headquarters Annex, Lagos at the NeFF general meeting in October.

is unencrypted and as such, the customer’s confidence that their data is confidential and access controlled is reduced. While this vulnerability may seem insignificant considering transactions between the service providers’ systems are encrypted, common sense tells us a chain is no stronger than its weakest link. Furthermore, while there are no reported cases of these man-in-the-middle attacks, the question should not be “if” they will occur, but “when.”

Now comes a key question: how will this work when the key mobile money transaction tool – USSD (*123#) – does not support encryption on the phone? Some mobile phones are available that

require data sent out, even through USSD transactions, be encrypted.

However, these are not the norm.

USSD gateway programmers also have some flexibility in determining how the input fields are sent and received. Consequently, ensuring the encryption of data from the mobile to the base station using USSD requires some combination of changes to the USSD tool itself, mobile phone configurations by the manufacturer and the USSD gateway. The SMS tool, which is not a prevalent channel for mobile money transactions in Nigeria, is easier to encrypt. It only requires a java application installed on the customer’s phone which will encrypt outgoing text messages and decrypt incoming data from the base station. This application is widely and easily accessible even in rural communities and in non-smart phones as is the case in Tanzania where SMS mobile transactions are common. However, USSD remains the favoured technology for mobile transactions due to its convenience, speed and relatively lower costs.

Another set of questions arises – how much will it cost to encrypt messages from mobiles to the base stations, and more importantly, who pays? The telecoms operators through whose infrastructure the transactions pass or the financial service providers whose customers perform these transactions? These are questions that will require thorough engagement by all stakeholders involved – CBN and DFS providers as well as the Nigeria Communications Commission (NCC) and the telcos – to objectively answer. Irrespective of the size of, and contributions to, the initial funding outlay, the costs must be transferred to the customer to ensure a sustainable deployment of security features on this mobile money channel. However, this may prove difficult due to the financial inclusion goals of the CBN and the heightened price sensitivity of the Nigerian customer.

Nevertheless, while it may prove cumbersome and costly to provide encryption across USSD channels, Nigeria, which has led the way in electronic fraud prevention in the past, can blaze a path for other countries to follow.

Ruqayya Makama is the Economic Specialist at the US Mission in Nigeria.

Culled from NeFF 2018 annual report.

BOLDER AGENDA

Staying at the forefront of anti-fraud evolution AT NEFF GENERAL MEETING, CALLS FOR A NEW KIND OF intelligent approach and ecosystem collaboration in the fight against payment fraud

T

HE SECOND GENERAL MEETING of the Nigeria Electronic Fraud Forum, (NEFF) took place in Lagos in October. It was an opportunity for members of the body to exchange experiences and concerns about fraud in Nigeria and find ways to sharpen their fraud-fighting skills.

In opening statements, chairman of NeFF, Sam Okejere, highlighted the forum's achievements in combating e-fraud and called for the review of existing anti-fraud laws and the enactment of fresh ones to curb risks in the payment system. He warned that with the re-introduction of the cashless policy and the uptick in digital payment's use for transactions, the industry should anticipate an upsurge in fraud.

“The Intention of the reintroduction of the cashless policy by CBN is to encourage electronic payments, with the objectives of developing our payments system, as part of the key requirements for achieving the Payments national vision, whilst reducing the risk and costs associated with already identified high usage of cash," said Okojere.

In an addr e s s, Pa t r ic k Akinwuntan, Managing Director of Ecobank Nigeria, told the forum that the cybercrime landscape has assumed a worrisome dimension in the country and advocated continued stakeholder collaboration in the fight against cyber threats.

“It is generally known that the strength of any system is determined by its weakest link. Thus, the need for information sharing and continuous collaboration by all stakeholders is paramount," said Akinwuntan represented by the Group Head, Operations and Technology, Ecobank, David Isiavwe. "Again, we must salute the efforts of the CBN for bringing together key stakeholders on a continuous basis to evaluate different aspects of cybersecurity and to further inoculate the system."

The meeting included presentations from identity management and biometric firms who pointed out that verification was essential in efforts to mitigate all kinds of fraud. Chike Ive-Meme, CEO of Environ warned

27 /E-PAYMENT REVIEW/ DECEMBER 2019

47.28% Decrease in fraud volume

in Q2 from Q1 figures 2019, according to the NIBSS Industry Report, second quarter 2019. of the coming demise of the traditional password for authentication adding that companies are moving to biometrics. He talked up finger veins biometrics as a key security solution while assuaging concerns that the speed of its verification process would affect onboarding time.

Frank Atube, Head of the Growth team at Seamfix Limited showed how verifying identities at the point of data acquisition (example during SIM registration) can help check fraudsters and fraud activities. He touted his company's AI-powered identity verification and authentication solutions as capable of performing all forms of fraud detection.

Another presenter, Sanusi Turacy of 3nitix promoted the benefits of tying identities to the IMEI numbers of people's phones. He said this will ensure that unauthorized transactions cannot be carried out on a stolen phone. According to him, when a phone is stolen the owner can remotely block the SIM, disabling all transactions using the unique IMEI number of the phone.

In reaction, Okojere said NeFF will take the ideas and solutions into consideration in the fight against fraud.

Frank Atube, Head of the Growth team at Seamfix Limited

ACCESS CODE. Mastercard tackles fraud exposure with Threat Scan

P

ENCRYPTED SSD IS ULTRA-SECURE Growing concerns regarding data security are driving consumer demand for products that are engineered with built-in protection, which is what the DiskCrypt M10 encrypted SSD promises. Featuring a two-factor authentication functionality, it is a hard drive that requires users to enter a PIN and utilize an accompanying smart card in order to gain access to the content stored on it. This will prevent unauthorized access to its data should it fall into the wrong hands. It comes in 64GB and 512GB storage sizes, and also allows for an interchangeable functionality.

Global PCI DSS compliance falls CLEAR LINK BETWEEN LACK OF COMPLIANCE AND THE RISK OF DATA BREACHES THE PERCENTAGE OF BUSINESSES ACHIEVING AND MAINTAINING COMPLIANCE SITS AT JUST 36.7% WORLDWIDE, DOWN FROM 52.5% IN 2018

N

EARLY TWO THIRDS of organizations around the world that accept card payments are opening themselves up to cyber attacks and security breaches as compliance with security payment standards fell last year, a troubling trend that Verizon, in its 2018 Payment Security Report, said needs to be addressed.

For the first time in six years, the percentage of businesses complying with the Payment Card Industry Data Security Standard (PCI DSS) globally decreased year-over-year, from 55.4% in 2016 to 52.5% last year. The standard is used by

businesses that offer card payment facilities to help protect their payments systems from data breaches and customer data theft.

Compliance has moved steadily up over the past several years, from 11.1% in 2012 to 48.4% in 2015. According to data collected by Verizon's qualified security assessors (QSAs), that upward trend continued into 2016, but fell off last year.

Compliance differs among business sectors and geographical regions, according to Verizon's report. Fifteen years after Visa launched the PCI DSS the percentage of busi-

COMPLIANCE BY SECTORS

77.8% IT services 56.3% Retail 47.9% Financial Services 38.5% Hospitality nesses achieving and maintaining compliance sits at just 36.7% worldwide, down from 52.5% in 2018. Geographically, organisations in the AsiaPacific region show a stronger ability to maintain full compliance at 69.6%, compared to 48% in Europe, Middle East and Africa, and just 20.4% in the Americas.

AYMENTS giant Mastercard has launched Threat Scan, a global solution to help banks spot authorization weaknesses before a breach occurs. It intuitively mimics fraudulent behaviour and can work with an issuer’s existing fraud tools.

Using test scenarios from Mastercard’s global insights into criminal behaviours, Threat Scan simulates known fraudulent attacks on issuers and pinpoints authorization security weaknesses. As criminals find new ways to gain access into a system, the scenarios are added to the range of tests and instantly ran against systems globally. After the scan, issuers will see the results instantly on the Threat Scan application report pane.

Insights from the result will enable issuers to assess their fraud exposure and take targeted actions that shore up the weaknesses in their defenses.

Scenarios will be continuously added to the range of tests based on new cybercrimes.

FRAUD BY NUMBERS COST OF CYBERCRIME

TRENDHUNTER

$6 trillion Estimated global losses to

cyberattacks by 2021, according to cybersecurity specialist, Daniel Berzsenyi, the CEO of cyber awareness platform Cyex, in an interview with Arabic newspaper, Asharq Al-Awsat.

MARKET OVERVIEW

CYBER RISK ANALYTICS

PENETRATION TESTING

market in 2018, according to Reportlinker, which forecast it to reach $267.73 billion by 2024 on a CAGR of 14.5%.

54% compared to the midyear of 2018, according to Mid-Year the Data Breach QuickView Report by Risk Based Security.

tinuously tested, according to data from security assessments and red-team engagements collected by security firm Synack.

4.1thatbillion 112% $118.78 Records were exposed via Increase in what it costs attack3,813 data breaches in the ers' to compromise a company's billion first six months of 2019, up network when security is conValue of the global cybersecurity 28 /E-PAYMENT REVIEW/ DECEMBER 2019

In Short China to certify payment products China has developed a new verification system called the Certification of Fintech Products that will certify 11 types of financial technology hardware and software that are widely used for digital payment and blockchain services. The People’s Bank of China will now certify the products that could be used in digital payment technologies, including point-of-sale mobile terminals, embedded application software, user front-end software and security carriers and chips. Applicants get a certification if their products pass the prototype examination and on-site checks.

The certificate will be reviewed and renewed every three years.

Rogue employee sold Trend Micro customer data to scammers A Trend Micro employee stole and then sold contact information to 68,000 of the company's consumer subscribers, which led to a raft of unsolicited tech support scam calls, the company said. The customer support database from which the insider stole information included names, email addresses, customer support tickets and phone numbers. The incident is an embarrassment for Trend Micro, a well-known security vendor and also highlights a problem that is regarded as one of the most difficult digital security challenges: insider threat, a well-placed insider who decides to steal information from a company.

Risk levels rising as reponse time lags RESEARCH SHOWS FEW ORGANISATIONS CAN ACCURATELY PREDICT THE IMPACT OF THREATS AND VULNERABILITIES ASSOCIATED WITH EMERGING TECH

M

ORE THAN HALF OF security professionals worldwide believe that their organizations' risk levels have increased in the past 12 months, according to research from ISACA, CMMI Institute and Infosecurity Group. But only 29 percent have a high degree of confidence that their enterprise can accurately predict the impact of threats and vulnerabilities associated with new tech.

In the State of Enterprise Risk Management 2020 report, 31% of security pros said their enterprises can respond quickly when new threats are identified, a problematic dynamic given today’s fast pace of business and technology-driven change. The study revealed a potential disconnect between management and governance of enterprises when it comes to risk. Respondents noted that, on average,

boards of directors were only updated on cybersecurity risk on a quarterly basis – sometimes even less.

When it comes to managing the fallout of an issue, only 43 per cent of respondents said their enterprises employ insurance as a mitigation control.

Organizations in North America and Africa are the highest adopters of insurance, with Latin America being the lowest.

ANGOLA CREATES AGENCY FOR DATA PROTECTION

A

NGOLA HAS CREated the National Data Protection Agency (APD) to guard and regulate use of its citizens' digital information. It will advise the government on the regulation, supervision and enforcement of data protection laws and will be responsible for penalizing non-compliance.

APD will supervise and control the actions of public and private institutions in relation to the treatment they give to personal data, said Agency head, Maria Jesus Correia.

“We will monitor whether personal data collected are being used for the main purposes collected and see, based on oversight, whether institutions are working in compliance with the law,” she said.

THREAT LEVEL SCREWED DRIVERS Many Windows drivers permit malware to access anything, subverting controls that should separate user space from the kernel. Researchers at Eclypsium found more than 40 drivers from major BIOS vendors like Asus, Toshiba, Nvidia, Intel, AMD, and Huawei that have severe vulnerabilities that let hackers to rewrite PC’s firmware, allowing persistent, untraceable rootkit threats.

Scientists make a quantum encryptor 1,000 times smaller than size of similar devices THIS OPENS UP ALL KINDS OF POSSIBILITIES FOR MORE SECURE COMMUNICATION TECHNOLOGIES The tiny size means quantum tech can be built into compact devices: smartphones, tablets and wearables

DESIGNFEEL

R

ESEARCHERS AT SINgapore's Nanyang Technological University (NTU) have developed a quantum communication chip that is 1,000 times smaller than current quantum setups, but offers the same superior security that makes quantum technology famous.

The tiny chip, which does not exceed three millimeters, uses quantum communication algorithms to hide the value of an identification code (PIN), password, or other critical information, encrypting it with a quantum key. In any attempt to intrude from the outside, this information, like the quantum encryption key, is irretrievably lost, which completely eliminates the

possibility of unauthorized access.

After the information is received, it is destroyed along with the key, making it an extremely secure form of communication.

It also needs 1,000 times less space than current quantum communication setups that can be as big as a refrigerator or even take up the space of an entire room or office floor. This opens doors for more secure communication technologies that can be deployed in compact devices such as smartphones, tablets and smart watches. It also lays the foundation for better encryption methods for online transactions and electronic communication.

Led by NTU Professor Liu Ai Qun, and Associate Professor Kwek

Leong Chuan, the team’s findings were published in a leading peer-reviewed journal, Nature Photonics.

“Cybersecurity is one of the most important aspects of the modern world, because most of the data we deal with is already in digital form,” the researchers wrote in their paper. “Almost all digital platforms and repositories require passwords or biometric information from users, and so far there is the possibility of interception, decryption and illegal use of this information.

Quantum technology completely eliminates this danger, since the password and other information are combined as part of the message being sent, forming each unique quantum key. ”

29 /E-PAYMENT REVIEW/ DECEMBER 2019

TRAIN WRECK Millions of Chrome and Firefox users are leaking personal and corporate data through browser extensions. Researchers recently found 3,800 of the 180,000 available Chrome extensions leak privacy-sensitive data: medical records, flight booking informations, tax documents and ongoing projects from more than 50 major corporations.

THREATS TO MOBILE Software company, CrowdStrike has found that attacks aimed specifically at mobile computing devices are increasing in both frequency and sophistication. Data from Kaspersky Lab covering January to September 2019 showed that 98% of mobile malware were being designed to target Android phone owners who use banking and shopping apps. Cybercriminals trick users into installing malicious apps hosted on websites controlled by criminal networks.

NIBSS FRAUD REPORT

Industry Fraud Activities Report Third Quarter 2019 Fraud at a glance Fraud Volume

8,920

7.03%

9.08%

Q3 2019 Vs Q2 2019 Comparison

Q3 2019 Vs Q3 2018 Comparison

44.62%

42.58%

Increase

Attempted Fraud Value

N597 million

Decrease

Increase

Decrease

Q3 2019 Vs Q2 2019 Comparison

Q3 2019 Vs Q3 2018 Comparison

41.74%

Actual Loss Value

N562 million

61.62%

Increase

Decrease

Q3 2019 Vs Q2 2019 Comparison

Q3 2019 Vs Q3 2018 Comparison

Channel

Across the Counter ATM Cheque eCommerce Internet Banking Mobile Non-Electronic POS WEB

Total

Volume

Attempted Actual Fraud (N) Loss Value (N) 11 80,498,700.00 79,496,700.00 2,128 142,277,836.48 136,541,885.47 2 1,295,000.00 0.00 29 4,041,900.00 3,751,437.00 229 16,705,268.53 13,642,461.03 1,656 158,087,335.35 144,439,766.63 9 2,892,900.00 543,773.22 581 40,988,355.85 40,963,355.85 4,275 150,343,995.23 142,722,733.38 8,920 597,131,291.44 562,102,112.58

Fraud By Channel - ATM Out of 2128 ATM frauds reported, Account Take Over emerged as the most significant making up for 56.6% of the total count.

Operational fraud followed closely at 41.4%.

ATM Fraud Type [Percentage] Account Take Over

56.6%

ATM Cash Out Attack

The fraud volume, attempted amount and amount lost to fraud all increased in Q3, 2019 when compared to Q2, 2019. About 94% of attempted fraud value was lost for this quarter.

Customers also lost N485 million to fraudsters while N77 million was lost to banks. Comparing against Q3 2018, the actual loss value in Q3 2019 experienced an exponential increment.

0.05%

Card Skimming

0.70%

Card Theft

0.19%

Card Trapping

0.19%

Missing / Lost Card

0.19%

Operational Fraud

41.4%

PIN Compromised

1.46%

Robbery of Cardholders

0.05% 0.2

0.0

Fraud By Channel Fraud Volume

Q2

Q3

6,000 4,000 2,000 0

0.4

0.6

Card theft represented 57.8% of the entire fraud techniques employed by fraudsters. Attainably, fake assistance came closely behind at 37% being a major strategy deployed by fraudsters on unsuspecting victims.

ATM Fraud Technique [Percentage] Across the Counter

ATM

Cheques E-Commerce Internet Banking

Mobile

Non_Electronic

POS

Web

Card Theft

57.8%

Cash Larceny

0.0%

Fake Assistance

Actual Loss Value [in Millions, N]

37.4%

Missing / Lost Card

200

0.8%

Robbery

100 0

Across the Counter

ATM

Cheques E-Commerce Internet Banking Q2

Mobile Non_Electronic

POS

Web

0.4% 2.6% 1.0%

Social Engineering Vishing

Q3

0.0 30 /E-PAYMENT REVIEW/ DECEMBER 2019

0.2

0.4

0.6

Fraud By Channel - Internet Banking 84% of the frauds that occurred on the internet banking platform were as a result of account takeover. Stolen phones represented 7.9% of the type of fraud that also transpired.

Phone theft

0.2

0.4

0.6

0.8

1.0

Vishing

4.0%

Account Takeover

27.9%

Phishing Robbery

16.2% 1.3%

Social Engineering

24.2%

Phone Theft

0.7%

Robbery

0.2%

USSD

5.2%

29.3% 0.0

1.3% 0.1

0.2

0.3

0.4

Fraud By Channel - POS For POS, Account takeover represented 77% of reported fraud cases while PIN Compromise and Card Skimming accounted for 15% and 3% respectively

Account Takeover

6.0%

Smishing

0.17%

35.7%

Vishing

16.8% 0.0

1.72% 0.4

2.1%

Social Engineering

15.1% 0.2

8.2%

SIM Swap

0.52%

0.0

17.0%

Robbery

1.38%

Robbery of Cardholders

0.6

0.4

6.3%

Phone Theft

0.34%

PIN Compromise

0.3

8.0%

Others

3.27%

Others

0.2

Social engineering turned out to be the leading mobile fraud technique for this quarter. Vishing and phone theft emerged subsequently at 17.8% and 16.8% respectively.

Login Compromised

77.5%

Missing / Lost Card

0.1

Fraud Type (Percentage)

POS Fraud Type (Percentage)

Merchant Related Fraud

0.4

31.3%

PIN Compromise

11.4%

Card Theft

0.3

14.4%

Mobile Apps

35.4%

Card Skimming

0.2

Fraud Type (Percentage)

Others

0.0

0.1

Mobile Apps and USSD made up for over 50% of the entire mobile fraud. PIN compromise also represented 24% of frauds reported on mobile.

0.4%

Vishing

7.9%

Fraud By Channel - Mobile

0.9%

Smishing

0.52%

Smishing

0.0

Internet Banking Fraud Technique (Percentage)

SIM Swap

2.93%

Shoulder Surfing

It is to no surprise that phishing emerged as the most used technique to defraud customers on internet banking. This technique which made up for 35 % has long proven to be very successful. Customers need to be educated to be more aware.

Credential Compromised

17.6%

Robbery

1.3%

Fake Internet Banking Website Login

5.5%

PIN Compromise

2.6%

0.0

38.7%

Phishing

2.6%

Robbery of Account holders

0.34%

Missing / Lost Card

1.3%

Password / PIN Compromise

0.17%

Fake Assistance

2.6%

Operational Fraud

22.4%

Eavesdropping

84.3%

Identity Fraud

POS Fraud Technique (Percentage) Card Theft

Fraud Type [Percentage] Account Takeover

38.7% of POS fraud techniques were from missing/lost cards while 22.4% were from stolen cards.

0.8

31 /E-PAYMENT REVIEW/ DECEMBER 2019

0.1

0.2

0.3

0.4

NIBSS FRAUD REPORT Web Fraud Technique (Percentage)

Fraud By Channel - Web At 72.5%, account takeover made up significantly, fraud that occurred via the web channel.

Fraud Type (Percentage) Account Takeover

72.5%

Airtime Recharge

0.47%

Apparel / Clothes / Accessories

0.01%

Automobiles / Auto Parts

0.02%

Bill Payment

5.6%

Card Theft

0.2%

Cardless Withdrawal

0.01%

Identity Fraud

0.0%

Casino

0.01%

Merchant Fraud

0.7%

Electronics

0.21%

Missing / Lost Card

0.4%

Groceries

0.02%

Money Exchange

0.21%

Others

18.5%

PIN Compromise

N/A

7.6%

Robbery of Cardholders

0.1% 0.2

0.0

0.4

0.6

0.8

Social Engineering was the most prominent technique employed by fraudsters to defraud customers via the web channel. Again, this is a very viable technique.

Lack of 2FA is another fraud technique that the Industry needs to look into in bid to extenuate the success rate of fraud via the web channel.

0.2%

Card/Phone Theft

0.2%

Cloned/Counterfeit Card

0.1%

Lack of 2FA

11.35%

Restaurants

0.15%

Service Payment Transfers

3.41%

Withdrawal

35.25% 2000

3000

Did customer divulge credentials?

2.0%

Robbery

1,000

0.0

18.9%

Phishing

28.36%

Analysis on fraud reported to NIBSS showed that 51% of the fraud victims disclosed their credentials to fraudsters with 99% of them being individual account owners. 75% of card-based frauds reported by financial institutions were on Card-Not-Present transactions.

35.6%

Missing / Lost Card

0.62%

Others

Fraud Analysis

Web Fraud Technique (Percentage) Card Theft

14.59%

Online Gambling

0.1%

Smishing

2.0%

Social Engineering

No 51.1%

37.2%

Vishing

51.1%

48.9%

Yes 48.9%

3.7% 0.0

0.1

0.2

0.3

0.4

Fraud Proceeds Utilization

Defrauded Account Type

Unsurprisingly, 35% of fraud proceeds were utilized via cash withdrawals.

CP Vs CNP Fraud

0.2% 24.5%

Fraudsters also plied service payment as a means of making away with about 29% of funds fraudulently obtained.

75.5%

It is important to carefully consider that these aforementioned modes of utilization in subsequent months could be some of the preferred means of making away with fraud proceeds.

All analysis provided here are based on the fraud data provided by the banks.

99.7%

Individual

99.7%

Card Present Fraud 24.5%

Corporate Others

0.2% 0.1%

Card-Not-Present Fraud 75.5%

32 /E-PAYMENT REVIEW/ DECEMBER 2019

Fraud By Country Transaction Region

Watchlisted Customers Q3 Analysis

About 73% of all reported frauds were local transactions.

2,365

Foreign

26.5%

Local

73.5%

Watchlisted Individuals

95% of foreign transactions that were reported fraudulent emanated from the United States while Lagos made up for 26% of fraudulent transactions that occurred locally.

6,555

24

16

38

Indonesia

Saudi Arabia

UK

Local Transactions [Top 5 States] 5,000

5,039

4,000

36.3%

29.7%

30 - 39 20 - 29

30.6%

40 Above

Gender Distribution

81% CHANNEL Across Counter ATM Cheques E-commerce Internet Banking Mobile Non_Electronic POS Web Total

0

United States

Below 20

Male

2,250

1,000

3.4%

209

Foreign Countries [Top 4] 2,000

Age Distribution

19% Female

FRAUD INTEREST INDEX (FII) 14.14% 24.29% 0.00% 0.67% 2.43% 25.70% 0.10% 7.29% 25.39% 100.00%

Mitigants For Fraud Trends

3,000 2,000 136

1,000

122

103

94

0

Lagos

Abuja

Rivers

Oyo

Delta

Analysis On Unique Customers Defrauded Customers

Fraudulent Customers

Defrauded customers recorded in Q3 2019

Fraudulent customers reported in Q3 2019

Age Distribution

Age Distribution

6,997

297

3.4%

5.1% 20.5%

Below 20 36.3%

29.7%

30 - 39

52.5%

20 - 29

21.9%

40 Above

30.6%

Gender Distribution

Gender Distribution

61% 39%

62% 38%

Male

Female

Male

Female

1. Festive Season fraud: Every time the holiday season approaches, it comes with new opportunities for fraudsters earnestly seeking loopholes to exploit. This is peak season for cyber criminals and fraudsters who intend to "cash out big�. These fraudsters leverage on the joyous and carefree spirits of customers, increased cash flow due to holiday spending and even increased sales from black Friday deals to Christmas sales.

They employ online scams, phishing, smishing and vishing schemes among others to perpetrate fraud on customers. More stringent security measures and customer awareness are key actions to minimize the successful rate of frauds this period and diminish losses to customers.

2. More mobile devices mean more mobile fraud: As financial institutions expand their mobile banking services, fraudsters certainly will be close behind. Mobile fraud statistics show a growing threat of fraud that is becoming more complex and rampant in the industry. The ease of use and growing adoption of financial services on mobile devices has made the mobile a preferred channel for fraudsters.

Stakeholders are expected to strengthen existing controls and collaboratively build up new and stronger measures to greatly mitigate against this rising trend.

3. Customer Awareness: Customers continue to disclose very sensitive information and credentials to fraudsters and the fraudsters keep getting better at extracting this information from them!

Although, collaborations with internal staff have very much aided the success rate of these social engineering attacks, yet the most obvious smishing message is still very much able to inveigle an unsuspecting customer. Customers still do not know what to do to protect themselves and how quickly to act even when they have been defrauded.

To this end, we re-iterate that the industry needs to fast track procession on a mass customer awareness campaign which is expected to be sustainable and target both urban and rural areas.

33 /E-PAYMENT REVIEW/ DECEMBER 2019

34 /E-PAYMENT REVIEW/ DECEMBER 2019

TRENDS & TACTICS CaixaBank creates tech-powered bank of the future

S

PAIN’S CAIXABANK CREATED A 3,000 SQUARE metre bank of the future in Barcelona that's packed with cutting-edge technology to streamline customer experience and enhance security. Those visiting the bank for an appointment check themselves in at an on-site terminal using NFC technology, which saves them the hassle of waiting in line to see an advisor. Customers can notify the bank of their arrival with a mobile device and an advisor will attend to them when they are available.

The branch also boasts facial recognition ATMs that allow users to take out cash by using an image of their face rather than a PIN. The branch serves a portfolio of 22,000 customers, has a team of 80 employees, and includes an auditorium, more than 30 offices for private meetings and a café run by Michelin-starred chefs.

CaixiaBank, based in Barcelona and Valencia, is Spain's third largest lender by market value. It has around 60 million customers — 40 million in Spain and 2 million in Portugal — and around 5,000 branches and more than 10,000 ATMs.

PAYMENT NUMBERS

$3.69 trillion Value of the world-

wide mobile payments market by 2024 at a CAGR of 26.93%, according to forecasts by Orbis Research.

1.31 billion Estimated global

proximity mobile payment transaction users by 2023, up from 950 million in 2019, data by Statista has shown.

150700 Projected gigabytes

(GB) of global data traffic per second by 2022, reflecting growth in global digital economy, according to the UN Conference on Trade and Development (UNCTAD).

SOLID GOLD CARD IS THE NEW STATUS SYMBOL The Royal Mint, which makes U.K. bank coins, has worked with Mastercard and payments-technology company Accomplish to produce this solid-gold debit card for customers who sign up for a Raris account. The 18-carat card costs a whopping £18,750 (N8.7 million) and can be personalized for customers who “value high-quality luxury items that make a statement,” the Royal Mint said. Dubbed “the world’s first hallmarked precious metals payment card”, the new Raris debit card is part of a growing trend in ultra-premium card formats.

Banks lose quarter of payments franchise to new players RETAIL INCUMBENTS LOSING THE RACE TO CHALLENGERS IN THE LAST MILE Bigtech swapping the conventional rulebook for offerings designed around customer needs

ROYAL MINT / CAIXABANK

N

ON-BANKS NOW account for a quarter of the institutions offering payment services or payment instruments, up from 14% in only six years, according to statistics from the Bank for International Settlements (BIS).

The data comes from the Basle-based BIS's annual Red Book report on payments and financial infrastructures. It revealed increasing incursions by non-bank competitors into both retail and who-

lesale payments.

"The traditional bank-based ecosystem is being disrupted from below by fintechs and from above by well established big techs," said the report.

"When asked which financial products and services are most affected by technological developments and competition, banks often rank payments the highest - both today and over the next five years."

Fintech and Bigtech now form 10% of direct participants in RTGS systems

in areas covered by the BIS-convened Committee on Payments and Market Infrastructures (CPMI).

They accounted for only four percent in 2012.

The landscape continues to morph, said BIS: "Driven by innovation and shifts in consumer preferences, new systems, new methods and new players are shaping the future of payments."

The report also checked in on the drive towards a cashless society and found the value of card

75%

WRBR: Tech-savvy customers using at least one BigTech product.

25%

BIS: Non-bank payment services leap in just six years. payments relative to GDP is increasing for all but a

35 /E-PAYMENT REVIEW/ DECEMBER 2019

few CPMI areas while the value of small-denomination notes and coins in circulation is either decreasing or flatlining.

Menwhile, a recent Capgemini and Efma's World Retail Banking Report (WRBR) has found that consumers are increasingly choosing challenger banks due to poor customer service in the 'last mile' of service delivery from incumbents.

Over 7,900 retail banking customers from 20 countries were surveyed and responses came from more than 50 banks for the report, which found banks have the right products, but are lagging behind and giving ground to non-traditional players in the last-mile customer experience, ie what custo-

mers see and remember.

The survey found that 75% of tech-savvy customers are currently using at least one financial product from a BigTech firm.

Top three reasons customers gave for turning to financial products from non-traditional players include lower costs (70%), ease of use (68%), and faster service (54%).

As non-traditional firms prioritise customer pain points, payments, cards, and banking accounts are the most vulnerable to losing customers to these new-age entrants. The WRBR said banks can address these challenges by partnering with fintechs to focus on the customer overall financial wellness, rather than discrete banking products.

TRENDS & TACTICS Apple dominating mobile payments

Uber Money to be Uber drivers' bank

A

U

PPLE PAY REVENUE AND transactions have been growing at a brisk pace and driving adoption of proximity mobile payment, CEO Tim Cook said during the company's earnings call in October. With over 3 billion transactions in the Q3 2019, the service exceeded PayPal’s volume. “Apple Pay is now live in 49 markets around the world with over 6,000 issuers on the platform,” said Cook.

BER IS MAKING A DEEPER push into financial services. The company has created Uber Money, a digital wallet and upgraded debit and credit cards, in efforts to give ease the ability of its four million-plus drivers and couriers around the world to get paid after each ride. Uber could one day offer a bank account to consumers on its platform, according to Uber Money head Peter Hazlehurst.

CHINA TO MOVE TO COMMON QR PAYMENTS STANDARD FIGHT FOR DOMINANCE IN CHINA’S MOBILE PAYMENT MARKET

C

HINA’S TRILLION-DOLLAR MOBILE PAYMENT MARKET IS BRACING FOR ANother reshuffle with the People’s Bank of China building a regulatory framework to unify technology standards and promote connectivity of the quick response code (QR code) payment service. Under the plan, by the end of 2021 all merchants will be able to use one universal barcode to facilitate transactions through different payment service providers. Currently, providers issue different barcodes for use only on their own services. The plan may erode the long-established dominance of Alibaba and Tencent as it will mean access for rivals to the closely held business territory they gained after years of fierce competition. The plan will give smaller fintech and banks greater exposure to customers, who will save time from making choices.

CARD NUMBERS EFFORTS TO DRIVE FINANCIAL inclusion are pushing the payment cards market growth, research from RBR has shown. It said there were 16 billion cards in circulation globally at the end of 2018 with China's UnionPay the world's largest card scheme with 45% share. Visa accounted for 20% while Mastercard had 16%. The share of domestic schemes like Verve in Nigeria, RuPay in India and Mir in Russia was 12% .

Appetite for cash still strong despite cashless payments INNOVATIVE PAYMENT METHODS AND DEVELOPING INFRASTRUCTURES INFLUENCE DEMAND FOR CASH

I

MYPOS

PAYMENT SOLUTIONS FOR SMES London-based myPOS brought this devices it called ‘myPOS Hub+’ to the recent Money 20/20 expo in Las Vegas, USA. The device operates as a desktop payment terminal, cash register, printer in one and also provides access to services like inventory and cloud-based accounting. Running on the Android operating system, it comes with two touch screen options – large for the merchant and smaller for the customer. The company's founder Christo Georgiev, said the device "takes customer experience to the next level.”

EU BANKS PLOT EUROPEAN PAYMENT SYSTEM TO RIVAL CARD SCHEMES AND BIG TECH

N RECENT YEARS, cashless payment methods around the world have become increasingly prevalent. Nevertheless, demand for cash, as proxied by cash in circulation in terms of the amount and nominal GDP, has been solid and even rising in many economies.

Cash is still the popular means of payment in most countries, particularly those with large rural and unbanked populations.

Last year, the total number of ATM cash withdrawals worldwide dropped by 3% to 95 billion, and is forecast to continue falling, according to a new report

by London-based research and consulting firm RBR. However, cash withdrawal levels are expected to rise in over half of the 63 major markets surveyed in the RBR report. Every Latin American market surveyed will witness increased cash

A

withdrawal, with growth projected to be fastest in Peru at an average yearly rate of 3%, the report said.

Newly-banked customers will help drive the growth.

The Middle East, Africa and Asia-Pacific will see rising cash volumes in majority of markets, with financial inclusion measures a strong contributing factor.

Cash use will go up in India but remain stable in Japan.

Meanwhile, cardholders in China will make 5% fewer ATM cash withdrawals year-on-year over the period 2019 to 2024.

"The practical benefits of cash and a strong sentimental attachment among certain customer segments will help to keep it relevant," said Rowan Berridge, who led RBR's research.

ATMs and cash will continue to play a crucial role, particularly in financial inclusion strategies, RBR said.

GROUP OF 20 EUROPEAN BANKS ARE WORKING ON SETTING UP A PAN-EUROPEAN PAYMENT SYSTEM TO CHALLENGE THE DOMInance of Visa, Mastercard and technology companies such as Google and PayPal. The banks have been working on the project jokingly code-named PEPSI (Pan European Payment System Initiative) for a few months, according to claims by AFP which quoted sources involved in the project. The idea comes from the European Central Bank (ECB), which has been pushing for a system to allow Europeans [to] transfer money to each other instantly. The unnamed AFP sources said the ECB was "worried about the sovereignty of payments and explained that it would appreciate if we looked into the issue," adding that it was chiefly a "political not a technical initiative".

Giving voice to concerns that European payments could be jeopardised in the event of a row with the US, one banker complained: "All we need is for a disgruntled American president to take the decision to cut payments and then we'll see how dependent we are." The project, which has big ambitions to capture 60 percent of the electronic payments market in Europe and which has already been presented to European governments, is expected to cost several billion euros. This is not the first time European banks have tried to launch a European payments system but this time the banks are "ready to invest", a banking expert involved in the project told AFP. 36 /E-PAYMENT REVIEW/ DECEMBER 2019

Consumers still value bank branches despite growth of mobile

A

STUDY BY ADOBE HAS shown that while an increasing number of consumers are using mobile payment, the vast majority still consider the bank branch an important part of their banking experience. Of the 1,000 consumers studied across multiple age groups, 89% use their bank's web/ mobile options, with 67% using online options to check their account balances, and 52% going online to conduct the majority of their banking.

Despite that high percentage of online banking customers, 75% of consumers surveyed still believe physical bank branches matter and 70% visited a branch location prior to the survey.

"We're finding that consumers are increasingly engaging with their banks online, especially for quick transactions like checking balances, but banks are just scratching the surface," said Craig Peasley, director of marketing at Adobe, in a press release. "The data shows that there's still room to delight customers with offerings that combine the face-to-face service that's still popular and digital offerings."

The study showed 62% of consumers said their bank's digital offerings are just above average, compared with the rest of their digital experiences. It revealed that 76% cited security and privacy as key considerations when digitally enrolling in a bank, while 50% of respondents said they worry about the safety of their finances when using a digital-only bank.

BRIEFLY HUGE INCREASE IN “TAP-AND-GO” CARD PAYMENTS IN SOUTH AFRICA

S

outh Africa is witnessing a surge in the use of “tap-and-go” and contactless card for transactions by bank customers, according to FNB. The bank's customers who use contactless-enabled cards have made about 66 million payments over the last year, totalling a value of more than R14 billion (N340 billion). The growth may point to improved public trust in the newer payment technology, as well as more point-of-sale systems and cards that support the functionality.

FACEBOOK PAY CONSOLIDATES PAYMENTS ACROSS PLATFORMS

F

acebook has unveiled a unified payments service designed to provide “a convenient, secure and consistent payment experience across Facebook, Messenger, Instagram and WhatsApp”. Users will be able to add preferred payment methods - credit and debit cards, as well as PayPal - once and then use Facebook Pay without having to re-enter their details. They can also set up the feature app-by-app or all at once, view their payment history, manage payment methods and update their settings in one place.

MOTIVATIONS FOR MOBILE PAYMENTS USERS

A ROYAL MINT / DRESSCODESHIRTS

PAYMENTS FROM THE CUFF. NO WALLET, NO PHONE, NO PIN NEEDED

Cambridge-based fashion tech start-up, DressCode, has released the ultimate in geek chic, a tailored, smart shirt called CashCuff with contactless payment module within its cuff that is controlled via an online app. Users can allocate specific amounts to the virtual credit card, monitor the usage and switch the chip on/off at will. The removable chip is waterproof and can withstand the temperatures of washing, said DressCode.

survey by mobile rewards and payments platform.

Ibotta has found majority of consumers would make the switch to mobile payments if rewards and savings were among the top benefits. Of the 61% respondents who have made purchases with their phones, 63% are motivated by payment methods that offer rewards, rebates and cash back, while 55% would adopt mobile payments if it saved them money.

FROM FOOD AND DRINK TO PAYMENT PROCESSING Nestlé, the world's largest food and beverage company has implemented a face payment system at Nestlé Market, its a concept supermarket in Barcelona, Spain. The Face to Pay app is available for download from the Google Play and Apple's app store. Users are required to register their personal details, card and facial image. To pay, customers take a selfie with a camera connected to a tablet-based POS terminal, which compares their image with a centrally-stored biometric template captured during registration. The service is open to customers of any bank, and no card, phone or other identifier is required.

Globalization of payments calls for new standards

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HE RAPID evolution of payments presents a pivotal opportunity for synchronizing the standards governing the flow of money to match the globalization of payment processing, according to Deloitte.

Payments providers face challenges with different countries standards when processing transactions, the professional services company said in its Payments Trends 2020 report, which outlined five key trends it considered will drive incumbents' 2020 payments strategies. Among the strategies is the development of new stan-

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dards to govern the flow of money.

Other strategies are competition between closed and open platforms; evolving payments economics; non-commercial entities role in shaping the ecosystem and talent implications for future of payments.

Deloitte anticipates providers will seek new sources of revenue, as the value of traditional differentiators, such as transaction-processing speed, declines. Competition between providers of closed and open payments platforms will be driven by evolving customer expectations of convenience and rewards.

The evolution in

17.6%

Growth rate of global digital payments market by 2025, according to Grand View Research Inc. payments economics is, according to the report, largely the outcome of product commoditization due to traditional competitive differentiators like convenience, speed of access and so on being less valued.

On talent implications, Deloitte backs investments in a skilled workforce capable of realising the demands competition by maintaining in-house core and proprietary knowledge-base.

THE GIMLET EYE

YOU, ME AND (BIG) DATA!

BY PRATIBHA CHHABRA

DIGITAL FOOTPRINT. BY KENTOH / SHUTTERSTOCK

H

AVE YOU NOTICED THE LARGE NUMBER OF digital trails that are left behind in your browser and social media? Have you ever received an offer for a product or service that you were just thinking of? A friend of mine was researching about a critical illness and looking for insurance plans on the internet at the same time, and she started receiving ads to secure “the right spot” in a graveyard!

Now the question arises if these digital trails are leading to accurate analyses that result in adequate decisions, or not. Each one of us generates an immeasurable amount of data every day and many businesses (and individuals) analyze this data and generate profits from it. The use of big data has expanded to many sectors, but for the financial industry, the advent and use of big data have been regarded as a boon. Financial institutions and alternative lenders are now able to use inexpensive yet efficient tools to process loan applications and design personalized products based on demographics and behavioural analysis.

And the consumers benefit from products (like loans and credit cards) that they didn’t have access to before.

Alternative lenders rely on big data to perform some of their critical operations. The future of lending seems to be moving towards making decisions based on scores populated by the correlation between activities such as a visit to a doctor, buying a brand of grocery or choosing a mobile phone. These are the new variables used to model credit scores to predict payment behaviour. Some of these variables are, real-time transactional data, social media, web browsing, news feeds, blogs, GPS data, images, etc. The interpretation of these variables provides the lenders a hint or a clue about the borrower’s credit behaviour.

In addition to these new sources of data, machine learning (ML) and artificial intelligence (AI) are helping lenders overcome the challenge of servicing the previously underserved borrowers and improve their earnings significantly. AI and ML find patterns in data and behaviours that the borrowers did not expect would be relevant to their financial access. However, this capability raises questions about the appropriate access, use and sharing of such information.

The development impact of the use of such data in the financial sector cannot be ignored at this juncture of the worldwide technology-led revolution. Many small businesses and individuals that did not have access to financial services before, can

Now, why is big data important?

Because once analyzed, it can lead to substantial breakthroughs and lead to more solid business decisions.

181 million

Number of years it would take a person to download all the data from the internet according to Physics.org.

97.2%

Fortune 1000 companies that have invested in big data and artificial intelligence initiatives, a New Vantage study found.

now opt for some kind of financial product. Simultaneously, the potential discrimination or inconsistencies that may result from using information from many sources without proper validation, in a “black box” environment, is an important challenge in this digital era. Consumer protection and privacy advocates are concerned about the potential violation of consumer rights from the lack of informed consent by the individuals whose data are being collected, processed and shared. Furthermore, even where existing laws offer some protection against discriminatory decisioning tools, officials are likely not to have the capacity or resources to address the unique concerns raised by the new digital applications and their unexplored potential.

While responsible use of big data holds many possibilities for financial inclusion, some regulatory bodies are trying to mitigate the risks by setting up “sandbox” or innovation testing environments to support data innovation while testing the implications of using these alternative data and tools against laws and good practices. The aim is to find an adequate balance to meet the consumer needs, the financial institutions’ economic expectations and a legal framework that is fair to all parties. Appropriate use of big data in the financial sector may need to be defined by general principles to guide the legal and regulatory provisions to mitigate the potential risks, and various standard setting bodies have already come together to work on this topic from different angles. The International Committee on Credit Reporting (ICCR), in collaboration with the World Bank Group, has published a report on the “Use of Alternative Data to Enhance Credit Reporting to Enable Access to Digital Finance”, which provides practical policy recommendations on how countries can adopt and leverage the use of alternative data for credit reporting, while mitigating the risk. Additionally, the standard setting body is currently working on guidelines for credit scoring approaches. This publication will cover the policy recommendations on credit scoring, encompassing both models and decisions, to help regulators in their oversight roles and to also aid in promoting transparency in using innovative credit scoring tools.

Pratibha Chhabra is an Operations Officer in the Financial Inclusion, Infrastructure and Access team of the Finance, Competitiveness, and Innovation Global Practice of the World Bank Group.

Courtesy: worldbank.org

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