E payment review march 2017 (1)

Valentine Fontama on e-governance / Odunoluwa & Funkola on starting DIYlaw

E-PAYMENT REVIEW Vol. 07. No. 01 March 2017

Not Just Bitcoin Can blockchain and the other innovations really disrupt payment? + Interview: Niyi Yusuf, Country Managing Director of Accenture, on how technology is impacting the changes in society E-PAYMENT REVIEW March 2017

1

2

E-PAYMENT REVIEW March 2017

E-PAYMENTREVIEW.COM

E-PAYMENT REVIEW Vol. 07. No. 01 | | Mar 2017

BROWN N. UGBAJA Editor ONAJITE REGHA Projects Editor SYLVIA NNENE NTIA Associate Editor Sub Editor KUSHIMO OLUWAYEMI Editorial Assistant LUCY AKOKOTU

Published by E-Payment Providers Association of Nigeria

In This Issue March 2017 4 | To Our Readers 6 | 10 Questions Bob Nwojo Head, eChannels Services at First Bank of Nigeria Talking Points 9 | Mvisa, digits, benefits distribution, SA Post Office banking, new MD of FCMB

10 | New stake in Interswitch, location app, Andela's win, fintech report, Estee lauder via Jumia, E-PPAN cashless tour 11 | Gambia youth initiative, $19 trillion opportunity, MPesa's true value, briefs

BIGSTOCK/ MARCOPOLIS/ NIPIC

12 | Startup Nation DIYlaw: empowered to create new legal lifestyle for entreprenuers

Cover

Digital Disruption: What Is It and How Does It Impact Payment? | 12

24 | Interview Data Scientist, Dr. Valentine Fontama, on the science of digital inclusion and risk management

Emergent market change: Niyi Yusuf on why everything around us seems to be in a state of transition | 18

26 | NeFF Insight Expert Briefing: The Nigerian Cybercrime Act 2015 and its implications for financial institutions and service providers

The Risk Report 28 | Dispatch, Norton Core Router changes WiFi, Fraudsters target lending services, Numbers

27 | NeFF to research blockchain, begin prosecution of cybercriminals, Skye Banks wins award for smart security protocols

29 | Encrypting the Web, robot security guard, Threat level, scent of cybersecurity, palm biometrics, tainted phones

41 | EMV card market struggles, Android Pay on watches, 500 million mobile payment users, automated till, payment grows, millennials hate cheques, cardless ATMs

our powerful brains, robot chefs, Airbus concept vehicle, liquid crystals, false readings, cancer-detection algorithm, atom storage NIBSS Fraud Report 32 | Fraud Landscape 2016

Last Word 42 | M-Pesa changes Kenya's economy and lives

37 | Why we are failing at fighting fraud Next Up 30 | Volkswagen's Futuristic 'Lounge on Wheels', Google and Levi's $350 smart jacket, Stephen Hawking wants world government, Nanowire ink, Sony to monetize eyeballs 31 | Olympics medals from waste, making the blind see,

State of Payment 39 | Cashless Australia, smart rings, contactless payment 40 | Tap-and-pay beer pump, Kenya govt takes on MPesa, Index, Mercedes Pay, contactless payment for homeless people

On the cover: Virtual currency share points

E-PAYMENT REVIEW (ISSN: 2360-9818) is published quarterly by E-Payment Providers Association of Nigeria, 1 Rachael Nwangwu Close, Lekki Phase 1, Lagos. Š Vol. 07 No. 01. March 2017. 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.

E-PAYMENT REVIEW March 2017

3

To Our Readers Raising the stakes

E-PPAN / GOOGLE PLUS / OLX

WHEN YOU VISIT THE EXHIBITION SECTION OF ANY MAJOR TECH conference in recent times, each booth has a person there telling you about the disruptive capacity of their products or services. Everywhere you turn, the idea of disruptive innovation becomes your reality. But are they really? The answer to that question is found in the cover article of this issue of the magazine. We attempted to show that the tech world has a challenge with semantics. Because of it, the rhetoric of disruptive innovation sometimes confuses itself with the theory of change. The cover story explains how existing organizations find innovation difficult because their structures and norms are oriented around doing, and even improving, what they already do -- a phenomenon political scientists call path dependence. Agile new startups easily enter the market because there is demand for more suppliers and they are not beholden to the past.

That is not to say that disruptive technology does not have destructive effect on institutions that refuse to bend to the tech winds. They do. Many companies – a vivid example is former photographic film maker Kodak which was run over by digital camera architects – have faced difficult times as new entrants to their business used disruptive strategies to capture market share. The way these newer entrants did it was to either design their offerings to match the demand of an emerging market, or re-shape an existing offering to increase customer satisfaction. Examples of these are rife in the payment sector but their capacity to rattle the banks has been largely whittled down by the innovative instincts of the banks and the altering mechanisms within the digital space.

To really explore this subject we sought expert opinion from Niyi Yusuf, the Country Managing Director of Accenture Nigeria. While he touched on the many aspects and vagaries of the new tech revolution, it is his conclusion that technology has been a job creator The tech world rather than making working humans obsolete that I has a challenge find really interesting. It echoes what many analysts with semantics. like him have been saying for some time now.

Because of it, Meanwhile, this edition has been retooled to reflect the rhetoric our focus on expanding our coverage to sectors that of disruptive are not primarily payment-facing. We have introduced innovation a new column called Startup Nation to focus on the sometimes growing corps of tech entrepreneurs in the country. confuses itself Our maiden feature is the founding team of DIYlaw, with the theory a startup that is looking to increase access to legal serof change. vices for entrepreneurs in Nigeria. It hosts a platform that offers client facing legal document automation solutions including company incorporation; legal documents, and a directory for lawyers. Last year, the company clinched first place at the Innovating Justice Award for the SME Empowerment Innovation Challenge for East and West Africa, organized by The Hague Institute for the Internationalisation of Law (HiiL), a research institute that focuses on how legal orders function in our world.

We have refocused our security column to focus more on risk because we want everyone in the financial services space to understand what risk management is in payments. It is now called The Risk Report. We interviewed Valentine Fontama, a data scientist whose resume reads like a Star Wars movie script. We asked him his views on e-government and what role he could play in advancing the financial services sector in Nigeria. His short answer: risk management. And he has the academic and employment chops to back it up.

“After my PhD, I applied data mining in the environmental science and credit industry: I did a year’s post-doctoral fellowship before joining Equifax as a new technology consultant in their London office. There, I pioneered the application of data mining to risk assessment and marketing in the consumer credit industry," said Fontama in a different interview with SQL Server Blog. "I hand coded over ten machine learning algorithms, including neural networks, genetic algorithms, and Bayesian belief networks in C++ and applied them to fraud detection, predicting risk of default, and customer segmentation.”

See? The payment industry will be in luck if he chooses to return to Nigeria to support the payment system.

4

E-PAYMENT REVIEW March 2017

Brown N. Ugbaja, EDITOR

E-PPAN HITS THE TRAIL AGAIN FOR CASHLESS Industry body E-PPAN has returned to work on creating awareness and provide training to people in under-served sections of key towns and cities in Nigeria to help them move towards cashless payment methods. CEO Onajite Regha, 2nd from right, and Sylvia Nnene Ntia, first left, with Ogun state market leaders during the cashless push in 2014.

THE MODI EFFECT: India Prime Minister Narendra Modi is exhorting his fellow citizens to embrace digital transactions as his objective of making India a cashless country gathers steam. Last November, Modi launched demonetisation in bid to fight black money, render counterfeit currency unusable, and choke terror-funding.

PARTNERSHIPS L-R: PR and Communications Lead, OLX Uche Nwagboso; Lagos state Commissioner for Science and Technology; Olufemi Odubiyi; Senior Manager, Business Development, OLX, Mayokun Fadeyibi and Business Operations and Finance Manager, Goodluck Ikporo during a courtesy visit to the commissioner at his office in Ikeja.

POWER UP YOUR MAG! Send an email

We will like to know what is on your mind. If you've got a comment about our stories or an important issue regarding payment simply contact us. Send an e-mail: editor@e-ppan.org. Please do not send attachments. E-mails should include the writer's full name, address, e-mail and phone number and may be edited for purposes of clarity and space.

Advertising For advertising rates and participating in special sections, email: advertising@eppan.org.

Phone: +234 1 3426493 +234 802 220 3534 +234 703 974 1808

E-PAYMENT REVIEW March 2017

5

10 Questions BoB Nwojo The Head of Card Business at FirstBank since January 2014, he talks payment channels, banking innovation and blockchain

Tell us a little about yourself and your position. I have over 14 years’ experience in the electronic payments industry. I was one of the pioneers of the first fleet of Automated Teller Machines (ATMs) that obtained transaction authorization, online real-time, from a customer's account. In addition, I was a member of the team that tested and implemented the first inter-bank transaction in Nigeria which happened between UBA and FirstBank via an ATM. I am a certified international cards and payments professional, certified cisco network administrator. I am married with three children.

What does the life of an e-business officer look like? How does your job enable the bank to be more responsive to changing customer needs? With the ever changing business needs and increasing customer demands, an e-business officer should always be on top of the latest innovations and solutions, and this demands hours of research and solution development.

FirstBank has the pay–off line ‘you first’. Tell us about some of the products and services you offer in order to meet your customers’ expectations? FirstBank has issued the most number of cards in the market, with the highest active card rate. We also provide a robust acceptance service. Today, the bank has over 2,700 ATMs spread across the nation and over 8,000 POS terminals strategically located at our merchant outlets. Our mobile banking solution, FirstMobile; our USSD banking offering and mobile money solution are all-inclusive financial services that speak to specific segments of the market who are desirous of financial services.

What has been the most important innovation in the banking industry in the last five years? I strongly feel the USSD channel has been a major game changer in its adoption for payments and other innovative use cases. Its importance lies in the fact that it can be used on the simplest phones, thereby extending the boundaries of payments in a non-traditional form. With retail payments being effected via the USSD channels, the industry will start to see huge cost savings and higher transaction approval rates.

FACEBOOK

How has mobile payment improved customer service to a level that today’s customers are comfortable with? Mobile payments originate majorly via a mobile phone, which is ubiquitous in nature, therefore a veritable tool for payments.

Mobile payments drive contactless payments, hence, transactions are faster and check out time is shorter for consumers. Customers are in love with their mobile phones and so are always with the phones.

Today’s disruptive digital technologies like block chain, bitcoin, IoTs, etc are challenging banks to think differently. What can banks do to stay relevant in this era of rapid ‘wildcard’ digitalization? Financial services provid6

E-PAYMENT REVIEW March 2017

ers need to take bold steps to engage with emerging innovations. Research by Accenture on the Future of Fintech and Banking outlined three themes that are key in banks re-imagining themselves digitally. One is openness – banks need to open their intellectual property, assets and expertise to external innovators to help generate new ideas. Two is collaboration – they need to build ties with different industries so as to identify new ways to generate value. Then there is need for investment in innovation for the banking business.

Financial services providers need to take bold steps to engage with emerging innovations.

Cryptocurrencies like bitcoin is decentralized and can be used by anyone, which is a threat to financial Institutions. How can banks protect themselves from disintermediation in the future of financial services? The value proposition of blockchain is the elimination of a third party in the exchange of value between two entities, so as a bank this is clearly a threat.

However, for banks to protect themselves from this threat, they have to identify how to play within the cryptocurrency space.

Going branchless and digital is the trend

adopted by banks in Nigeria. In your opinion, won’t this make it hard for banks to create a truly intimate experience for their customers? On the contrary, I strongly believe going digital is an opportunity for banks to effectively personalize banking services to their customers.

What needs to be done to make e-payment channels safer? There have been concerted efforts by the banks and the regulatory bodies in tackling payment fraud. The CBN requires all banks to have a robust security operating centre where electronic transactions are monitored and fraudulent transactions identifed. The card schemes have also implemented fraud monitoring systems as a shared service model. Banks are implementing card in control solutions to give customers control on their cards.

Consumers are increasingly making cross border transactions online using mobile. What can banks do to improve security especially in cases of Card not Present during transactions?

Empowering customers to control activities on their cards is a highly innovative solution that will aid the reduction of CNP fraud. With the card in control solution, customers can block card transactions from being done on specific channels. In addition, second level authentication methods like one time password are also an effective way of curbing CNP frauds.

E-PAYMENT REVIEW March 2017

7

8

E-PAYMENT REVIEW March 2017

Talking Points Deal for social benefits distribution QR CODE

mVisa service to launch in Nigeria Visa is bringing its QR-based payment service, mVisa, to Nigeria. The solution, aids in overcoming merchant infrastructure issues as it allows consumers to use their mobile phones to make cashless purchases at merchant outlets, pay bills remotely and even send money to friends and family members by securely linking their Visa debit, credit or prepaid account to the mVisa application. It digitizes the underlying account and allows consumers to transfer funds from their account to the retailer’s account reliably and securely by scanning a QR code. mVisa is live in India, Kenya and Rwanda, and will soon be available in Egypt, Ghana, Indonesia, Kazakhstan, Pakistan and Vietnam.

DIGITS

97.14

MARIO YANG/FCMB/

million Total number of Nigeria bank accounts as at January 2017, of which 66.6 million are active. 25 million are current and 69.4 million savings accounts.

About 30 million bank verification numbers have so far been linked to their accounts, said the CBN.

Kenyans moved a record $33 billion on mobile money in 2016, up from $27.8 billion the previous year, data from Central Bank of Kenya showed. The surge in transactions consolidates the country's global position in use of the technology that has revolutionized its financial sector. The volume of transaction on the platform surpasses Kenya's 2017/2018 budget, which is estimated at $25 billion dollars, underlying the role of the mobile payment to the country.

South Africa Post Office set to become bank by July Plans are in top gear to have the South Africa Post Office register its financial services unit as a bank as the institution seeks to offer affordable and relevant financial services and products to the unbanked.

Postbank has $104 million in excess capital, enough to meet regulatory minimum requirements for a bank. It would provide inclusive financial services at the right cost through its network of 2 500 branches that gives it a presence in almost every town and city in the country.

APPOINTMENT

Adam Nuru, Managing Director of FCMB FIRST CITY MONUMENT BANK (FCMB) elevated Adam Nuru to the post of managing director of the financial institution. Before the new role, he was the executive director of business development at the bank. The appointment is in line with the new Central Bank of Nigeria rule that chief executives cannot exceed 10 years in office.

Nuru replaced Ladi Balogun who was in the position for 10 years and has assumed the role of Group Chief Executive Offficer of the

bank's holding company, FCMB Group.

Nuru is a seasoned banker with nearly three decades hands-on experience diverse areas of the industry. He joined FCMB in 2005 and previously oversaw the bank’s northern operations. He obtained a Bachelor’s Degree in Business Administration from Ahmadu Bello University, Zaria, and attended various training programmes locally and abroad.

FCMB in a statement said under Balogun’s leadership, it underwent successful transformation from a merchant bank to one of the top-tier banks in Nigeria becoming a leader in consumer finance, and electronic banking.

The bank’s franchise has grown to 4 million customers, 220 branches and a successful banking subsidiary in the United Kingdom.

E-PAYMENT REVIEW March 2017

9

Talking Points INVESTMENT

Equity firm, TA Associates buys minority stake in Interswitch GLOBAL GROWTH private equity firm, TA Associates, has acquired a minority equity interest in Interswitch.

“Since our founding, we have been committed to creating social, environmental and economic value by facilitating trade through forms of exchange that are secure, convenient and consistent,” said Mitchell Elegbe, Founder and Managing Director at Interswitch Limited.

“Keeping that in mind, we believe a partnership with a growth private equity firm such as TA Associates will prove highly beneficial to our ongoing efforts of consolidating the impact of our services and increasing financial inclusion for all." Following the deal, Helios Investment Partners will remain the majority shareholder of Interswitch.

SECURITY

ANDELA – VIA TWITTER / ESTEE LAUDER / BROWN UGBAJA

Lagos girl builds app that tracks children's location A 12-YEAR-OLD GIRL in Lagos has built an app to help children find their way from one location to another. Online news site, Answers Africa reported that Tomisin Ogunnubi learnt the skills to develop the Android mobile tracking app called My Location, through an ICT partnership between her school, Vivian Fowler Memorial College for Girls, and New Horizons Computer Learning Centre.

Settings on the app enable children using it to determine their location using landmarks to identify current position and their desired location. It also features an emergency button that alerts the Lagos State Emergency Services when a child needs help.

10

PAYMENT POLICY

STARTUP

A win for Africa's tech sector

United States Ambassador to Nigeria, Stuart Symington (second from right) poses with the Andela team after presenting them with the US Secretary of State’s Award for Corporate Excellence. Country Director of Andela in Nigeria, Seni Sulyman is in the middle.

FINTECH REPORT

Digital disruption looms in retail banking NIGERIA'S RETAIL BANKing and payments sectors will be the most disrupted over the next five years by a group of new companies building financial technology (FinTech) solutions.

This is according to PwC’s Nigeria FinTech Survey 2017 report. PwC surveyed over 50 CEOs and industry leaders across various segments of Nigeria’s financial services sector in preparing the report.

Fintech startups are redrawing the competitive financial services landscape and blurring the lines that define players in the sector. Their offerings range from competing financial services such as alternative

E-PAYMENT REVIEW March 2017

lending, to additive solutions atop existing banking services, thereby enabling technologies for the banks themselves. Capitalizing on the latest mobile, cloud and digital technologies, Nigeria is increasingly becoming home to many fintech firms that are trying to shake up and be accretive to the banking value chain.

“From our survey, retail banking and funds transfer have the highest likelihood of disruption at 92% and 85% respectively. Underwriters were of the view that insurance brokerage, auto and life insurance stand an equally high likelihood of disruption at 77%,"

said Adedoyin Amosun, Associate Director and Co-FS Advisory lead at PwC Nigeria while presenting the key findings of the survey. "While the threats of disruption is quite appreciated, our respondents also noted the opportunities fintech adoption will bring especially as seen in the unlocking of opportunities for more revenue sources and reduce operational cost. " According to the survey financial services players see changing customer needs as the top impact fintech have on their business, with up to 40% saying financial services will be at risk of standalone fintechs by 2020.

Estée Lauder brings key brands to Nigeria via Jumia Estée Lauder has partnered Jumia to give Nigerians first-time access to three of its brands – Clinique, Estée Lauder and Aramis. The new partnership will enable customers to access premium products from these brands with the added assurance of Jumia's buyer protection policy, according to Juliet Anammah, CEO of Jumia Nigeria. Shoppers will enjoy country-wide delivery, seven-day free returns and varied payment options including cash on delivery. The plethora of payment options is promising for Nigeria’s growing middle class, which is expected to spend more than $25 billion by 2020, according to a report from KPMG.

E-PPAN's road tour driving cashless awareness THE E-PAYMENT PROVIDers Association of Nigeria (E-PPAN) has embarked on a new national campaign in the cashless Nigeria initiative as the Central Bank of Nigeria (CBN) re-introduces processing fees on cash deposits and withdrawals.

The awareness creation programme will cut across 30 states of the federation as the cash processing fees takes effect in different states of the country. The CBN has partnered with E-PPAN to sensitise the populace on the many benefits of the cashless initiative which include easier access to financial products for MSME’s; reduction in leakages; increased security; accountability and transparency; reduced cost of providing financial services and reduction in conventional bank charges.

Executive Secretary/CEO of E-PPAN, Onajite Regha, said the road tour is to encourage people to dump cash in favour of alternative means of payment like card, mobile money, Pointof Sales Terminal (POS), and internet banking.

During the tour, E-PPAN will interface with various segments of the local communities including traders and their customers; artisans; trade associations, schools, traditional rulers and other key influencers, to ensure wider enlightenment on the policy's benefits.

IN BRIEF Revenue tumbles at South Africa's six big banks

BUILDING BLOCK IN THE CONSTRUCTION OF A NEW GAMBIA: (L-R) Isatou Touray, Gambia’s Trade Minister; Neven Mimica, European Commissioner for International Cooperation and Development, and Arancha González, Executive Director of the International Trade Centre, at the launch of a US$11.8 million Gambia Youth Empowerment Project, a job and entrepreneurship initiative for youths. It aims to strengthen the long-term competitiveness and viability of the Gambia's economy.

ELECTRONIC MONEY

The $19 trillion cash replacement opportunity A STUDY BY THE WORLD BANK Group and the World Economic Forum estimates the global value of micro, small and medium retailers’ transactions at $34 trillion per annum. An estimated $19 trillion was made in cash and cheques, and $15 trillion by electronic payment means.

“While many foundations and drivers exist for achieving financial access and inclusion, the potential impact of extending the use of digital financial services through a more widespread acceptance of electronic payments among small retailers is substantial,” said Gloria Grandolini, senior director, finance & markets, World Bank Group.

Despite the $19 trillion opportunity

$22

ITC / EXECUTIVE OUTLOOK

BILLION

Private equity transactions in Africa recorded between 2010-2016, according to reports by the Financial Times. It represents only about 1% of global private equity investments despite Africa's contribution of roughly 3% to global GDP.

to displace paper-based payments, the adoption of electronic payment has been slow and patchy worldwide. The study sets out some possible reasons for this. Cash usage is entrenched in people’s daily interactions and user behaviour is notoriously difficult to change.

Also, the value proposition and economics for electronic payments may be inadequate. As electronic payments is a two-sided market, there may be insufficient customer demand and the distribution models for hard-to-reach merchants ineffective. Merchants may be reluctant to declare or pay full taxes on sales.

The study contends that innovators in developing markets, primarily

non-bank organisations, will need to create tailor-made models to address barriers and merchant needs. Big and small data, both payment and nonpayment-related, will increasingly be used to offer value-added services to small businesses, such as micro-loans.

The report confirms the widely-held belief that the most groundbreaking innovations are occurring where traditional payment infrastructure is limited. This is particularly the case in African and certain developing Asian countries. Conversely, in developed markets where card infrastructure is well-established, organisations are looking to tweak the existing card model rather than create a new one.

MPESA added real social value to its customers SAFARICOM IS CELEBRATING 10 YEARS since M-PESA’s launch as a report by KPMG showed that customers have, by far, been the largest financial beneficiaries of the platform.

"Ultimately, we understand that M-PESA’s success is underpinned by our customers’ success,” said Bob Collymore, Safaricom's CEO. The ten year study of M-PESA’s impact found that the social value it generated grew from Sh83 million in 2007 when the product started, to Sh184 billion by the end of March 2016.

KPMG said that M-PESA customers received a return in value of Sh160 billion as a stakeholder group in the financial year ending 2016. By 2016, each M-PESA customer had seen social value linked to the use of M-PESA of Sh9,679 in the course of the year, up from Sh3,202 in 2007. Over the same period, customer numbers grew from 20,000 in March 2007 to more than 16 million by March 2016, while the value of transactions grew from Sh10.3 million to Sh5.2 trillion over the same period.

Growth in cumulative headline earnings by South African banks fell to a seven-year low in 2016.

Analysis by EY shows total earnings by the six major banks – Barclays Africa, Capitec, FirstRand, Investec, Nedbank and Standard Bank – grew by 6.6% to R80 billion compared with 16.5% to R70 billion in 2015. “We’re seeing an environment where banks are expanding their lending, pricing in risk more appropriately and still lending profitably but at a lower growth rate than before,” said Andy Bates, Financial Services Africa Leader at EY.

Africa to test new payment platform Samsung, POS manufacturer Ingenico and Swiss app developer Smartlink will lead the roll out of the Contactless Companion Platform (CCP) , a digital cash service allowing consumers — including those without bank accounts — to load money onto a range of wearable items and make contactless payments in retail outlets across “eight or nine countries” in North America, Europe and Africa from April.

Mena region IT spend to reach $12.4b Spending by banking and securities firms on information technology in the Middle East and North Africa (Mena) is expected to grow 3.5 per cent $12.4 billion this year, said Moutusi Sau, principal research analyst at Gartner has the feature at about half its ATMs and plans to convert them all.

Governments in the region are projected to spend $11.6 billion on IT products and services in 2017.

ITC

E-PAYMENT REVIEW March 2017

11

Startup Nation

Virtually anywhere: This female trio left their careers to build an online law firm Odunoluwa Longe, Funkola Odeleye and Bola Olonisakin created DIYLaw, tech company that uses technology to offer access to legal services. Odun and Funkola shared the motivations for the startup, their future ambitions and technology's changing role in law

BY BROWN N. UGBAJA Tell me a little about yourselves.

ODUNOLUWA: I began my career with a law firm, then worked in investment banking, including time with with ARM before I moved to FBN Capital. After FBN, my friends and I started a law firm that was focused on serving entrepreneurs.

We created DIYLaw because we wanted to give legal access to more entrepreneur.

FUNKOLA: Our backgrounds are quite similar.

I worked in a law firm for a few years and later moved into investment banking as well. Bola, our other partner, is a web developer with an IT and project management background. She has worked different companies in America including GTECH Designs. The three of us came together to do this.

Where did you go to school?

ODUNOLUWA: My first degree was in Lagos State University, (LASU) and then law school. I had got a master’s degree from Northwestern University's Kellogg School of Management.

FUNKOLA: We went to LASU together, then law school before going to the University of London, School of Oriental and African Studies for my masters. Bola went to the University of Lagos and Towson University in the United States.

What is DIYLaw.com? Please give us a short overview of what DIYLaw offers.

ODUNOLUWA: Basically, it’s a platform that creates access to legal services. Our motive for doing this was to help entrepreneurs connect to legal services, legal information and legal service providers, as well as connect lawyers to people who need them. Entrepreneurs or even or anybody else who needs legal services or information can get that on our platform.

How did you identify the need for this, what inspired the founding of DIYlaw?

ODUNOLUWA: We were running a law firm together and while dealing with clients and some of their requests, we realized that if could do this on the web, we could work more efficiently and will also help clients get the legal information that they need We began to talk about automateing the service on a portal where the information could be downloaded. It was realizing that automation can bring so much convenience for the clients as well as for the buyers, that’s the reason why we went into this.

What services do you offer?

ODUNOLUWA: |Because we have a soft spot for entrepreneurs, our services are are tended towards 12

E-PAYMENT REVIEW March 2017

helping small businesses manage their compliance issues like business registration, company incorporation, trademarks, copyright protection, procureent of tax identification number. We are focusing here because we understand that sometimes people starting new businesses don’t know what to do or how to go about it. Our second product line involves the provision of legal documents like NDAs (non-disclosure agreements) tenancy agreements and employee contracts. All you have to do is go on our platform, fill out a questionnaire, checkout on on your dashboard, you can download these documents either in MSWord or PDF that is specified to your situation based on the answers that you give. The third product line is the resource platform, which is basically provision of legal information. We found that there are a lot of legal information out there but people don't understand them. We break down legal information through what we call speed lawyering.

It involves having lawyers explain legal concepts

Our motive for doing this was to help entrepreneurs connect to legal services, legal information and legal service providers, as well as connect lawyers to people who need them. in short clips that are posted on the platform, We use graphics, cartoons and short articles because we want people to be able to understand them. DIYlaw also helps people locate legal counsel when they need one through our directory. You can just go to our platform, click on your location, type of law needed and engage them there.

You are innovating the way we get access to legal services. What was the conviction that inclined you to pursue entrepreneurship?

FUNKOLA: My parents are entrepreneurs but I am not sure there is any correlation but I guess the stuff rubbed off on me. I worked for them throughout my days in secondary school and the university. I went on to start a few things while I was in school and somewhere into my legal career but I stopped and went back to work. While working in investment banking, I didn’t really feel that it was what I wanted to do despite the fact that people were saying the job was good. I am a free spirit and I have always loved entrepreneurship, so it was all too easy when Odun decided to put structure to the law firm. We used to advise family members

on entrepreneurial aspects of law and when she suggested we put structure to it, I was too happy to get with the programme.

What gave you the conviction that you were on the right track; that you made the right decision?

FUNKOLA: I decided that I would try it, put in two hundred percent and see how it plays out. I have long been afraid to quit a job and start something on my own. I didn’t want to later in my life wish that I had done this. We felt that we should do it and if it doesn’t work out, worst case scenario, we go back and beg for our jobs. We put everything into this and we don’t have any regrets.

Tell me about your startup experience, what are the key lesson you have acquired so far?

FUNKOLA: What I have learnt is that your business can’t be static. Rules and laws will change, the environment will change, the dynamics of the business itself will change and these will require you to be dynamic enough to rise up to any occasion. The good thing about entrepreneurship is you can pivot into another area to accommodate changes in the society, the environment and the laws of the country.

ODUNOLUWA: I have learnt that running a business in this country is very difficult and if you are not committed to the bigger goal; to what you are doing or the service you are providing, you will easily give up. It is easy to walk away. For us it wasn’t about the money, if it was money, I made much more working in investment banking than I am doing now. Our motivation is how to make a difference; how to help entrepreneurs.

You shouldn’t start a business because it is a fad; instead it should be because you are passionate about that business and when you do everything else will fall into place. Some people are lucky and they see it happen in a year or two. If it doesn’t happen and your motivation was money, that is when some people quit the business. You just need to stay at it, and stay focused and have a problem you are solving.

Assume that I want to use your company’s incorporation services, how long will it take before the certificate of incorporation is in my hands?

ODUNOLUWA: Once you answer the questionnaire and submit it on the platform, we start the process immediately on name reservation and that could take two to three days. We prepare the documents and invite you to come in and sign

PRIDE ON THE WORLD STAGE: Bola Olonisakin, Odunoluwa Longe and Funkola Odeleye after they placed first at the Innovating Justice Award for the SME Empowerment Innovation Challenge for East and West Africa. The challenge was organised by The Hague Institute for the Internationalisation of Law (HiiL).

them. Once you return the documents, it would take about twenty working days for you to get the Certificate of Incorporation.

DIYLAW

Your startup was adjudged best at the Innovating Justice Awards at The Hague last year.

What other major milestones have your startup achieved since its launch?

ODUNOLUWA: That award was a major milestone. We used the money we won to perfect our platform and we believe it has had an impact on our business. The platform is now more technologically advanced than what we had in the past.

Now that we have the technology to accommodate a larger volume of work, we want to go into full time marketing.

What are you going to do to create that buzz; to let people know that much in the same way that they can do their banking on the go they can also access legal services on their devices?

ODUNOLUWA: Quality means so much to us and what has been our preoccupation is improving the quality of our services. We don’t work alone in offering this service, we enlist other law firms and throughout last year, we worked on getting firms that would be willing to do the job on the margin that we feel will be reasonable and give us the quality of work we crave. We also worked on building a relationship with the Corporate Affairs Commission. We had to sort out our platform to make sure that we can sustain the quality we started with and now we feel we have gotten that. In the coming months you will see us more out there. So far, we have only been doing social marketing but we are working to go beyond that.

Apart from launching your marketing plan,

what other plans do you have for the future?

ODUNOLUWA: Ours is a big dream and what we have done before now is a tip of the iceberg. There are many big things we want to do with DIYLaw but we are doing them in phases. We are going to introduce more technology especially the incorporation of e-signature so that people will be able to sign documents on our platform, which they can’t do at the moment. There will also be a subscription model at some point but all that would generally involve improving our technology. We are Africa-focused and at some point we are going to extend this service outside Nigeria.

What is your view on innovation when opposed to commercialization?

FUNKOLA: There are people who claim to be entrepreneurs because they feel it is the cool thing to do. They want to be addressed as co-founders of a startup even though they are not adding any real value. But I think entrepreneurship should be more than that. Innovation is about enhancing value by identifying real problems and offering solutions that an addressable market would find useful. Acceptance of those solutions then lead to their commercialization. Innovation should come before commercialization because it has to offer a quality and even a quantity that people cannot get elsewhere and you need to have a way to execute the value proposition. What once just a hobby could be used to address a credible problem and from there could be turned into naira and kobo.

Looking at the effects off the current recession, do you think that innovation is eventually losing its impact?

FUNKOLA: No, I don’t think so. What I see happening is that the recession has made people a

lot more creative. There is statistics to back up that fact. A survey by the jobsite, Jobberman, last year found that the same number of jobs that were available the previous year as advertised on the jobsite was advertised in another comparable period during the recession and there were less applicants for those jobs. Is it because everybody has jobs or there weren’t enough skillsets for those jobs? No. It is because many people have risen to the occasion to find creative ways of dealing with the situation around them. We have seen a rise in company incorporation on our platform since the recession. It has made people to think outside the box and many great ideas are coming up and more people are using them to start new businesses.

As you work towards your future plans including expansion into other African countries, how do you think the legal services industry will be reshaped 5-10 years from now?

FUNKOLA: I think that in the future, technology will still support the profession in a way that it can maintain its conservative nature. I expect lawyers to leverage technology to boost their business. Most law firms will depend on the internet to create visibility and reach more clients because technology is no longer a convenience. It is a necessity, and utilizing it can bring huge benefits to a law practice.

ODUNOLUWA: I think in the future, artificial intelligence (AI) will play a bigger role within the profession especially in the areas of tracking and reviewing documents. With the pressure to accommodate’ demands for lower prices and efficiency AI will be key. Firms will need to streamline their tasks, avoid wasted time, and reduce overhead to ensure profitability. AI will enable them to do that.

E-PAYMENT REVIEW March 2017

13

Cover

How the dynamic nature of fintech is forcing banks to meet disruption and transformation head-on

BY BROWN N. UGBAJA

RACONTEUR

T

here is a much known but barely cited story about an online transportation network company that develops, markets and operates a software application, which lets people getting around to request car transportation and also empowers drivers to earn income from transporting passengers to their destinations. It is the story of Uber. The foundation of the company was laid on the streets of Paris, France in 2008 when co-founders, Travis Kalanick and Garrett Camp, were attending a conference there. After the day’s events, they came out to the street and had a hard time hailing a taxi. From complaining about the many crappy things they had to deal with in life, including finding a cab, these two began brainstorming on ways to solve this global issue of finding the right transport at the right place and on the right time. Fast forward to 2010 and Uber was already rolling out a couple of black cars on the streets of New York to put the idea to the test. Even with just a few cars and even fewer people knowing about the startup at the time, the result is that Uber proved to be a hit.

Today, valued at $17 billion, Uber has become the touchstone to test the expediency of every digital innovation. It is one of the leading transportation services in the world. Its culture of business is reflective of what the young generation stands for: doing big things all while coming across as cool, chic and inventive. On top of all that, it shines as a beacon of light that wants to make people’s life a little sunnier. One way it has done that is to crack open the mystique surrounding the affluent lifestyle. Its choice of transportation vehicles - German monsters such as the BMW 7 Series, Mercedes S class and Audi A8 - adds a veneer of sophistication to the life of its customers. Because of Uber, many people can have a touch of affluence in their lives. Not only that. What makes Uber the ultimate startup is that it stokes a big fear that 14

E-PAYMENT REVIEW March 2017

gnaws at the heart of old-fashioned transportation services, stalking their owners and keeping their unions up at night, with the threat that it could sweep away their pre-eminence in the transport business. Taxi unions have been going from strike to strike in France and the United Kingdom against Uber, claiming that the startup’s usage of a geolocalisation based app to calculate fares and request a ride poses an unfair advantage.

All things combined, the company is symbolic of what disruptive innovation is really all about.

It shows the beauty of tech-based startups. They are disruptive by nature, they allow innovators to do things better, faster and cheaper, things which render old absolutes obsolete. And this nature has become the fact of modern life: A wave of transformation looms for almost all segments of the contemporary economy.

In his research on the disk-drive industry in the mid-1990s, Harvard professor Clayton M. Christensen invented the theory of disruptive innovation (or technology) suggesting that companies and indeed entire industries are being challenged constantly by changes in the markets and new companies attacking the dominant player’s position. He posited that “an industry’s leaders are rarely in the forefront of commercializing new technologies that don’t initially meet the functional demands of mainstream customers and appeal only to small or emerging markets.” Later in his book, The Innovator’s Dilemma, published in 1997, Christensen extended the term to describe how innovators use new technologies to develop new business models, discover new categories of customers and create new markets. He contrasted disruptive innovation with sustaining innovation, which simply improves existing products.

Personal computers, for example, were disruptive innovations because they created a new mass market for computers; previously, expensive mainframe computers had been sold only to big companies and research institutions. He then zeroes

in on what he called the “innovator’s dilemma,” which is the difficult choice a traditional business faces when it has to choose between hanging onto an existing market by doing what it does in the the same way, or capturing new markets by embracing new technologies and adopting new business models.

This dilemma has become the reality of every business. As computer power increases and more things are attached to the internet, expanding its disruptive influence into new realms, every boardroom with right thinking individuals have come to the realization that that the pace of change in their industry will increase. But there lies a troubling concern: The knee-jerk reaction that follows every mention of disruptive theory is the result of ignorance about the concept itself.

Many people who bandy about the definitions of disruptive technology have not read the book and almost universally misunderstand the concepts. Too frequently, they use the term loosely to invoke the concept of innovation in support of whatever it is they wish to do. Many researchers, writers, and consultants use “disruptive innovation” to describe any situation in which an industry is shaken up and previously successful incumbents stumble. The phrase has become a buzzword for anyone with ideas or products that change the competitive patterns of an industry.

Too many startups and blog stories are being far too liberal with the expression. Almost every startup claims to be ‘disrupting’ something: they are supposedly disrupting an industry or an old way of doing things. They are using it interchangeably with change which is not what disruption is. According to the Harvard Business Review, “disruption theory is in danger of becoming a victim of its own success. Despite broad dissemination, the theory’s core concepts have been widely misunderstood and its basic tenets frequently misapplied.”

There is an obvious reason for this misapplica-

tion: it works. It is great marketing to tag innovative on every new product, but this does not make it right. Almost every use of the phrase as we see it today is wrong. Simply providing a different product or service to a market already being served is not disruption. When it comes to business, the term disrupt has a very specific meaning. It is, using Professor Christensen’s own words, when “a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors”. An innovation that is disruptive allows a whole new population of consumers access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill. In his classic examples, personal computers disrupted mainframes, discount retailers disrupted full-service department stores, and so on. He uses real data from the disk drive industry to make his points.

What Christensen did was identify a fundamental mistake or issue that dominant companies face when challenged. In order to protect their dominant position, their natural reaction is to underestimate or dismiss the competition, or if they react, they do it in a half-hearted way in order to protect their more mature and lucrative markets. Many examples come to mind from recent history to illustrate this point: the Walkman, the calculator, the alarm clock and portable gaming devices. Many of these cool devices from the 80s and 90s ceased to exist as mobile phones took over the world. Even more dramatic examples exist. By September 2007, satellite navigation companies Garmin and TomTom were worth a combined $38 billion. A mere 12 months later, they were not worth up to $6 billion. What happened? The iPhone and Google Maps happened. Smartphones became popular, and Google began offering navigation for free on Android-powered phones.

Another example is Kodak. “In 2012, Kodak filed for bankruptcy but about ten years before

that Kodak was controlling 90% market share in the photography market,” said Dele Adeyinka, Head of Digital Bank of Wema Bank, in an interview with E-PAYMENT REVIEW and while explaining the outcomes of failing to innovate.

“No party was complete without a Kodak film, a photographer was not complete without a Kodak film. They thought they were enjoying and refused to innovate and technology companies came up with solutions that knocked them out of the market. Today, your mobile phone is your camera; there are digital cameras everywhere and they are really cheap and you don’t need any film.” The company never really recognized the disruptive capacity of digital photography, and in spite of having a company full of smart scientists, never found a way to pivot the business in the face of a changing market. It was slow to transition into the consumer market and fell behind competitors (including Nikon) that were closer to making the technology affordable to nonprofessionals.

Eventually that changing market simply ran it over and it went bankrupt.

Understanding the framework of market evolutions that led to the troubles of these companies is very useful for thinking about disruptive innovation. It begins with the incumbents who offer a product that is vastly superior in the market in terms of performance or functionality. When new companies enter the market they really have no chance to initially unseat the incumbents because the performance gap is too large and the costs and time of catching up too unachievable.

In fact, the incumbent is usually very dismissive of this new competition as are the large buyers of the incumbent’s products.

“The reason [for why great companies fail] is that good management itself was the root cause. Managers played the game the way it’s supposed to be played. The very decision-making and resource allocation processes that are key to the success of established companies are the very processes that

reject disruptive technologies: listening to customers; tracking competitors actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technology change,” Christensen wrote in the The Innovator’s Dilemma.

It is important to note that there are two types of disruption, and each one has a different measure of success. One is new market disruption, which happens when a product addresses non-consumption in an existing category. It could be cheaper, available in more places, or for some reason there are customers who cannot use the existing products, but they will be able to use this new one.

A new company can only claim to be disruptive when the majority of its customers are unable to use any of the incumbents in the market. Then there is low end disruption, which occurs when a product steals the cheapest and worst customers from the bottom of an existing market, usually by figuring out a business model that works with a lower-cost offering. This opportunity presents itself when the leaders of the market are producing products far above what the market wants or needs.

The basic premise of these forms of disruption is that innovators tend to focus on totally new customers. They try to capture people that would not buy the product or use the service in the first place because they could not afford it. It is not that Payments have long been a backwater of finance, pleasantly profitable yet placid. Now all that is changing. The trend for people to pay for more things on mobile devices, and combined with the growth of online shopping, has produced a spurt of growth in this once staid sector. The consultancy McKinsey predicts that global payments revenues will rise from $1.8tn in 2014 to $2.3tn in 2019.

E-PAYMENT REVIEW March 2017

15

SAMSUNG

You can remotely access the fridge’s cameras in real time from any location through your smartphone, and also use the Family Hub to order groceries online through the new “Groceries by MasterCard” smart fridge app.

what they are offering is a major breakthrough in performance or functionality as most people conceive it. What is disruptive is that they are less expensive and the providers take a much lower margin. Because of these, incumbents feel threatened and they begin to react. But it is how they respond to these new products or services that sometimes give startups the sensation that they are disrupting the industry. In most cases, the incumbents fail to value the new innovations properly because they attempt to apply them to their existing customers and product architectures - or value networks. Meanwhile, by finding the right application use and market, the upstarts advance rapidly and eventually enter the more mature markets of the incumbents and disrupting them.

It does not end there. New entrants usually find new markets to offer their products and largely using trial and error, their nimbleness and low cost structures somehow allow them to operate sustainably where incumbents could not. But as the products or services advance enough to play in the big boys league, the entry-point markets are left behind as the new companies move into higher margin upmarket territory due to their quality performance. Many companies have found themselves in this position and now face the fear of being disrupted. In this same way, even Uber’s innovations are not particularly powerful. Traditional taxi companies quickly learned to use mobile apps that are similar to Uber’s, and other upstart competitors. The conditions that warrant this speedy ascendance can be traced to lots of things: better technology, design, product, route to market, price and the rise of the internet. Mostly the internet.

The World Wide Web has been a disruptive force on the world; integrating itself into virtually everything we do; from communication to commerce, work, entertainment and even personal relationships. But it is the way in which the internet evolves that we see true disruption. Mobile internet has been a breakthrough that has taken the internet out of the office and living room, off the computer and out into the world at large. An internet accessible wherever you are and whenever you need it. Add to this the advent of big data and cloud computing, companies are then forced to innovate, and introduce new products and services at an unprecedented pace.

This brings us to the financial services industry, an ecosystem of banks, credit unions, credit-card companies, insurance firms, stock brokerages, investment funds, payment processors, network providers and various other interdependent entities that manage money and are eagerly being seen as highly vulnerable to disruption. New payment technologies have dominated much of the marketplace discussion. Some of the highlighted topics of discussion include mobile payments, Bitcoin and the idea of the digital wallet.

With increasing payment related innovations, ubiquitous mobile devices, perpetually connected customers, and rising regulatory pressure, there have been so much talk about how financial technology (fintech) is going to run banks 16

E-PAYMENT REVIEW March 2017

out of the financial services business. People are looking at emerging smart technologies and predicting doom for banks, bankers and banking.

What with connected wine bottles, sunglasses, rings, refrigerators and washing machines, there is widespread consensus that the days of traditional financial institutions are numbered. In the above-cited interview, Adeyinka opined the banking sector’s realization that the key to success in this digital world is to evolve continuously in order to remain competitive and relevant to consumers. “Fintech will continue to innovate and banks will need to do so too otherwise they would be left behind and that’s the reality of today,” he said in comments to what the future holds for the banking industry in this digital era. “Imagine the number of people that are using Facebook today; we are talking about a billion customers. Can you name a single financial institution that has a billion customers?”

The simple answer is that Facebook is not a banking organization even though it is positioning its network to facilitate payment on the web.

Granted that consumers are now surrounded by a wealth of technology, the rise in the number of products and services offered by fintech companies represents only new payment capabilities.

In many ways, fintech are essentially traditional businesses wrapped in fashionable narratives to seem like visionary tech firms. They are not such a threat to the wellbeing of financial services providers as widely speculated. This assertion stems from the fact that much of the discussion ignores the fundamental element: money.

Since the dawn of civilization mankind has created payment systems. From trade by barter to today’s credit systems, something has been used as money to facilitate transactions, thereby creating a payment system that becomes the mechanism to settle all transactions. Most of humanity used commodity money before the 20th century when government and central banks replaced it with fiat money. With the stability of this kind of money, banks introduced innovative ways to facilitate transactions without the use of cash. Enter the third form of payment: cheques, credit money

PRODATA ELECTRONICS

tied to a person's checking account. Banks, credit unions, and other financial institutions offer checking accounts to people and businesses who use cheques as a medium of exchange, allowing them to purchase goods and services. This way people and businesses do not carry cash especially for large transactions such as buying a house or car or paying salaries. The cheque provides proof of a business transaction.

But cheques evolved into the last system – electronic payments, of which the most common form was the debit card. This form factor improved payments system's efficiency and extended the function of cheques. When customers purchase goods and services, they use a plastic card that contains either a chip or magnetic stripe to pay at machines that read the chip or magnetic stripe and allow the store to transfers funds electronically from the customer's account to the store's bank account. Debit cards expanded electronic funds leading to the automated teller machine (ATM) and the internet.

Now with a rapidly growing number of customers managing their finances electronically and using their cards to pay for goods and moving away from cash, further innovation in the payment systems was inevitable. So where is the disruption? What people are calling disruptive innovation today is the elimination of the card and replacing it with the mobile phones. As such, most of the action involves companies that deploy data-based mobile wallet plays where you store your payment information with a third party and they use this to facilitate a payment. What fintech has managed to do is to transform the way money is managed by upending workflow and processes in the financial services industry and allowing tasks once handled with paper money, bulky computers, and human interaction to be completed entirely on digital interfaces. It merely provides further convenience, ease of access and a lot of features that allow people to carry out functions that previously required visits to the bank like funds transfer.

These changes in form factors and the re-imagining of financial services processes are mistaken as embodying serious problems for the banking industry. These technologies are merely challenging traditional banking models and causing banks and other financial services providers to rethink how they are doing business. This is true because to sign up for any fintech solution consumers still have to provide something like their bank account information. As such, these firms have become customers of the banks and payment processors. In short, these “disruptions” actually strengthen the power and position of the banks because at the end of the day, it is still the payment firms passing money between banks and collecting a commission. The real money is still being made where it is been made since the Taula de la Ciutat (The world's first bank on record) opened in Barcelona in 1401: banks.

Banks understand that banking is a competitive industry and the form of that competition is changing. They also recognize that as consumers continue to embrace mobile and digital channels more and more, their business success depends on an ability to deliver customer engagement via those channels. So they have fought back hard in solving the puzzle presented by the fintech revolution: investing more heavily in innovation, developing new platforms while overcoming le-

gacy infrastructure and even stepping in the front of these technologies like online banking, expanded ATM capabilities, peer-to-peer payments and cryptocurrencies like bitcoin. In all, banks still have the same monopolistic hold on money as they did in the days when cash was the only means of payment. Take peer-to-peer payment, unstructured supplementary service data (USSD) was created for purposes of financial inclusion.

But today banks own it, making it almost the primary mechanism for communication between customers and their mobile payments platform.

paying attention to bitcoin and blockchain to the point of prompting regulators including the Central Bank of Nigeria bar banks and all other financial institutions from the operation of any form of virtual currency. Still, after years of volatility, the price of bitcoin reached a new high in early 2017, a surge tied in part to growing global political uncertainty and to increased interest in China, where bitcoin is seen as protection against currency controls. Because the blockchain system is seen as capable of moving money abroad, signing contracts, clearing complex financial transactions

When bitcoin broke into public consciousness in 2013, the development of a secure digital currency without a central issuer rightly turned heads. There was a wave of excitement about its value as proof of concept for a new kind of payment system not reliant on third parties like governments, big banks or credit-card companies. The person or people who created the bitcoin system under the pseudonym Satoshi Nakamoto solved a problem central to any currency - how to control its issuance, i.e., prevent counterfeiting - and do it without relying on a government’s authority. The software also solved one specific hurdle for digital money - how to stop users from spending the same unit of currency twice. The breakthrough idea was the blockchain, a publicly visible, anonymous online ledger that records every single bitcoin transaction. It is maintained by a network of bitcoin “miners” whose computers perform the calculations that validate each transaction, preventing double-spending. The miners earn a reward of newly issued bitcoin. The pace of creation is limited, and no more than 21 million bitcoin will ever be issued.

Today, banks have joined the fintech industry in

Video teller machines certainly add to the face-toface and available digital banking channels. Like most new banking technologies, they have the potential to make life a bit more convenient.

and as a medium for micro-payments in emerging countries, more than 50 banks including Barclays and JPMorgan Chase have joined the R3 consortium, which was created to find ways to use the blockchain as a decentralized ledger to track money transfers and other transactions. R3 plans to make its software code publicly available, which could speed its broader adoption.

What this reinforces is that the much-hyped disruptive technologies are not going to change the form of money, they can only reimagine the ways financial services are delivered. Leonid Bershidsky, the founding editor of the Russian business daily Vedomosti summates this in an opinion on BloombergView: “There is a difference between new, life-changing technology-based models and the marketing narratives that recast old models as something new. It all comes down to the quality of business and engineering ideas.” And banks fighting back.

E-PAYMENT REVIEW March 2017

17

Cover interview

THE RATE OF CHANGE HAS CHANGED Through Fintech various technologies have emerged to take the guess work out of financial decisions. But there is still some basic misunderstanding about how they are fostering disruption in many industries. We approached Niyi Yusuf, Accenture Nigeria's Country Managing Director, for a insight into the nature of the digital age

BY BROWN N. UGBAJA

PLEASE GIVE US A BIT OF BACKGROUND ON YOURself, and how your organisation plays a leadership role in the financial technology space.

This year, I am marking 22 years with Accenture and I’ve been involved in the modernization of the Nigerian payment industry. We helped to form Interswitch which was the very first major financial services industry collaboration project that Accenture worked on. The business plan for Interswitch, the formation and the setup of the company, I was fortunate to be part of that effort. After Interswitch we worked on setting up an independent deployer of ATM in non-bank branches, retail malls, hospitals, airports and other locations. Recently, we have been working with the Central Bank of Nigeria and the Bankers Committee on the Cashless Lagos Initiative, which is aimed at reducing the amount of cash in banking transactions to a certain percentage.

ACCENTURE

Fintech and finance innovation have disrupted the financial world as we know it. What’s your take on the ongoing technological revolution especially in the bridge between the big players and new comers?

Change is the only thing that is constant. There will always be disruptions to industries, and those disruptions can come via regulations like Cashless Lagos or through changes in technology outside of banking. An example is the revolution that has come from the use of mobile phones. Nigeria used to have about 500,000 landlines that were not for everybody, but today, we have more than 153 million mobile phone lines that are active and that has pretty much changed the way we do a lot of things. Outside Nigeria there are some very clear examples.

Technology giant, Apple, as a company changed the music industry, the mobile phone and even the retail industry. And all of these changes came just from tweaking technology to serve different purposes. With the diverse values that are derivable from technology in today’s world, the changes we see in the framework of modern banking has become inevitable. What the banks need to do to remain dominant is to adopt this same technology and use it to add value to their customers. Disruption will come and its either you embrace it and you leverage it or you let it run you over.

My question here is a bit existential and it borders on why the nature of fintech is to disrupt other industries. Why must they disrupt? Why can’t we have them as another kind of business that we call a certain name and not the 18

E-PAYMENT REVIEW March 2017

kind that brings disruption to traditional businesses?

Historically, new businesses have always been formed by those who exploit opportunities to reduce friction within an existing industry. What fintech is doing to the banking industry is the same thing that Amazon has done to the retail industry.

Disruption comes from those who look at a mature industry that already exists, where there are billions of dollars in value and identify how to reduce any inconvenience within the industry. Amazon has done that with selling books and other items. Fintech companies offer a way to make it easier for consumers to make payments. Some banks have been slow to it, but a number of banks are now catching up. What I find interesting is that the fintech companies that are successful are those that have partnered with banks not those that decided to go it alone. Fintech firms still need the distribution channels that banks provide. But the banks that choose not to innovate will get themselves disrupted.

In your 22 years of consulting experience and from the very vantage position you occupy today, which companies do you admire for successfully disrupting an industry?

The number one company I admire is Apple. This company disrupted the telecoms industry; it changed the design of the mobile phone and what it can offer Nokia used to be the number one cellphone brand but Apple came from nowhere with its slim smartphone and knocked Nokia out of business. It also disrupted the music distribution industry. In the past we used to have albums, cassettes, CDs and DVDs but all that is history. Now it is iTunes and that came from just one company. The same company changed the way we listened to music, moving from the Walkman to the iPod. Another company that I think has done well is Facebook. It changed the way we interact and how we access news. Now you can watch short videos on Facebook and that is amazing. If you look globally, Uber has transformed transportation, now anybody with a car and spare time can earn extra money just by signing up with Uber. Airbnb is disrupting the hospitality industry. People can turn their empty homes into temporary hotels. Another company I admire is Farmcrowdy, which was set up last year to give people opportunity to make investments in agriculture by connecting farm sponsors with real farmers.

From what I have observed about the technologies and competitive dynamics that prevail at present, there is strong agreement across all segments that digital disrup-

"Change is the only thing that is constant. There will always be disruptions to industries, and those disruptions can come via regulations like Cashless Lagos or through changes in technology outside of banking .... With the diverse values that are derivable from technology is today’s world the changes we see in the framework of modern banking has become inevitable."

E-PAYMENT REVIEW March 2017

19

ACCENTURE

tion will shape the banking and payment environment in a number of years. Do you believe the many forms of this disruption are evolving in a positive direction?

The innovations that we see are in two dimensions. One is at the consumer end, which is what affects most of us and the other is at the infrastructure level. Ninety five per cent of most innovations are consumer-to-consumer or consumer-to-business which are just the ones that affect the front office. The other thing to note is that the bulk of recent innovations are driven by internet and about 60% of them are on the mobile phone. In Nigeria where we have more mobile phones than landlines or laptops, we would continue to have more innovations driven by mobile phones. But when you consider that we have challenges with internet access especially in the hinterland as against the major cities, which enjoy 70% access, it becomes a bit difficult to make that assumption.

What this means is that we still have enough capacity for growth and innovation; to reach more Nigerians. Would it be possible in the long run?

I think so. I can’t recall the last time I went to my bank to do anything. I do transfers online or via a banking app and I use my cards at the POS. This is a present reality for those in Lagos and other cities.

And will that continue to be the trend? Absolutely.

I have a chequebook but I can’t recall the last time I wrote a cheque. Innovation needs to happen in the security of the consumer’s space. While allowing consumers to do more and interact more, there is a need to assure them that their transactions are protected. Transaction security is an area where innovation is needed to help overcome a major barrier of acceptance by consumers. If you cannot protect the consumer in terms of payment guarantees, liabilities if there are issues or dispute resolutions, consumers will be a bit unwilling to use the products. Trust is critical - trust in the provider and trust in the technologies. And then the whole issue of interoperability so that whatever innovation you have can work on multiple channels and multiple devices across multiple institutions and not just be limited to your own little space. I expect to see more of those happening in the future.

In Nigeria and Africa as a whole, much of the talk on what is now called the third industrial revolution is mostly around concepts that deal with payment and banking not much is heard about new communication, energy and transport networks that produce synergy effect?

Would we ever see convergence points between new technology paradigms and the establishment of a sustainable society?

In Nigeria, historically, the banking industry has always been at the forefront of innovation and technology adoption. This explains why the innovations we’ve been seeing locally are at the payment level, because what affects everybody is payment. How soon this will occur in other sectors or industries is the tough question. I think it would but it could take a while and I suspect it would still be payment-led. This constant need to exchange value by the most efficient means can be seen for example in the education space where students now make payments for WAEC and JAMB exams forms online. Now several schools have moved beyond payments to teaching their curriculum through CBT. I think payment will continue to typically open the door in this regard because it does 20

E-PAYMENT REVIEW March 2017

two things. One, it improves revenue stream and secondly, it reduces the opportunities for fraud, leakages and missed revenues. Payments hits at the heart of what most companies are interested in - the protection of their revenue and expanding opportunities to make more money. And that is the door that innovation typically uses to enter.

Someday this trend could affect transport. Now in Nigeria you can pay for Uber taxis with your card or cash. I expect the BRT service in Lagos will ultimately come to rely on a mobile payment innovation (beyond card payment) in its operations.

Lack of technology buy-in among people in rural communities is among the biggest inhibitors to payment becoming more ubiquitous.

With digital continuing to gain momentum, more Nigerians are being faced with the reality of the situation. How do we create the kind of mindset among those outside the mainstream so they would be willing to change to the essential parts of digital technology?

To improve adoption, several things needs to be

done. The first thing to bear in mind is education and enlightenment, and the second is consumer protection. Banks and payment providers must offer guarantees to consumers that they will not lose their money in course of transactions. The third issue is about cost. For consumer to embrace it willingly, the service should be more affordable, if not cheaper than current alternatives. Access will also be important. Today, I spend my money without having to walk long distances but if I must walk two or three kilometres to get to an ATM machine that will be a disincentive. We need to have these payment options available to consumers at their point of purchase, at their moment of need, especially ATMs and POS. Regulation also has a role to play. The central bank’s passage of regulations to drive the cashless Nigeria initiative is a good driver.

Additionally, usability is very important as technology is designed for humans and not the other way around. Solutions need to bear in mind that our literacy level is not 100%; that old people may have difficulty in reading tiny texts. These considerations with payments must fulfill the needs of

a broad range of the people. Whatever system is on offer must be useful and useable to our entire community of stakeholders. Above all, we need to develop infrastructures that will improve access to market in all nooks and crannies of Nigeria.

Let us talk bitcoin. Having watched as it went from an obscure experiment in digital money to a currency with a market value of almost $10bn, central banks from China, UK, Russia are interested in exploring the idea of using digital currency to cut down their own currency costs. This comes in step with moves by commercial banks and other financial institutions to use blockchain technology to ease cross-border settlement. What kind of value do think they will get out of a currency tied to the blockchain? What needs to be done to hasten a move to official digital currencies and will it really be as seismic as experts are won’t to suggest?

Central banks are still trying to understand the nature of bitcoin, the implications of its use and how they can regulate it. If it is not regulated by central bankers, then it will not be part of the mainstream currency that each country will use. At best, it will just be a currency you use for bilateral exchange.

For bitcoin to have widespread acceptance, central banks must support it and may have to be the ones to regulate it. Blockchain as an architectural framework, allows for efficiency improvement but as a distributed system there is no one controlling the block, a concern for central banks too. Another issue with blockchain adoption is how to correct mistakes and errors when they occur. Accenture as a company saw an opportunity to help improve blockchain in this regard and last year filed a patent for editable blockchain. We are also helping the airline industry explore cost savings with the technology and believe we can help investment banks save as much as $12billion a year across their middle and back office using blockchain technologies. Blockchain is still evolving and it will have implications across banking and non-bank industries. It could be more disruptive than we think or it could be less so. Its evolution in the Nigeria market will most likely tow the route of the global trend and we expect to see companies testing and doing some pilot schemes just so that they can better understand its nature.

Are you seeing aspects of cloud, big data and analytics being lifted and shifted into the technological environment of Nigeria?

I think we are seeing that but they are not pervasive. People are using them more for consumer and less for business activities. There are lots of activities that happen in the social media space and all those are cloud related. From a consumer-social-entertainment-interaction point of view, we use a lot of cloud-based things. But in terms of running businesses, we are still a bit tentative. Nigerian businesses are still afraid of cloud; they would like the cloud to be hosted in Nigeria and not outside of Nigeria. There are regulations around data residency; where should data reside. We know there are a couple of operators that have set up data centres in Nigeria and that would help in terms of local hosting. I think the challenge for us is to move a few of our cloud-based system into business and use that to run their operations.

How do we do that?

Many commercial banks today run their recruitment services in the cloud but they are yet to adopt it for their core banking business. There are a few organizations that use their customer management system in the cloud; as well as sales force management system that allows salesmen to communicate with customers. Organizations are taking their tentative steps but are doing it on what I will call non-mission critical systems. I expect that by the time they are more comfortable they will eventually move mission critical core banking applications and other things to the cloud.

What do they need do to arrive at that point of comfort?

There are things that we ought to do and there are also some things that are happening as a matter of course. The first is hardware. I spoke with a CIO [chief information officer] recently, who complained bitterly that he had to buy twenty more servers for his system and that instead of doing that, he was looking at the cloud system as an alternative. Why? Because users were generating tons of data. The reality that he could not continue to go to the board to ask for money each time he needed to buy more servers was causing the CIO to take a second look at cloud. The second thing is availability of local providers of cloud services and currently we have five key players and a few small ones that are offering the service. The third external factor that is affecting uptake is FX cost imperative, local operators will give companies the opportunity to avoid the volatility that comes with purchasing foreign exchange to pay for services offshore. All these are influencing the way organizations look at cloud as a transformational opportunity. I think the fourth is speed to market. Adopting a cloud solution makes it much easier for you to stay ahead of the curve as you are not configuring things, you are not setting up anything, you are just hooking up to something that already exists.

What of Artificial Intelligence, it is emerging on the worldwide agenda as a mainstream technology and we are beginning to see the impact it will have on economic and social life.

What do you think of the future of AI for Africa or Nigeria?

AI is one of the five trends Accenture Technology Vision 2017 identified as a technology that will significantly impact businesses in the coming months and years. AI is the whole concept of machine learning, pattern recognition, and robotics. Currently people are experiencing it in some form and in services they are currently taking for granted such as voice recognition in apps like Siri on Apple devices and mapping systems for transportation

In Nigeria, historically the banking industry has always been at the forefront of innovation and the use of technology and I think that explains why innovations we’ve been seeing are at the payment level because what affects everybody is payment.

on Google maps. It is beginning to happen locally albeit cautiously. Certain industries are starting to take a second look at it. Several call centers for instance are looking at robotics solutions to answer basic customer calls and interaction instead of human agents. We are having discussions with a few clients in that space and I think that it is something that is likely to happen sooner than later.

Are the clients local innovators or foreign?

Local.

I want to go back to what you said about blockchain and how it could be used for bilateral exchange. As banks are looking at cross border settlements, do you think blockchain technology could enable the creation of new forms of identity and lower the barriers of people getting access to financial services?

One cannot overstress the profound positive changes that blockchain will have on industries. What we know is just the tip of the iceberg, and the more innovative the technology, the more applications we can put it to use in. Blockchain helps to reduce cost and to improve access. We are working closely with leaders from across the financial services industry, the academic community and our key technology alliances to move blockchain technology forward so that, ultimately, it can help to improve the way the world works and lives. We worked with our partners to map data from eight of the world's largest investment banks against our proprietary high performance capital markets model and produced some stunning revelations.

The report showed how blockchain-based database system could reduce costs by 70% cut on central finance reporting, 50% cut on business & central operations and a similar 50% cut on compliance.

Tell me about Accenture’s support to fintech innovation. In particular, the FinTech Hive set up by Dubai Financial Centre and Accenture to help startups in Africa and the Middle East.

Could you tell me about this?

Accenture is helping to create the first accelerator for FinTechs in the Middle East working with the Dubai Financial Center. Interestingly, three years ago we set up a fintech competition along with a Techlaunchpad in Nigeria, in conjunction with the Ministry of Communications Technology.

The competition was designed to allow innovators to accelerate their innovation and have access to mentors in the industry who can guide their thinking and processes in addition to giving them direct contact to potential investors. Support and sustainability of the program led to the creation of IDEA Hub in Yaba. That is one way we are assisting fintech in Nigeria. Secondly we are working with specific clients and helping them to think of how they can accelerate their digital innovation, create an ecosystem and accelerate their launches leveraging fintech. It is the ecosystem that will help create a network effect and lead to the speed up massive adoption.

How do you think payment players can leverage on the insights from transaction data to revolutionize customer’s experience?

Data can be monetized and that has to do with connecting the data you have with other data resources so that you can get a 360 degree view of the customer. Businesses should know more aboE-PAYMENT REVIEW March 2017

21

ut what the customers do aside payments. They should look for the patterns and try to connect the dots that allow them to be able to predict what customers will do. Payment players can also make use of that same data to also prevent fraud.

I imagine that good leadership is essential for guiding the bank towards implementing actual digital strategies that drive value. What kind of leadership is required in today’s complex and turbulent business environment?

A leadership that is open to ideas and a leader that believes he or his organization does not have the answer to everything. It therefore is about collaboration and that way you can achieve more. Secondly, the leader should understand that ideas must flow in the organization either from low or high positions, so he must be accessible and must create a culture that empowers staff, customers and partners so that they can do more and think innovatively. The leader must be agile in terms of moving fast and be tolerant of failures because there will be failures. It is not all investments that will yield returns. A leader must understand that and must be able to tolerate it knowing full well that there is a bigger picture that he is looking at. Lastly, the leader must open himself up for change, willing to embrace change and test new ideas and not be stuck on the success of the past.

What of the problems created by technology's disruptive pace. How do we devise solutions that will address those problems directly?

22

E-PAYMENT REVIEW March 2017

When people look at the effect of technology on job creation, I tell them to look at it broadly. Certain roles will change but new roles will also be created. In the past, agriculture was a huge employer of labour in the United States but today it employs less than 2% of the workers and yet they feed more people. Why? Because they have better yield and improved mechanization. But then they created more jobs. In the same way when ATMs where introduced this simply meant we don’t need more bank tellers. But it led to the creation of more jobs in terms of those who would service the machines; those who load cash into the ATMs and those who had to answer customer calls and enquiries. By rolling out the ATMs, we created more roles even though we reduced the number of tellers. There are now new employers who provide security for ATM transactions; those who monitor the operations and the persons who educate customers on the uses of the ATM and other payment devices.

Those are some examples of new jobs. I don’t have the statistics but I guess that for every job that is impacted, it will create more jobs and more new roles.

What should companies do to achieve some semblance of immortality?

It is through the ability to develop products that are relevant to the consumer, moving with the trend of things and taste of the consumers. Companies need to understand that consumer preferences will always change and they must also be ready to change. It is just the reality that nothing

lasts forever.

You’ve been in your post for seven years as Country Managing Director. What’s been the one achievement of which you are most proud?

I’m not sure it’s fair to ask for one achievement.

The country managing director role is multi-faceted and one fact is that Accenture continues to support the transformation and the growth of the country as seen in the kind of work we are doing within the banking industry in terms of Cashless Nigeria. I find the fact that I am helping to transform the nation and helping develop my colleagues to be competent professionals very satisfying.

To be able to operate ethically and professionally in any environment like Nigeria is also gratifying.

Bonus question: does innovation imply progress and does progress imply innovation?

Innovation is doing new things and in doing them you can destroy something and enable you make progress. There are always two sides to a coin. Like the introduction of the steam engine after decades of horse drawn carriages. Many horses, horse men and stable hands no longer had relevance. You could argue that with combustion engines came increased CO2 emissions. But our living standards and our understanding of the universe we live in may not have happened. Does innovation mean progress? Yes to the extent that you create something new. Will everything progressive be innovative? Not necessarily. But you need continuous innovations to continue to make progress.

E-PAYMENT REVIEW March 2017

23

Interview

Smart governance through a networked government We sat down with Dr. Valentine Fontama, a principal scientist on Microsoft’s analytics + insights data science team, to get his perspective on e-government, payment and risk assessment

UNIVERSITY OF WASHINGTON /CHANNEL 9/ MICROSOFT

BY LUCY AKOKOTU

WHAT IS YOUR TAKE ON THE CONCEPT OF E-GOVERNANCE? E-governance is fundamentally about converting your governance system from manual to electronic. In the shortest term, that is how I can put it. It is about moving away from using paper documents and files to the delivery of services on digital platforms. However, saying it is very simple but to really make it work, is much more complex. First, it has to start with the government. At the highest level, the government has to be determined to make the transition to digital. This is something that will take many years, sometimes more than a decade to complete. The government has to do its own studies, think holistically about it and come up with a strategy. It has to ask hard questions. What do we want to achieve with the e-government initiative? What are our goals? What are our success criteria and what is the execution plan?

The right answers to these questions will determine the shape of the e-government policy that will be eventually put in place. The policy will detrmine how e-governance will be implemented and how it will work at federal, state and local government levels. The other part of the process involves budgetting money for its implementation. The digital transformation of government systems usually involves a lot of cost and any administration intent on doing it should be ready and willing to spend money.

Then there has to be strategy documents that define exactly how it will be implemented, how to measure its success and how it can be sustained on all levels. The transition to e-governance is very complex but it can have wide reaching and long-lasting impact on a country.

YOU MENTIONED THE NEED FOR STRATEGIES AND POLICIES; DO YOU THINK WE CURRENTLY HAVE WHAT IT TAKES FOR E-GOVERNANCE TO THRIVE IN THIS 24

E-PAYMENT REVIEW March 2017

COUNTRY? Nigeria clearly has started on this journey because there are policy and strategy papers being developed by the government on how to achieve this goal. It is essential that the objective is pursued vigorously because when govern-

ment service is delivered manually and involves paper documents, there is too much inefficiency in the system. When these processes are converted to digital, the inefficiencies are not eliminated outright but at the least they are drastically reduced because when everything is

computerized, there is an easily accessibe audit trail. This, for example, makes it harder for people to steal money, or divert public resources to personal use. I firmly believe that Nigeria's position as a world giant will become apparent if we embrace e-governance, implement it fully and also have the change of attitude that it requires.

It will help us to put processes in place that ensure that it works towards our goals as a country. It will help us improve the way we manage people and our resources. But for it to work, we have to educate the civil servants at all levels of government as well as the general public to have a change of attitude towards a new way of doing things. Then you have to train everybody on how to use the digital systems and change the incentive structure to get more accountability. With the right incentive, a civil servant will be happy to take calls from the public or will be happy to respond to e-mails very quickly.

THE PUBLIC SYSTEM IS PLAGUED BY INEFFICIENCY, LACK OF TRANSPARENCY AND CORRUPTION. HOW CAN E-GOVERNANCE AND E-PAYMENT OFFER SOLUTIONS TO THESE? E-payment is critical to a successful e-governance process because of the money flowing through the system. For instance, when we apply for drivers’ licenses or pay taxes, there’s payment involved and right now it is mostly collected manually. E-payment systems are critical because they will speed up the processes for obtaining government services. Instead of driving to an office to obtain documents and make payments, you can complete the entire process from your computer or phone or even from dedicated devices. This means you can complete the processes and transactions in minutes instead of hours or even days. E-payment then is a critical pillar because without it an e-government system will not be complete. Without the digital payment system, it means you still have to go somewhere physically to make payment for services and permits, which defeats the whole purpose of streamlining processes with computers.

HOW DO WE GET NIGERIANS TO BECOME ACCUSTOMED TO THE POTENTIAL BENEFITS OFFERED BY ICTS AND READILY ADOPT IT? I don’t think there’s need to do anything to get Nigerians to adopt it because Nigerians in themselves are very dynamic and entrepreneurial. I find Nigerians are early adopters of technology.

The problem is not with the public, the problem is with mostly the public institutions. In the private sector, companies are interested in ICT because they see its value. An example is in the ways banks have built mobile banking solutions that the public readily consumes. This need to quickly adopt technology in a way that it drives production and increases output is not pertinent with government institutions. By default, anywhere in the world, governments move more slowly. They usually take their time to adopt new technologies or new ideas. What I think will lead to the biggest change in the adoption of ICTs is for the federal government to actually make it a priority. Let me explain why. I worked with the Rwandan government a few years ago on a small part of their vision 2020 project. It was on a technology pact to basi-

cally attract the big players in ICTs to Rwanda because the country was very keen to become a technology hub in East Africa. Throughout that project, I saw how serious the government of President Paul Kagame was about making technology a key part of his vision 2020. That is why you see very high ICT adoption in Rwanda, it wasn’t by accident, it came from the top. All the things coming up like the technology pacts, computer labs in universities, or startups by young entrepreneurs, did not happen by accident. When entrepreneurs come up with good ideas, they need a good environment in which to thrive and that’s where government in any country plays a critical role. The challenge is not with the public because the public is eager for new technology. As I walk around Lagos, I see street hawkers with cell phones and children playing games on phones. The public is ready for ICT; people really want to do more with ICT because they know it can truly transform their lives. The significant players like the banks are moving very fast because they see the value in it.

The critical player left behind is the government but if it prioritizes ICT access like the Rwanda government has done, we will see a big change in this country.

WITH YOUR WORK IN DIGITAL TECHNOLOGY, WHERE DO YOU THINK YOU CAN COME IN AND DO THINGS DIFFERENTLY TO BRIDGE THE GAP IN THE SYSTEM? I already work with a new start-up called Access Mobile that was started in Uganda and

This need to quickly adopt technology in a way that it drives production and increases output is not pertinent with government institutions. has moved to Nigeria. The company promises to transform the way doctors provide health care services or serve their patients in order to improve lives for people throughout Africa.

They have been very successful in Uganda. I work with them in an advisory capacity. I also work with two other startups. One is the first credit registry in Nigeria. It was founded by a former Microsoft engineer who moved back to Nigeria in the early 2000s. I work on an advisory capacity with him as well because my first job out of graduate school was working for Equifax, one of the three credit bureaus in the US and UK. I am also looking at opportunities with one of my friends from business school who is a venture capitalist, Ngozi Dozie, the son of Paschal Dozie of Diamond Bank. He’s also into a lot of financial services systems and there’s real opportunity to transform that space through the deployment of advanced techniques. I am willing to work with the payment industry to fix the electronic payment system especially in a way that it facilitates payments to government.

That’s a problem shouting for a solution.

Looking at electronic payment in Nigeria, what can you do differently to strengthen the

system?

The immediate area to which I can contribute is risk management. We can help enhance risk assessment and management in such way that payment providers and banks can easily detect fraudsters and fraudulent transactions. The practice of risk management in Nigeria is still very rudimentary and that’s why fraud rate is high. It is also responsible for banks' reluctance to provide such products as mortgage and small loans. You can't blame them because some people will take a mortgage from a bank and when they are unable to meet the obligations, they will move out of that house and go to a different location and tracing them becomes a problem.

That is a high risk for the bank which means next time a person comes for a mortgage, the bank will be wondering whether that person will do the same thing and if he does, how do to find him. But there are ways to manage those problems and help bring more transparency to the system. It involves converting the systems to electronic, improving identity management and ehancing data analysis. Even when you convert your system to digital, and have unique IDs in the systems, you will need tools to trace people across the whole country. Now you can start collecting data about your customers and when customers take credit or mortgage, you can track their spending habits. You can see whether they pay their mortgage on time every month or not or how they use their cards and use the data to determine which customer is high risk and which is low risk. When you get to that stage, then the whole system benefits and eventually you get to the point where foreign banks will not automatically decline transactions from Nigeria. Risk management is a critical part of not just e-payment but the whole financial system. If you don’t have a good understanding of how to manage risks within the systems, then everyone suffers.

ON A FINAL NOTE, IS THERE ANYTHING YOU LIKE TO ADD THAT WE MAY HAVE MISSED? From inside and outside Nigeria, there is a sense of frustration sometimes when you look at the challenges. Why are the roads so bad? How come internet doesn’t work very well? Traffic is a nightmare. Why can’t we have consistent electricity supply? These challenges are real but I’m very optimistic about the future of Nigeria because it is a country with so much potential.

That future though is in our hands. If Nigerians are serious about transforming the country into a middle income economy, there is a need for everyone to make changes at a personal level.

We always refer to Nigeria as the sleeping giant because of its yet untapped potential, which when unleashed could make it a great power.

What happens in Nigeria impacts all of Africa especially because of its large population. So if Nigeria is regarded as high risk, it scares investors away from Africa and not just Nigeria.

E-governance and e-payment present two fundamental opportunities that Nigeria could use to make a big impact on the future of Africa as a whole. If both work well here, you will see the way development will accelerate throughout Africa in the next 10 years. With people paying for goods and services electronically, you may see Amazon expanding to Africa.

E-PAYMENT REVIEW March 2017

25

INSIGHT

Where the industry shares strategies for combatting payment fraud.

COUNTERING FRAUD STRATEGIC RETREAT Members of the Nigeria Electronic Fraud Forum (NeFF) with key speakers at the last NeFF Retreat in Calabar. Theme of the the retreat was Rethinking the Future of Nigeria's Payment System.

LAW REVIEW

Cybercrime act's implications for individuals and financial institutions The enactment of Nigerian Cybercrimes Act 2015 provides a unified legal, regulatory and institutional framework for tackling cybercrimes in Nigeria

BY IBRAHEEM ADEKA ATUKPA

NEFF / AFRICABUSINESS

T

HE EVOLUTION OF electronic payments system has made financial transactions easy and life more interesting as financial transactions can be made at the comfort of one's home or office or “on-the-go”. Payments system platforms are made accessible courtesy of internet banking where so many electronic devices (computers, mobile phones, etc) are deployed to make financial transactions simple, efficient and effective.

But, all of these are not without sunny sides because the internet is a cyberspace accessible to the user without some sort of restrictions.

Therefore, organisations try to build firewalls around their platforms to restrict or deny access to unauthorized users. Firewalls notwithstanding, electronic fraudsters do “wake-keep” to device means to break the walls and defraud organ26

E-PAYMENT REVIEW March 2017

isations and people.

Cybercrime (Prohibition, Prevention, etc) Act, 2015 was enacted on the 15th May, 2015 as a response to the necessity to address cybersecurity challenges; and to criminalise unauthorized access to the nation's Critical National Infrastructures and businesses.

The Objectives of the Act are provided in Section 1(a-c). It states: “The objectives of this Act are to (a) provide an effective and unified legal, regulatory and institutional framework for the prohibition, prevention, detection, prosecution and punishment of cybercrimes in Nigeria; (b)ensure the protection of critical national information infrasfructure; and (c) promote cyber security and the protection of computer systems and networks, electronic communications, data and computer programs, intellectual property and privacy rights."

Implications to Individuals Freedom of Expression: Section 39(1) of the 1999 Constitution of the Federal Republic of Nigeria (as Amended), entitles every person(s) in Nigeria the freedom to express himself or herself in these words, “every person shall be entitled to freedom of expression, including freedom to hold opinions and to receive and impart ideas and information without interference”.

There is nothing in these words that suggest the use of unprintable and vulgar language, direct abuse or words that impugn on the integrity of a person, a group, a tribe, a religion or even a region. This is not contemplated in the provision because there is limitation to the extent one uses his right or freedom of expression.

For example, section 24 of the Cybercrime (Prohibition, Prevention, etc) Act, 2015, provides

extensive provisions covering varied aspects of electronic communications, particularly section 24(1)(a) and (b). It states: “A person who knowingly or intentionally sends a message or other matter by means of computer systems or network that: (a) is grossly offensive, pornographic or of an indecent, obscene or menacing character or causes any such message or matter to be so sent, or (b) he knows to be false, for the purpose of causing annoyance, inconvenience, danger, obstruction, insult, injury, criminal intimidation, enmity, hatred, ill will or needless anxiety to another or causes such a message to be sent, commits an offence under this Act and is liable on conviction to a fine of not more than N7,000,000.00 or imprisonment for a term of not more than 3 years or both”.

Section 26 of the Act also provided for racists and xenophobic offences, including offences of harassment, threat to persons for the reason that they belong to a group distinguished by race, colour, descent or national or ethnic origin, as well as religion. Committing or supporting acts constituting genocide or crimes against humanity is prohibited and punishable under the act.

Learning points from the provisions of section 24(1)(a) and (b) and section 26 are to the effect that:

How have you been using the computer system assigned to you for your official duty? Are you mindful of the kind of messages you send or receive? Beware! You may be falling foul of the Law which will qualify you for prosecution under the Act. Note that under the Act, a computer system: (a) refers to any device or group of interconnected or related devices, one or more of which, pursuant to a program, performs automated or interactive processing of data; (b) covers any type of device with data processing capabilities including computers and mobile phones; (c) consists of hardware and software which may include input, output and storage components that may stand alone or be connected in a network or other similar devices; and (d) includes computer data storage

BEFORE THE CYBERCRIME ACT 2015, THE CENTRAL BANK OF NIGERIA, HAD ITS POLICIES WHICH PROHIBITED SOME OF THE CRIMES CONTAINED IN THE ACT

devices or media.

What this means is that those mobile phones (especially smart phones) at your disposal could be an albatross if not properly manipulated or operated in line with the provisions of the Act. It is therefore surprising that some members of the National Assembly who enacted the Cybercrime Act in May, 2015 were proposing a bill to enact a law to regulate social media. One wonders what will be the content of the bill that would not have been taken care of by virtue of S.24 (1)(a) and (b) and S.26. Some of the Senators who moved the motion for the enactment of a law that would regulate social media communication were not “first-timer” Senators.

It was unnecessary and would have been counter-productive. We need to read and understand our Laws!

Implications to Financial Institutions Before the Cybercrime Act, 2015, the Central Bank of Nigeria (CBN), had its information technology (IT) policies which prohibited some of these crimes as contained in the Act. Of particular interest and relevance to this paper is the email acceptance usage policy which outlined what to do, what not to do and the consequences of a breach.

A phrase in the policy reads: “Users

shall not send mail messages that carry malicious content, provocative, ethnic, racial discrimination or other profane content” (CBN IT Policy document, pg7). This conveys the spirit of the provisions in section 24 of the act.

Section 37 of the act chronicled the duties of financial institutions in the course of electronic financial transactions or transfer. It includes the following: Verification of identity of customer -- sub-section 1(a) requires financial institutions to verify the identity of their customers before carrying out electronic financial transactions; the principle of Know Your Customer (KYC) -Sub-section 1(b) of the act places on the financial institutions the duties of applying the principle of know your customer in documentation of customers before execution of the transactions. The other is unauthorised debit on customers' account -- sub-section 3 provides that any financial institution that makes an unauthorized debit on a customer's account, the financial institution shall reverse it within 72 hours upon a written notification by the customer. Failure to reverse the debit within the stipulated hours attracts restitution.

Any financial institution that fails to perform its duties in line with the provisions of Section 37 of this Act, is liable on conviction to a fine of N5,000,000.00, including restitution of the debit in the case of failure to reverse the debit within the stipulated timeframe.

Conclusion A good understanding of the Cybercrime (Prohibition, Prevention, etc) Act, 2015; Money Laundering (Prohibition) Act, 2011 (As amended); the CBN AML/CFT Regulations, 2013; and Information technology policies of our various institutions will guide our behavior on how to use the devices or computer systems at our disposal.

If they are properly used in line with the extant laws, regulations and policies, they will impart our lives positively. On the contrary, if they are used otherwise we may be breaking the laws and may eventually face the full consequences of our actions or inactions.

Atukpa is in the Anti-Money Laundering and Countering the Financing of Terrorism Division of the Financial Policy and Regulation Department of the CBN. Culled from the 2015 annual report of the Nigeria Electronic Fraud Forum (NeFF).

NeFF begins study of block chain technology With the rising interest in bitcoin, the Nigeria Electronic Fraud Forum (NeFF) wants to ensure cryptocurrencies won't become the achilles heel of Nigeria's payment system. Dipo Fatokun, Chairman of NeFF said that because fraudsters are quicker in catching on with new trends in the technological space, regulators and operators in Nigeria's financial system need to be well informed about the impact of bitcoin and blockchain technology.

At NeFF's annual dinner in Lagos last December, he affirmed the forum’s commitment to enforce comprehensive fraud monitoring compliance in order to mitigate risks to the national payment system. He described blockchain as disruptive technology and said the forum will form a committee to monitor developments around the technology and make recommendations on how to counter threats that may emerge from there.

Fatokun who is also the Director of Banking and Payment System at the CBN said the forum will focus on consumer education and industry wide awareness creation, enforcement of comprehensive fraud monitoring in compliance with existing resolution, monitor and control the risk host to the national payment system and other financial institution.

NeFF to begin prosecution of cyber criminals As the Cyber-Crime Prohibition Act 2015 becomes fully enforceable this year, it will enable government pursue fraudsters and cyber criminals in more aggressive manner, the leadership of the Nigeria Electronic Fraud Forum (NeFF) has said.

The Act is an elaborate policy, which protects Nigerians from scammers who use the Internet to defraud consumers and financial services providers. It also provides for the prohibition, prevention, detection, response, investigation and prosecution of cybercrimes; and for other related matters.

To ensure that anyone who commits fraud is punished to the fullest extent of the law, the forum intends to operationalise the dedicated e-payment and card crime unit in the Nigerian Police Force, which will lead investigations of fraud cases and the apprehension of fraudsters.

NeFF plans to organise workshops that will highlight the challenges inherent in the Act, and its possible effect on e-commerce and use the recommendations to engage the Attorney General of the Federation, AGF, and Office of the National Security Adviser, NSO, to review certain aspects that could affect the effective operation of the Act.

Skye Bank wins award for fight against fraud Last December, Skye Bank was honoured as “The Most Committed Watch Listing Bank in Nigeria”at the Nigeria Electronic Fraud Forum (NeFF) Annual Dinner and Awards.

The award, instituted to recognize the efforts of the banking industry in the fight against electronic fraud is presented to the institution “with the most efficient and robust system for tracking all forms of electronic fraud and arresting perpetrators for prosecution.”

Skye runs its core banking ICT applications on one of the most advanced, and highly secured and scalable technology software, adjudged by cybersecurity experts as consistent with the practice by other financial giants in most advanced economies of the world. The bank scored very high an industry-wide survey administered by the Central Bank of Nigeria (CBN), in conjunction with NIBBS. E-PAYMENT REVIEW March 2017

27

The Risk Report The one router you need to keep hackers at bay

DISPATCH Keystone Bank has chosen Swissbased fintech firm NetGuardians for real-time protection from online banking fraud ensuring compliance with the Central Bank of Nigeria recently published risk desk directive. The fintech deal will utilize FraudGuardian, which uses a patented Big Data model in order to associate and analyze behaviours across the entire bank system including e-banking, service channels, IT systems, and financial transactions.

NORTON

Global consumers are “more concerned” with protecting their financial and payments information on a computer than protecting the same data in a mobile wallet, ACI Worldwide and Aite Group research reveals, with more than 80% believing their mobile wallet data is secure. 75% of the 6,000 consumers across 20 countries surveyed are “very interested” in receiving a call or SMS to help mitigate fraud.

The PCI Security Standards Council has updated its card production and provisioning standard to expand protections for mobile payments. It adds to existing physical and logical security requirements for vendors that perform cloud-based host card emulation or secure element provisioning services; manage over-the-air personalization, life cycle management and preparation of personalization data; or manage associated cryptographic keys,” PCI says.

28

Norton Core, wireless router that secures your digital life.

CYBERCRIME

Fraud gangs snatch £8bn from financial services in 2016 Cybercrime even has its own religion in Ghana

CYBER FRAUD GANGS ARE TURNING their attention to online lenders and emerging financial services, potentially netting £8bn in 2016, latest report from security firm ThreatMetrix has shown. This is just as spoofed email netted crooks in West Africa more than $3bn in three years from businesses.

The report, which is based on an analysis of 20 billion online transactions, revealed that cyber criminals are seeking to capitalise on alternative lending and payment models; exploiting the time delays inherent in reporting loan agreements to credit bureaus.These attacks are expected to grow in 2017, with the number specifically targeting alternative lending up by 150% since the third quarter of 2016.

ThreatMetrix detected 80 million attacks using fake or stolen credentials during 2016 in the finance sector alone. Besides the US, ThreatMetrix saw this type of fraud originating in developing countries, including Brazil, Egypt, Ghana, Jordan, Nigeria and Macedonia. This is in keeping with the rise of emerging nations as players in online fraud across all industries, the report said.

Brazil emerged in the fourth quarter as a major attack destination, and ThreatMetrix saw a significant increase in attacks coming from emerging economies, including

E-PAYMENT REVIEW March 2017

Tunisia, Ukraine, Malaysia, Bangladesh, Pakistan, Serbia, Morocco, Guadeloupe, Qatar and Cuba. Identity spoofing is the leading attack vector in such economies.

Meanwhile, research by the International Criminal Police Organization (Interpol) and information security company Trend Micro found that cybercriminals are shifting to more elaborate crimes, complex operations, and business models – business email compromise (BEC) and tax fraud. BEC involves crooks sending authentic-looking invoices and internal memos to businesses and tricking them into paying money into the thieves' accounts.

The study found that between October 2013 and May 2016, BEC scammers walked off with more than $3bn having exploited the technique globally. It is now so established that it has entered the pantheon of religion in Ghana, under the name Sakawa.

The fraudsters make offerings to a supreme being that will protect their fraud from being discovered and ensure good fortune.

Victims of BEC scams include the city of El Paso, in Texas, in the US, which got scammed out of $3.2m, and Austrian engineering firm FACC, which lost over $54m.

Much of the money in both cases has now been recovered – but by no means all of it, and the problem is getting worse.

YOU KNOW NORTON as one of the most popular names in security software, but now it's a piece of hardware too, as parent company Symantec creates its first home router, the Norton Core. This new app-enabled router secures your digital life, while delivering the highest level of performance.

Core uses advanced machine learning and Symantec’s global intelligence network to defend WiFi—and every device connected to it—against malware, viruses, hackers and much more.

Via the mobile app, you can monitor the network and see a list of online threats that the router has blocked. It even shows you the current safety level of your home network with a credit score-like number, from zero (completely vulnerable) to 500 (completely safe). You can also use the app to pause the internet for any connected device.

Numbers

89%

People in sub-Saharan Africa who experienced at least one type of fraud last year putting the region third in exposure to fraud incidents in the world said the Global Fraud Report.

$171

million

Amount that companies and government organisations in Kenya lost to cybercrime in 2016 and this is expected to rise by 30% by the end of this year.

4,400

Total number of Dark Web services left from 30,000 in April last year after an Anonymous hacker breached the servers of popular Dark Web hosting service Freedom Hosting II.

ENCRYPTION

The web is becoming more secure Half of all websites are now encrypted

THE WEB IS GETTING SAFER IN an important way. Today the average volume of encrypted internet traffic finally surpassed the average volume of unencrypted traffic.

Both Google and Mozilla report that at least 50 percent of web traffic from their respective browsers is encrypted with HTTPS, the secure internet protocol that helps protect users from tracking and other malicious activities.

That means when you visit a website, you are now more likely than not to see a little green lock right next to its address. That little lock indicates that the page you visited came to you via HTTPS rather than plain old HTTP. The nonprofit Electronic Freedom Foundation (EFF) and other privacy advocates have been encouraging wider adoption of HTTPS for years but progress has been relatively slow. Even now, many mainstream websites and services still use the less secure HTTP protocol, or don't turn on HTTPS for everyone by default.

Even companies like Google, which has been a strong advocate for HTTPS, have challenges in implementing the standard across all their services. The company said last year that 77 percent of requests to its servers, not including YouTube, were encrypted with HTTPS. Not that you are free from prying eyes entirely: HTTPS does not hide the fact that you are visiting a particular website. But it does mean everyone, including internet service providers and the government, will have a harder time seeing what information you are reading or posting to the web. And it can help ensure that when you visit a website, you are seeing what its authors intended.

The fact that half of all traffic is encrypted should be heartening to the security industry. Websites that use the less secure HTTP protocol leave users open to malicious tracking, content injection and other exploits that can be used to steal personal information.

COBALTROBOTICS / KASPERSKY/ FUJITSU

Human-to-machine interactions Can you picture indoor security robots strolling around your office? Yves Béhar's studio Fuseproject worked with robotics company Cobalt to create this robot security guard to operate in offices and foyers, where it performs basic functions like scanning ID cards, but also uses its sensors to detect possible security threats.

THREAT LEVEL Crooks are targeting card readers at selfcheckout, placing overlay skimming devices on the machines to steal data and PINs. The skimmers look identical to the card readers' surfaces, fitting snuggly over them.

They nab data when cards are swiped and PINs that are typed in before using Bluetooth to send it to other devices that are within a few metres.

--------------Security researchers from Kaspersky Lab have found a very powerful malware that is capable of completely wiping the contents of a disk. Dubbed StoneDrill, it injects itself into the memory process of the user’s preferred browser.

During this process it uses two sophisticated anti-emulation techniques aimed at fooling security solutions installed on the victim machine.

The malware then starts destroying the computer’s disc files This is obviously more serious than your average virus. There is also a StoneDrill backdoor, apparently created by the same code writers, and created for the purpose of espionage.

--------------Android users have been warned about downloading the fake Good Weather app from the Google Play Store because designed to spread malware and steal banking details.

According to online security firm ESET, The malware is able to hijack SMS and use the code to access the online bank account of victims even if they have two step authentication enabled. ESET said the app has been downloaded more than 5,000 times and is currently carrying out attacks on no less than 22 Turkish mobile banking apps.

Can hackers smell fear?

POS palm payments

Cybersecurity firm Kaspersky Lab is raising awareness of the digital threats facing users ... by launching a perfume. It unveiled what it described as “two threatening yet provocative scents”: Threat de Toilette pour femme and Threat de Toilette pour homme at an event in London.

“Contains all the perfectly coded base notes of cybercrime; hints of spam and drops of ransomware which will ensnare your love affair and cast a love virus,” according to the press release announcing the launch.

A Chicago startup has built a biometrics-based payments system that lets people make purchases by holding their hands over a scanner at a POS. To use the Keyo system, users create an account online, receive a registration code and then visit a retail location with one of the firm's terminals to enter the code and map the unique blood vessel patterns in their palms. They can then add cards and make purchases at participating retailers by waving their hands over the Keyo terminals.

RISK ASSESSMENT

Popular Android devices ship with malware installed A COMMERCIAL MALWARE SCANNER USED by businesses recently detected an outbreak of malware that came preinstalled on more than three dozen Android devices. According to Check Point Software Technologies, maker of a mobile threat prevention app, the assortment of malicious apps weren't part of the official ROM firmware supplied by the phone manufacturers but were added later somewhere along the supply chain.

The affected devices include: Galaxy A5, S7, S4, Note 2, 3, 4, 5, 8, Edge, Tab 2 and Tab S2, Asus Zenfone 2, LG G4, Nexus 5 and 5X, and Xiaomi Mi 4i and Redmi. Others are ZTE x500, Oppo N3, R7 and vivo X6 plus, LenovoS90 and A850.

Most of the malicious apps were info stealers and programs that displayed ads on the phones.

One malicious ad-display app, dubbed "Loki," gains powerful system privileges on the devices it infects. Another app was a mobile ransomware title known as "Slocker," which uses Tor to conceal the identity of its operators.

172,919

Identity frauds recorded in the UK in 2016 more than in any other previous year, according to figures from not-for-profit data sharing and prevention agency Cifas. 88% was perpetrated online using a variety of techniques including stealing mail through hacking; obtaining data on the ‘dark web’; exploiting personal information on social media, or ‘social engineering’.

E-PAYMENT REVIEW March 2017

29

Next Up FUTURISTIC PERSONAL CHAUFFEUR German automaker Volkswagen has released a concept idea for autonomous vehicle called Sedric that the company said can be summoned with the press of a button to drop children off at school or collect groceries for you. The Button is the link between the user and Sedric.

It is the key to a completely new mobility experience. This is because a single touch of the button guarantees mobility for everyone, at any time, and at any location. Rather than have a standard car layout, VW is pitching Sedric as more of a lounge on wheels. It will have leather upholstery and no steering wheel or pedals.

Nanowire inks enable paper-based printable electronics

GOOGLE-LEVI / VOLKSWAGEN / GIGAOM / INDIAN364

Levi jacket with Google woven in A PARTNERSHIP BETween Levi’s and Google has yielded the Jacquard, a denim jacket with technology woven into the fabric.

Once paired to a smartphone via Bluetooth, the jacket allows the wearer to control key functions with just a brush or tap of the cuff. A double tap with two fingers, for example, starts or stops music. Swiping plays, pauses or skips a track. Or you can brush your fingers on the jacket to find out what time it is.

A companion app called Project Jacquard lets you select what you want each gesture to bring up.

30

E-PAYMENT REVIEW March 2017

STEPHEN HAWKING

We need global government to stop technology threat

HE HAS WARNED OF THE threat to our planet from overpopulation, climate change and diseases. Now Stephen Hawking has highlighted a danger to mankind: technology. He has warned that technology must be controlled in order to safeguard the future of humanity, expressing a belief that a ‘world government’ could be the only way to combat the threat, though he warned that that could lead to a global ‘tyranny’.

"Since civilisation began, aggression has been useful inasmuch as it has definite survival advantages.

It is hard-wired into our genes by Darwinian evolution," he told The Times. ‘Now, however, technology has advanced at such a pace that this aggression may destroy us all by nuclear or biological war.

We need to control this inherited instinct by our logic and reason.’

Professor Hawking said that the human race must ‘retrain’ for a new world where robots have replaced many everyday jobs. Writing in The Guardian, he also revealed

what worries him about the future of our planet.

"We face awesome environmental challenges: climate change, food production, overpopulation, the decimation of other species, epidemic disease, acidification of the oceans," he said. "Together, they are a reminder that we are at the most dangerous moment in the development of humanity. We now have the technology to destroy the planet on which we live, but have not yet developed the ability to escape it."

The renowned physicist had previously issued warnings that robots could wipe out humanity and that leaving earth is our only hope, and that our days on earth are numbered. Last September, he warned that our planet is becoming a dangerous place because of the threat of war or disease. "I believe that life on Earth is at an ever-increasing risk of being wiped out by a disaster, such as a sudden nuclear war, a genetically engineered virus, or other dangers," he said.

BY SUSPENDING TINY METAL nanoparticles in liquids, Duke University scientists created conductive ‘inks’ that can be used to print inexpensive, customisable circuit patterns on any surface. Printed electronics currently have one major drawback: for the circuits to work, they first have to be heated to melt all the nanoparticles together into a single conductive wire.

Duke researchers show that changing the shape of the nanoparticles in the ink might eliminate the need for heat.

They mixed the nanostructures with distilled water to make simple ‘inks’.

By adding a precise volume of ink into each tape ‘well’ and then heating the wells – either to relatively low temperature to simply evaporate the water or to higher temperatures to begin melting the structures together – they created a variety of films to test.

As well as smart packaging, the researchers envision using the technology to make solar cells, printed displays, LEDS, touchscreens, abatteries and implantable bio-electronic devices.

Sony is planning to monetize your eyeballs – literally SONY HAS RECEIVED A NEW patent for a contact lens able to record videos with user's deliberate eye blinks. The lens has smart sensors embedded in it that can differentiate between an involuntary blink and a deliberate blink. seven Japanese inventors have worked together to design the contact lenses that in addition to a camera, also includes wireless processing unit and a storage unit. This allows Sony's blink powered contact lens offer the ability for later viewing of images and videos.

RECYCLING

Smartphone waste to yield Olympics medals

JAPANESE TRANSLATION SERVICE / ESIGHT/CHOWBOTICS / AIRBUS

ATHLETES AT THE Tokyo 2020 Olympics will be presented with medals made from metals recovered from discarded smartphones.

E-waste is really abundant in Japan and contains enough precious metals to produce all the medals for the games.

The organizing committee has launched a campaign to encourage people to recycle their old smartphones. The aim is to gather at least eight tons of metal from millions of discarded mobile devices in order to gather enough material for the 5,000 medals due to be presented at the sporting extravaganza.

To make it easy for people to drop off old devices, the organizers are installing drop-off points at NTT Docmo’s nationwide network of more than 2,400 stores, among other places.

While a number of recent Olympics used recycled e-waste for medals, Tokyo 2020 claims it will be the first where all of the medals will be made entirely of recovered metal.

SHARP VISION A Toronto-based company called eSight has created a pair of glasses that transmit images from a forward-facing camera to small internal screens -- one for each eye -- in a way that beams the video into the wearer's peripheral vision.

Robots want to make your next meal A company called Chowbotics Inc is developing robots that will be able to create meals in restaurants, cafeterias, hotels, airports, hospitals, and just about anywhere else humans might need to eat. Sally, its flagship product makes use of no fewer than 20 food canisters to give customers more than 1,000 different kinds of salads. A number of businesses have already agreed to put Sally’s saladmaking chops to the test.

Pilot programs are being held in California and Texas, with the robot making food in an Italian restaurant, a co-working space, and a grocery store.

BIOLOGY

Our brains may be 100 times more powerful than believed

A STUDY OUT OF THE UNIVERSITY OF California Los Angeles (UCLA) has found that one part of the neurons in our brains is more active than previously revealed. This implies that our brains are both analog and digital computers and could lead to better ways to treat neurological disorders.

The study focused on the dendrites, long branch-like structures that attach to a roundish body called the soma to form neurons. Previous belief was that dendrites were nothing more than conduits that sent spikes of electrical activity generated in the soma to other neurons. But the study has shown that the dendrites themselves are highly active, sending spikes of their own at a rate 10 times than previously believed.

"Dendrites make up more than 90 percent of neural tissue," said UCLA neurophysicist

Mayank Mehta, the study's senior author.

"Knowing they are much more active than the soma fundamentally changes the nature of our understanding of how the brain computes information. It may pave the way for understanding and treating neurological disorders, and for developing brain-like computers."

In making their discovery, the UCLA team was able to implant electrodes in the brains of rats that went next to dendrites. This was a departure from previous work where the sensors went straight into the dendrites, killing them and making their activity impossible to measure. They found that the dendrites were five times more active than the somas when the rats were sleeping, and 10 times more active when they were awake and moving about.

Triple sharpness

Lying metres

Fighting cancer

Atom data store

Scientists have invented a new type of liquid crystal that will enable television and computer manufacturers to produce displays that pack three times the pixels into the same area of screen. Triple the sharpness can be achieved through this liquid while reducing the power required. A working prototype of the powerful display could be available by 2018.

Lab tests carried out by Dutch scientists have shown that some of today's "smart" electrical metres may give out false readings that in some cases can be 582% higher than actual energy consumption.

Tests conducted on nine different brands of meters matched numbers posted on an online forum by a Dutchman complaining about high energy bills.

A recent Google project focused on analyzing breast biopsies used data from Camelyon16 project, which challenged participants to create cancer-detection algorithms. With the accumulated data, Google has developed a model that can match or exceed the performance of a pathologist taking an unlimited amount of time to examine images.

Scientists at IBM have figured out at a way to encode data onto a single atom, which is the most compact information storage ever achieved. They used holmium atoms embedded on a magnesium oxide base and manipulated the atoms with a scanning tunneling microscope. This allowed them to encode data on those atoms and then read that same data later.

Transporting into the third dimension Airbus has unveiled an ambitious concept vehicle intended to demonstrate a future vision of urban mobility. The Pop. Up Concept lets drivers on the road get picked up by a quadricopter and fly around town. The passenger cabin sits on a four-wheeled frame and can be driver-operated or self-driving. When the driver is ready to fly, an air module can be requested by using a smartphone app. A massive drone will then attach to the top of a “passenger capsule” and bring you to your destination.

Don’t expect to see these flying cars in the sky anytime soon – Pop.Up is still in the concept stage.

E-PAYMENT REVIEW March 2017

31

Fraud Report Fraud Landscape in Nigeria 2016 Executive summary

The year 2016 experienced a lot of innovation in the electronic payment space.

New products and services, well driven by cutting edge technologies came to limelight, which in turn led to an increase in the adoption of e- payment and transaction volumes. For example, the ease of transacting with our mobile phones took a new dimension with a greater adoption of USSD. As we strive daily to improve our products and services, and also make electronic payment channels simpler to use, fraudsters were also not relenting in their efforts to take advantage of the system.

The volume of fraud reported this year compared to previous years attest to the fact that fraudsters do not grow weary. The more products and services are rolled out without proper risk and impact analysis, the easier it is for the “bad guys� to perpetrate more fraud effortlessly. The determination and commitment of these unscrupulous individuals cannot be underrated within the financial sector. The financial industry needs to ensure that more regulations and inter-industry collaborations are put in place to curb this trend.

The industry recorded about 82% increase in the volume of reported fraud cases in 2016 when compared to 2015, and over 1200% when compared to 2014.

Despite the 82% increase in the reported fraud cases, with an estimated NGN 2.19 Billion loss to fraud, the industry was able to reduce fraud by 2.7% when compared to the 2015 value. Comparing the attempted fraud against the actual loss, the industry was able to salvage 49.7% of the total amount of frauds initiated by these fraudsters within the year. These figures inform us that there are more attempts on yearly basis with different innovative tricks or modus operandi to take advantage of the system.

Looking ahead into 2017, the financial industry as a whole must collaborate to ensure a wider gap exist between the attempted fraud and actual loss. The analysis in this report would allow us to benchmark and also understand where the vulnerabilities lie. The industry must come together and implement an effective solution against these vulnerabilities.

Transaction Summary 2016

Transaction by Products NIP -- 154.5 MILLION, VALUE -- N38.2 TRILLION CHEQUE -- 11.7 MILLION,VALUE -- N5.8 TRILLION POS -- 63.7 MILLION, VALUE -- N758 .9 BILLION ATM -- 590 MILLION, VALUE -- N4.9 BILLION BULK PAYMENT -- 43.6 MILLION, VALUE -- N18.8 TRILLION In 2016, there was an increase in Instant Payment transaction volume and value. When compared to 2015, Instant Payment transactions exceeded other products both in volume and value with the exception of ATM Volume. POS and Bulk Payments took the third and fourth positions in terms of volume respectively.

In 2016, the volume of POS transactions were impressive, being the third largest transaction by volume. Bulk payments include NEFT and NAPS transactions.

All products had either tangential or significant change when compared to 2015.

Foreign Transactions on Nigerian Cards

868.9 Million

In contrast with 2015, there was about a 54.5% spike in the volume of electronic transctions.

The volume included transactions processed through the Nigeria Central Switch (NCS), clearing and Automated Teller Machine (ATM).

N69.1 Trillion

In 2016, there was an increase of31.5% in the value of NCS and ATM transactions compared to 2015.

32

E-PAYMENT REVIEW March 2017

There was a reduction in the total number of reported foreign transactions carried out in 2016 when compared to 2015. While 2015 records 11.2M in volume, 2016 transaction volume was 10.3M. This reduction also spanned across transaction values with the exception of Web.

Foreign Transactions Across Products Volume [2015 Vs 2016]

The figure below shows that 19,531 fraud cases were reported for Deposit Money Banks in GDI6 as against 10,743 in the Year 2015.

82% 2.5%

Reported fraud volume represents 82% increase when compared with 2015.

Despite the increased fraud volume, there was a decrease of 25% in actual loss value

Although, there was 8296 increase in reported fraud cases when compared with last year, we still witnessed marginal reductions in attempted fraud value and actual loss value. The attempted fraud value and actual loss value for 2016 are NGN 4.3 Billion and NGN 2.1 illion respectively.

Fraud at a Glance - 2016 (Reported Actual fraud losses]

The chart below shows the Actual Loss Value as reported on the Anti¬Fraud Portal for 2016.

51% I 49%

The Industry was able to save 4996 of the attempted fraud.

Fraud per Channel - 2016

N464m ATM had the highest fraud attempts with about 48.8% of the fraud volume and it also had the 2nd highest of the Actual Loss with 21% of the total loss value.

N511m

Across the Counter has almost an insignificant volume with just 1.6% of the entire fraud attempts.

However, this channel has the highest loss value and also represent 23% of the Actual Loss Value.

N243m

POS represent 8.5% of the fraud attempts and also represent 11 % of the Actual Loss Value.

N320m

Internet Banking represents just 3.6% of the fraud attempts this year but the Actual Loss Value stands at 14.6%.

Fraud Summary 2016

Over the years, technology has played a vital role in the history of Nigeria’s financial space. From initiating funds transfer right from the comfort of our rooms, to paying utility bills without having to visit the service providers and uniquely identifying bank customers with biometrics, etc. Many cutting-edge products and services have been developed which in turn have changed the way we interact and transact. Gone are the days of long queues in banks. The ease, transparency and swiftness that technology brought to the financial ecosystem in Nigeria are noteworthy. Fraudsters are constantly finding ways to perpetrate their illicit intentions and take advantage of the system. However, “The Industry” is always deliberating and implementing strategies and policies to negate the acts of these fraudsters. It has been a tough battle but surely, we are winning!

YEAR

FRAUD VOLUME

ATTEMPTED FRAUD VALUE

2,015

10,743

4,374,512,776.64

2,016

19,531

4,368,437,371.64

N83m

Web channel stands at the 3rd position with 13.7% of the fraud attempts but only represent 3.8% of the Actual Loss Value.

N132m

eCommerce represents only 2.6% of the reported fraud attempts while the NGN 132M of the Actual Loss Value represent 6%

N235m

Mobile is having a steady increase in volume at second position representing 19.6% of the fraud E-PAYMENT REVIEW March 2017

33

attempts with about 10.7% of the Actual Loss Value.

Exploring reported fraud events in the year 2016 and categorizing them according to channels, fraud perpetrated through the Automated Teller Machine (ATM) recorded the highest volume of fraud followed by Mobile.

This is analogous to several emerging products and services riding on these channels which fraudsters are taking advantage of, especially mobile channel. The third most used channel to perpetrate fraud is Web.

Fraud by Platform - 2016

NIBSS categorized various channels stated above into Electronic and NonElectronic platforms.

Non-Electronic Channels Channel Volume Actual Loss Value **Across Counter 325 511,072,861.29 Cheque 12 4,558,897.75 Total 337 515,631,759.04 Examining the total fraud volume and value on both platforms, it is evident that fraudsters still leverage more on the electronic platform to carry out their illicit acts. Consequently, the Non-electronic platform which comprises of “Cheque and Across the Counter” channels represent about 2396 of the total actual loss for the year. This shows a lower percentage when compared with 2015 with non-electronic platform representing 43% of the total actual loss for the year 2016. **Across Counter: Some across counter transactions end up using electronic channels. e.g NIP .

OCT With 2,128 Fraud Volume, the actual loss value stood @ N153.0M

NOV With 1,424 Fraud Volume, the actual loss value stood @ N138.8M

DEC With 1,860 Fraud Volume, the actual loss value stood @ N145.8M

Based on trend and human perception, it is believed that fraud rates increase towards the end of the year due to several festivities observed during this period and the need for people to get more money. But, the truth is fraud can occur anytime, hence the need for us to always gear up our preventive and detective strategies.

Reviewing reported fraud cases in 2016, we saw a twist when compared with the last two years. Although, there was increase in the “ember” period, there was less impact in terms of actual loss value - this is elaborated in the segment “fraud per quarter” segment. This increase is marginal when compared with last year (2015). In 2016, the month of October recorded the highest fraud volume which was followed by March and June respectively.

The month of June recorded the highest actual loss value, while February and January took the second and third positions respectively.

Fraud by Quarter - 2016

Grouping reported fraud cases for the year into quarters, we experienced constant decrease in the actual loss value for 2016. Indeed, this is notable and shows that our co-operation in the fight against fraud is paying off.

For the first time in three years, the fourth quarter of 2016 recorded the lowest actual loss and attempted fraud value. In 2015, attempted fraud value consistently increased across each quarter. The same goes for actual loss value with just a marginal drop in the second quarter.

Electronic Channels Channel Volume Actual Loss Value ATM 9,522 464,514,684.27 eCommerce 520 132,252.118.32 Internet Banking 698 320,885,957.87 Kiosk 3 10,198,000.00 Mobile 3,832 235,170,720.40 P0S 1,858 243,321,812.67 Web 2,877 83,776,994.11 Others 284 190,978,992.10 Total 19,194 1,680,877,279.74 It is important to note that ATM has been the most used channel for fraudulent transactions consecutively in the last two years. We’ve also seen an increase in Mobile channel fraud. Hence, there is need for the Industry to re-evaluate current strategies and policies.

Same with last year, "across counter” channel recorded the highest actual loss value for the year 2016 with approximately N511 Million. Although, it is less than what we witnessed last year in terms of volume and value. We advise that banks should review their internal processes to curb this, especially with the current status of our economy. ATM and Internet banking occupy the second and third position respectively - same with last year.

Final words

Fraud per Month - 2016 JAN With 1,373 Fraud Volume, the actual loss value stood @ N227.5 M

APR With 1,558 Fraud Volume, the actual loss value stood @ N86.1M

JUI With 1,448 Fraud Volume, the actual loss value stood @ N202.8M

FEB With 961 Fraud Volume, the actual loss value stood @ N247.3M

MAY With 1,918 Fraud Volume, the actual loss value stood @ N104.9M

AUG With 1,713 Fraud Volume, the actual loss value stood @ N157.1M

MAR With 2,070 Fraud Volume, the actual loss value stood @ N188.4M

JUN With 1,991 Fraud Volume, the actual loss value stood @ N428.1M

SEP With 1,587 Fraud Volume, the actual loss value stood @ N116.0M

34

E-PAYMENT REVIEW March 2017

Fraud Volume in the Last Three Years...

In 2014, fraudulent transactions consummated through ATM, Internet banking and Web channels were the top three in terms of volume. In 2015, ATM, PoS and Web were the top three most used channels to perpetrate fraudulent transactions. In 2016, ATM, Mobile and Web were the three most used. Apparently, ATM and Web channels have consistently appeared in top three channels used to perpetrate fraud for three years running. It can be deduced that ATM channel has been the focal point for fraudsters in the last three years.

The emergence of Mobile channel in this category cannot be extraneous to the various financial products and services riding on mobile platforms today. As various mobile products and services are being developed, we advised that proper risk assessment and impact analysis be done on these products and services before roll-out or launch. In addition, the evolution of mobile fraud volume with over 3000% increase in 2016 should raise

serious concerns among stakeholders. The industry needs to develop a collective strategy in combating these trends.

Out of the 1,020 unique individuals who were beneficiaries of fraudulent transactions in the above listed channels, only 217 BVNs were sent to NIBSS for watch-listing. This is just about 2196 of reported BVNS that received proceeds of fraud. If these unscrupulous individuals are not cut off from the financial ecosystem, they will continue to migrate from one institution to another, wreaking more havoc.

The chart above shows the count of unique individuals who benefited from fraudulent transactions within the year across some channels. The Automated Teller Machine (ATM) which has been the most used channel to perpetrate fraud in the last four years tops the list.

This is followed by the Mobile channel.

Fraud Reported by Other Financial Institutions [OFIs]

N50,530,153.30 Attempted Fraud

Fraud Value in the Last Three Years

In terms of value, it is note worthy that ATM, Internet Banking, and Web are the top three channels in 2014. However, Across the counter, ATM and Internet Banking had retained the top three position in both 2015 and 2016. With the huge amount being lost to Across the Counter fraud, financial institutions needs to tightened their internal control measures. Both ATM and Internet Banking fraud increases in terms of value when compared to 2015. This is as a result of different form of phishing and smishing schemes which consumers fall prey in today’s world.

N17,419,283.40 Actual loss

88

Reported Fraud

Consequently, we have 51% reduction in actual loss value and about 4% increase in attempted fraud value when compared with 2015.

The OFIs reported a total number of 88 fraud cases in 2016. This is about 38% reduction in reported fraud volume when compared with 2015.

The attempted fraud value is NGN 50,530,753.30 while actual loss value amounted to NGN 17,419,283.40.

Cheque Summary 2016

The information below represents the overview of Cheque transactions in 2016. When compared to that of the year 2015, reductions are evident in Cheque Presented/Accepted and returned (for value). A reduction is also visible in the volume recorded for Cheques Presented/ Accepted and rejected. With the advent of new, and promotion of existing alternatives for making payments, the issuing and usage of Cheques is seemingly declining.

Unique Individuals who benefited from Fraudulent Transactions

Based on reported fraud data for the year 2016, a total number of 1,020 unique individuals were beneficiaries of fraudulent transactions consummated through these channels:- Across the counter, ATM, Internet Banking, Mobile, Web, eCommerce. However, it is quite unfortunate that despite several awareness and tips on BVN watchlist, some institutions declined to send BVNs of their customers who have been involved in confirmed fraudulent acts for watch-listing, thereby leaving these fraudsters free in our ecosystem to subsequently perpetrate more fraud.

E-PAYMENT REVIEW March 2017

35

thus, is highly used by fraudsters to cart away with liquid cash.

Focus should be on ATM, Web, Mobile and POS as these are suggestive of increasing attacks from fraudsters this year as well as internet banking.

Even though the aforementioned channels are attractive and its probability high, other channels are to be guarded equally as current trends show fraudsters’ ever changing activities across all channels.

Fraud Changes by Channel [2015 VS 2016]

Cheque Summary 2016

Fraud Rate

Although values of the year 2016 are almost same with that of 2015, the difference in its volume when compared to 2015 suggests more success in curbing fraud. More attempts in volume can be seen over a period of three years and the rate is expected to increase significantly if the current recession is to be taken into consideration. The current economic recession seems to have driven unscrupulous persons deeper into fraudulent activities.

Fraud Trends 2016

2016 closed with slight reductions in attempted value and actual loss despite experiencing increase in fraud volume. Actual loss value was about 50 percent less than the attempted fraud value. The year 2016 also experienced a 2.65 percent decrease from 2015 actual loss values.

Looking critically over a span of three years, we can see a decline in attempted and actual loss fraud value but a growing increase in fraud volume. This trend warns us of the increasing activities of fraudsters but also suggests that not only was fraud well managed but the fight against fraud is yielding results.

Also with the growing adoption of electronic means of payment by individuals, the migration to the use of smart phones and the increase in popularity of crypto-currencies in our nation, heightened fraud attempts in volume is almost inevitable. However, though fraud volume this year increased with over 80%, the value in actual loss and attempted was lower than that of 2015. This lends credence to collaborative efforts between the various fraud desks and banks as well as NIBSS aggregating responsibilities over the various financial institutions.

Fraud Rate (2016)

Year Attempted Fraud Value 2015 4,374,512,776.64 2016 4,368,437,371.64

Actual Loss % Difference 2,256,312,660.00 52 2,196,509,038.78 50

Actual loss value as a percentage or attempted fraud value in 2015 and 2016.

Total fraud values, volume and its percentage difference.

Fraud Trends by Channels

High increase in fraud volume may not be unconnected to the increased adoption of e-channels, current economic recession, and the on-boarding of new customers who are not aware of the safety requirements of electronic transactions. ATM, Mobile and Web reflect serious increases in fraud when compared with the previous years. The growing use of the electronic payment platforms as the primary means to transact has definitely attracted and retained fraudsters. PDS fraud volume showed slight decrease despite jump in volume in 2015 whilst the value of P0S increased marginally in 2016. Web fraud values dropped significantly with mobile fraud maintaining almost the same values but significantly higher volume this year.

Trends show “Mobile” as a channel of growing interest for fraudsters’ activities, with the adaptation of mobile channels to effect easier and simpler payments. ATMs are easily the dispatch avenues for stolen funds and 36

E-PAYMENT REVIEW March 2017

Fraud value and volume as a percentage of Transaction value and volume respectively in 2015 and 2016.

Representation of fraud rate over the years (2014 2016)

Fraud Outlook (2017)

Fraud Interest Index (Fll) Channel

Across the Counter ATM Cheque eCommerce Internet Banking Kiosk Mobile POS Web Others

Fraud Interest Index 23.2796 21.1596 0.2196 6.0296 14.6096 0.4696 10.7196 11.0896 3.8196 8.6996

2016 has experienced new dimension in electronic fraud occurrence with 19,531 fraud occurrence. The Fraud Interest Index (FII) shows the channel that is of higher interest to fraudsters (Not necessarily the channel with highest fraud value). These are channels where the fraudster can easily make gain with less effort (think Return on Investment). From the (FII) table, Across the Counter as the highest Fraud Interest Index fallowed by ATM and Internet Banking.

Forecast for 2017

Cryptocurrencies We are beginning to see the first few complaints of frauds that ends in Crypto currencies. With the increasing wave cf disruptive technologies within the financial system, the industry must brace up for more crypto currencies related frauds.

Economic situation The current economic situation in Nigeria where job losses and inflation rates are on the increase will make fraudulent acts appealing to more people. Disgruntled and ex-staff will serve as resource for committing fraudulent activities.

Mobile Fraud The rising transformation and migration of payment system onto the mobile platforms channels is expected to lead to consistent increase in mobile fraud.

Potential Mitigation

Internal palliatives Mobile phone related fraud vis-a-vis smishing, sim swap etc calls for a drastic solution from the industry. With the regulators continued engagement

on this issue, the financial industry must brainstorm on the implementation of some internal palliatives to this re-occurring problem pending when the telecom industry will be ready for us.

BVN Watchlist Framework The CBN needs to approve and release the reviewed BVN framework policy quickly. The existing framework today allows a fraudster to commit fraud in Bank "A" and continue normal business with Bank B. Some are even bold enough to commit more than one fraud while still in Bank A. Since the beneficiary bank has not lost money, the bank may choose to, or may choose not to watchlist the customer. The draft revised framework already addresses this issue, it allows for the defrauded bank to be able to put such customer on the watchlist irrespective of where he/she banks.

The timely approval and release of the new BVN framework policy would assist a great deal.

BVN for OFIs Today, many fraudsters still have a loop hole that is being exploited - Other Financial Institutions (OFIs). Because the OFI customers are not currently mandated to have BVNs, fraudsters are able to hide below radar, the industry needs to find a way to ensure that all players in the financial system are brough under the BVN regime, this way, there would be no hiding place for any fraudster in the financial industry.

Collaboration of the banks’ frauddesk and coordination by NIBSS: Since the fraudsters always ensure cooperation and collaboration in the case of coordinated attacks, the only solution is to ensure continued and improved collaboration among entities in the financial space.

Strong partnership with NCC Majority of the frauds on customers originate from sMishing and Vishing. it is almost impossible to track such fraudsters today, for an effective fight against fraudsters in the banking industry today, there needs to be a strong partnership between the banking industry and the Telcos, such that the phone number of fraudsters can be tracked, blocked, and the fraudster denied access to telephone services in the country, this can easily be achieved by ensuring that the registration of a telecom subscriber conforms with the registration of BVN. This would be a major victory in the fight against not only fraudsters, but other criminals like kidnappers.

Awareness: The industry should as a matter of urgency embark on a massive awareness programme. Many customers fall cheap for various social engineering scheme easily. The industry need to identify avenue or channels with wider coverage and reach to the populace.

Courtesy of Nigeria Inter-Bank Settlement System Plc (NIBSS)

Why is payment fraud so persistent?

ONLINE PAYMENT FRAUD HAS BEEN WITH us since the birth of ecommerce and, despite continual improvements in preventative techniques, it is widespread and growing. Just look at the statistics: In 2014, online retailers lost over $32 billion to online credit card fraud. In 2015, in the UK alone, online fraud cost over £10.9 billion to the overall economy-- that’s roughly $210 per person. In 2016, there were 2.3million fraudulent transaction attempts. The same incredible growth that we have seen in online transaction volumes, has been followed by a greater relative increase in fraud. So what forces continue to drive continual growth in this type of crime and why is it so persistently high?

Ease of opportunity The degree of technical knowledge required to commit card fraud is now minimal. The ability to download the Tor browser, access some sites on the dark web and make a purchase in bitcoin

is not difficult. And it is certainly not expensive; card and personal details can be purchased for pennies.

Lack of stigma Driving this increase in participation is the decrease in stigma attached to committing these crimes. A whole generation has grown up with online piracy (downloading movies, music, games and software ). A recent report shows that 24% of 18-29 year old’s say it is OK to upload movie files to sites where others can download them. If it’s OK to steal content, why not steal credit card numbers on the dark web?

Police are not equipped to manage the problem Police are not organised to deal with payment fraud. For a start the crimes are rarely reported.

Each individual fraudulent transaction is not usually large enough to justify a company’s time

in pursuing the perpetrator. The few cases that are passed to the police then hit the same triage problem - is it worth the police’s time to follow it up?

Consumers aren’t protecting themselves Some of the blame for card fraud has to be shared by consumers. While it is relatively easy for criminals to obtain somebody’s card information, basic safety practices could go a long way in stopping them. Such practices include: Only making purchases on trusted sites. Never handing out card information over email or the phone. Checking website security. Using strong and varied passwords on sites that store financial information.

The key requirement to stem the tide of fraud is largely one of will. Fraud thrives because our efforts to stop it are inadequate. This needs to change fast.

E-PAYMENT REVIEW March 2017

37

38

E-PAYMENT REVIEW March 2017

State of Payments GLOBAL PAYMENTS

Australia as a cashless society is on the cards AUSTRALIA WILL BE A cashless economy within the next five to 10 years as wearable technology takes over. That is according to Mastercard's president of operations and technology, Rob Reeg.

"Eight out of 10 transactions here are contactless already ... I definitely think Australia will be cashless before the US," he told The Australian Financial Review. "It's going to become about the convenience factor, be it a ring or a phone or a bracelet."

Mastercard is currently piloting what it calls "persistent authentication" in the form of the world's first biometric wristband, Nymi. The wristband authenticates the wearer by tuning into the person's unique cardiac rhythm, thereby eliminating the need for passwords and pins, and wearers are able to purchase goods with a tap of their wrist.

According to Reeg, Mastercard often piloted its new technologies in Australia, because of the country's willingness to adopt new tech. "Part of it is a size advantage. By having fewer people Australia is able to move quicker.

I've always been impressed from a regulatory focus too, once Australia sets a direction people get behind it and you don't have as many naysayers as other markets," he said.

INTERNET OF THINGS

Smart rings, unlimited possibilities NFC technology offers promise as Visa and others evaluate a wearable payment devices that could replace your credit card or smartphone wallet.

VISA CLEARLY HAS AN INTEREST IN THE CONtactless payment space. the company and IBM have launched a new IoT platform that will allow developers to put contactless payment technology in pretty much any connected device, from a ring on your finger to your car. Developers could approach IBM to access its Watson IoT platform, which will be connected with the IBM Cloud in addition to Visa’s payment services.

The idea is that developers will no longer need to apply directly with individual IoT or banking providers to get access to mobile payments on their device, rather they can use a ready-built platform. The pair also claim that security of a user’s banking details has also been taken into consideration, so that instead of relying on existing payments methods through a card’s 16-digit code, each device would come with a unique digital identifier.

As the payments industry is shifting from plastic to digital, Visa's vision is to make sure that every internetconnected device, appliance or wearable can become a

secure place for commerce.

Visa is already showing off a new range of contactless payment jewellery and hybrid watches targeted at UK high street shops. The new accessories house a new smaller and bendier Barclaycard bPay chip inside.

Because it's flexible that means it can slot into curved, gold and silver finish costume bracelets and the leather straps of analogue watches.

Visa, piloted the NFC Ring among athletes during the Olympic Games last year in Brazil. The Visa payment ring allows purchases to be made by simply tapping the ring at any NFC-capable payment terminal. The ring is part of Visa’s goal to reimagine and expand all the ways consumers can pay – whether they click, dip, tap or swipe.

That is not all. Early this year, the company announced the pilot of WaveShades, contactless payment sunglasses for customers in Australia. The glasses use a secure payment chip embedded in the frame.

TRACKER

Contactless payment poised to ring up new growth

The simplicity of waving a wearable device at the point of sale is undeniably attractive for users, so it will be fascinating to watch this market develop.

GOOGLE-LG / COMPUTER WEEKLY

$8.6

trillion

Value of payments transactions handled by Visa globally last year as it projects that mobile and e-commerce will drive major growth.

£25

billion

Value of contactless transactions made by British consumers in 2016 up from £7.75bn in 2015, according to the UK Cards Association.

380

million

48.2%

Gartner's estimated number of connected cars by 2021. It envisions IoT will allow fuel payment through interaction between cars and pumps.

Percentage of visitors and exhibitors at the last Mobile World Congress surveyed by the GSMA who agree IoT will be the biggest business opportunity of 2017. Mobile payments got 14.5%.

E-PAYMENT REVIEW March 2017

39

State of Payment SELF-SERVING BEER PUMP Barclaycard has developed “Pay @ Pump” the world’s first contactless, self-serve beer pump, designed to help bars reduce queuing time for customers buying drinks during busy periods. All patrons need to do is select their beer of choice on the touchscreen, pay with a tap of their contactless card and stick their pint glass at its base. The pump contains an electronic valve, which opens to allow beer to flow through. A liquid flow meter ensures the right amount of bear comes out.

INDEX THE GLOBAL kiosk market will expand at a 10.9 percent combined annual growth rate from 2016 to 2024, reports Transparency Market Research .

Expanding at this pace, the market, which had a valuation of $12.2 billion in 2015, is expected to rise to $30.8 billion by 2024.

33% PROJECTED ANNUAL growth rate of the global mobile payments industry as a whole between 2016 and 2022, according to Allied Market Research.

The industry is set to be worth $3.39 trillion by 2022

MOBILE MONEY

BARCLAYCARD / DAIMLER AG / N=5

Kenyan banks get backing to launch M-Pesa competitor network THE CENTRAL BANK OF KENYA (CBK) has given six banks the go ahead to launch a mobile money transfer platform to compete directly with M-Pesa, starting new competition in the lucrative financial services market.

The Kenya Interbank Transaction Switch, which has been developed by the Kenya Bankers Association (KBA), facilitates real-time transfer of money between banks without going through mobile money platforms that are owned by the three telecom firms.

Habil Olaka, the KBA chief executive, said half a dozen of the association’s 43 member banks have now received regulatory approval to pilot the product and sign up customers in preparation for its launch in the next two months.

Standard Chartered, Commercial Bank of Africa, Barclays Bank, Equity Bank are among the lenders that have received CBK authorisation to pilot the product.

40

E-PAYMENT REVIEW March 2017

The real-time, round-the-clock platform, to be operated by KBA’s Integrated Payments Service Limited (IPSL), promises to cannibalise cheques, which take at least two working days to clear and to increase competitive pressure on mobile money products such as M-Pesa, Airtel and Orange Money.

Meanwhile, a study commissioned by the Communications Authority of Kenya to check whether M-Pesa owner, Safaricom, abused its position recommended the company should open up its mobile-money platform to transfers from competitors’ services at prices determined by the regulator.

Separately, Kenyan opposition lawmaker Jakoyo Midiwo is proposing a law to force a Safaricom split, a plan that Chief Executive Officer Bob Collymore said would be “plain stupid,” curbing job creation and growth in East Africa’s largest economy.

CHINA NOW HAS 731 million people online and according to the China Internet Network Information Centre a huge proportion use their phones for payment. 470 million or 67.5 percent, used their phones to pay for goods online, and half used their phones to pay in real life.

$26 billion

PROJECTED ATM market size by end of 2023, as per latest research published by Global Market Insights.

Developing economies will play a prominent role in growth, thanks to the drive toward financial inclusion in those nations.

MOBILITY PORTFOLIO

Mercedes Pay unveiled DAIMLER FINANCIAL SERVICES, A branch of the Germany-based Daimler AG, parent company of car manufacturer Mercedes-Benz is launching a payments platform to allow users to pay for a variety of items using a smartphone.

Called Mercedes Pay, it will become part of Daimler Mobility Services, which includes the Car2Go car-sharing service and the mytaxi taxi-booking app, and will allow customers to provide their payment details once to be able to use the range of services.

The service is being launched following the acquisition of PayCash Europe, a mobile payments solutions provider, by Daimler Financial Services. The company plans to use the new payment system to facilitate the existing mobility services and “other financing transactions in the future”.

HOMELESS HI-TECH

Payment jacket to help people donate to the homeless TWO DUTCH ADVERTISING PROFESsionals working for N=5, an Amsterdambased company, has created the ‘Helping Heart’, a contactless payment jacket for the homeless that lets passers-by donate money with the tap of a contactless card. The unusual clothing item has a card reader sewn into it, and in order to donate to the wearer, all you have to do is hold the card close to the jacket for a few moments, and the sum is automatically debited from your bank account.

The jacket comes with an LCD screen which constantly displays instructions of use. Donations have a one euro limit, and the money can only be redeemed through an official homeless shelter, in exchange for a service such as a place to sleep, food or training. “[Firstly], these days we tend to carry little or no cash at all,” N=5 employee Silvia van Hooft told indy100. “Secondly, most people would like to help the homeless, but they feel that giving money basically goes to supporting addictions. So, we wondered: how can we make it easier for people to help others who need it?"

RESEARCH

EMV Payment Card Growth Stalls GLOBAL EMV PAYMENT CARD shipments reached just under 3 billion in 2016, marking a year-onyear (YoY) increase of less than 1%.

Between 2012 and 2015, the market reached annual growth rates in the 20% to 35% range, as China and the US began their EMV migration programmes. But as overstocking, paired with near saturation points, hit both countries simultaneously, orders significantly slowed in 2016 to impact the overall market according to ABI Research.

US EMV shipments totaled 530 million units in 2016, marking a YoY decrease of 19%. Overstocking proved a major barrier in 2016, having an additional knock-on effect on contactless issuance expectations as issuers first focus on depleting existing contact card stock.

China’s 2016 YoY reduction stood at -3.9%, affected by lower than usual social security payment and pure payment People’s Bank of China card issuance. The country’s major payment network, UnionPay, is pausing co-branded card issuance alongside a recent government initiative launched to limit the number of bank accounts one person can hold at a singular bank.

Meanwhile, India showed significant promise as the region begins to increase EMV card issuance in line with the mandate set by the Reserve Bank of India. It is quickly moving from the cash digital payment, with measures now in place to ensure that the region maximizes digital payments opportunities.

Global mobile payment market to hit $780bn The global mobile payment market will reach $780bn by the end of 2017, amounting to an annual increase of 25.8%, research firm TrendForce predicts. It said more than 60% of smartphones shipped worldwide this year will feature NFC while over 50% will be capable of fingerprint recognition.

Millennials not giving up on cash and cheques THESE ARE THE WATCHES THAT SUPPORT ANDROID PAY Android Pay has been added to the Android Wear ecosystem and similar to how Apple Pay works on the Apple Watch, wearers can touch their wearable on a contactless reader to pay for goods and services from partner retailers.

INDUSTRY REPORT

Global registered mobile money accounts surpass 500m OVER HALF A BILLION MOBILE money accounts have been registered in 92 countries, with 1.3bn transactions processed in December 2016 alone, GSMA revealed in its sixth ‘State of the Industry Report on Mobile Money.

The report provides the only comprehensive picture of mobile money around the globe looked back across the decade since the pioneering launch of M-Pesa in Kenya, which first demonstrated the potential of mobile technology to transform access to financial services. It said there are nearly 174m active accounts around the world and 35 mobile money services with more than 1m active accounts.

INNOVATION

GOOGLE-LG / COMPUTER WEEKLY

New tech is changing retail cash management AS USE OF DIGITAL PAYMENT SYSTEMS STEADILY RISES, with banks fretting over the possibility of a cashless future, more services are becoming automated. Even manned tills are beginning to replicate the digital self-checkout process, creating an environment in-store where no employee has to touch cash. Glory Global Solutions, experts in cash management innovation, has developed automated machines that count and collect money, containing it in a tamper proof container where it can be transferred to the bank securely for counting. Sion Roberts, executive VP of Global Retail from Glory said it allows cashiers to focus on customer service as opposed to counting and returning cash.

The report also revealed that there are now 277 live mobile money services in 92 countries; more than 4.3m mobile money agent outlets, with 30 countries now having 10 times more active mobile money agents than bank branches; while the average cost of sending international payments using mobile money is less than half the cost of doing so using a money transfer operator.

GSMA also found that global smartphone adoption reached 51% by the end of 2016. It forecasts that 1.6bn smartphone connections will be added with India leading growth with 350m smartphone additions, followed by China, the European Union, Indonesia and Nigeria.

If millennials are supposed to be the first generation going mostly cashless, they are making the move halfheartedly. They have “one foot firmly planted in both the future and the past” when it comes to mobile payments, according to the Accel + Qualtrics Millennial Study 2017.

It showed that 42% still write cheques, while five times more millennials pay with cash than use mobile payments platforms . And that could be a good thing, as some advisors say a cash diet is the best way to pare down debt.

Wells Fargo to make all its ATMs card-free US bank Wells Fargo expects to be the first bank to fully convert all its ATMs to support a mobile withdrawals service, allowing customers to get cash by entering an eight-digit code generated by the bank’s app plus their PIN into the machine, CNN Money reports. The bank will begin enabling its 13,000 ATMs in spring 2017.

Bank of America (BAC) already has the feature at about half its ATMs and plans to convert them all.

E-PAYMENT REVIEW March 2017

41

Last Word

M-Pesa is not a technological innovation, it’s a social innovation. The high dependency in Kenya helped M-Pesa grow.

Mobile payment: Why does MPESA lift Kenyans out of poverty?

EXTRAARENA

BY STELLA DAWSON SOMETIMES IT’S THE SIMPLE things in life that make a difference.

New research in Kenya has found that access to mobile money via an M-PESA account, which allows monetary value to be stored on a mobile phone and sent to others, can lift families out of poverty.

Access to M-PESA increased consumption levels over a six-year period, enabling an estimated 186,000 families, or as many as 2 percent of Kenyan households, to move out of poverty. The impact on femaleheaded households was more than twice the average measured, the research found.

What’s interesting about these findings is that putting a very basic financial service into the hands of poor people, one that simply allows you to move money easily and cheaply from one person to another via mobile phone, is what made the difference. It wasn’t higher level financial products, such as a loan or micro-insurance that changed their lives. It was the ease of sending and receiving money.

“It tells you that payments matter,” said Billy Jack, Georgetown University professor of economics, who conducted the study with Tavneet Suri, of Massachusetts Institute of Technology. Their research, “The Long-Run Poverty and Gender Impacts of Mobile 42

E-PAYMENT REVIEW March 2017

Money,” was published in Science magazine in December.

“Being connected by mobile phone, moving money around in a more efficient way than before, getting a text message to verify the amount is very powerful,” Jack said in presenting the research at a CGAP roundtable.

But it’s about more than just the mobile phone. M-PESA, which is used by 96 percent of Kenyans, is so successful thanks in large part to its dense network of agents, who cover a large swathe of the country bringing mobile money within reach of the majority of the population. The network of 110,000 agents is 40 times the number of ATMs and enables a son living in the city to deposit money in Nairobi and then transfer it to his mother in the village, who can then withdraw the funds from her nearby agent. It replaces costly and unsafe courier services, and it has an economic impact.

The researchers surveyed between 1,608 and 3,000 Kenyan households over a six-year period and compared how households that saw a sharp increase in the density of M-PESA agents soon after its launch in 2007 fared versus those without such easy access to mobile money. The surveys were conducted between 2008 and 2014, during which time

Moving money

The numbers

Launched in 2007, M-Pesa is the world’s largest mobile money network with 614 million transactions a month and 29.5 million active users. In 2016, according to Vodafone, M-Pesa was used in six billion transactions.

The impact

From March 2007 to March 2016, while the value of transactions grew from Sh10.3 million to Sh5.2 trillion.

Research by Digital Frontiers found a 22% drop in female-headed households living in poverty in areas with access to M-Pesa.

the M-PESA agent network expanded dramatically in Kenya.

The researchers found that the households whose access to M-PESA agents expanded early on fared better and received more remittances from a larger network of people than the control group.

For example, when households faced an economic shock, there was a 12 percent difference in per capita consumption between the two groups, with consumption rising for those households near to an M-PESA agent. There also was a gender effect. In households with access to mobile money, women were more likely to move out of agriculture into businesses, suggesting a more efficient and productive allocation of labor. In female-headed households with easy access to M-PESA, per capita consumption was higher than for comparable male-headed households.

Precisely why this gender effect happens, the research does not show. But Jack said the surveys did reveal that households with easy access to M-PESA saved 22 percent more money than those without. So the game changer in Kenya appears to be the combination of a mobile phone and proximity to an agent in enabling mobile money to improve lives. Whether the results are peculiar to Kenya or would hold in other countries is not addressed in this study. Perhaps you would find similar effects in other countries with easy access to payment services, be it by mobile phone, cards or overthe-counter transactions.

But Jack said he thinks that the mobile phone itself is a critical part of the equation. The device is easy to use and puts basic financial services at the fingertips of Kenyans at low cost, and it builds customers’ trust in the financial service by instantly sending them text messages to confirm transactions. He was unsure that proximity to an agent was enough to explain the results. Importantly, what the study provides is evidence for the power of linking households and especially women to a simple payment service. “Perhaps what this means is that basic financial inclusion in itself reduces poverty and could improve the efficacy of other antipoverty programs,” Jack said.

Or, as the study concludes, while mobile phone use correlates very well with economic development, perhaps it is mobile money that causes it. citizens.

Stella Dawson is the Head of Communications at the Consultative Group to Assist the Poor (CGAP).

E-PAYMENT REVIEW March 2017

43

44

E-PAYMENT REVIEW March 2017