Vanguard (Lagos)

3 April 2010

Nigeria: The Future of Payments

Kyari Bukar is the foremost Nigerian ePayment proponent with very wide experience. His company, Valu Card (The Valu is pronounced VAL-U); an epayment service provider, has been confronted with the challenging task of migrating Nigeria from a cash based economy to a cash less one.

Kyari Bukar, Chief Executive, Valu Card Nigeria PLC

Since establishment in 1999, Valu Card has set the strategic priority that has enabled Nigeria to reach it current stage of digital currency usage. A payment system carried out electronically, epayment has reached it peak in solidly established economies and is just beginning to gain a strong foothold in Nigeria:

"There is a considerable amount of progress made in the epayment space in Nigeria," Kyari Says. "Nine years ago there were probably less than 200,000 cards total in the market.

Today, depending on who you ask, they may say that there are over thirty million cards but I don't know if all of them are active; probably very small percentage of that are active maybe 40% I'm not sure, but in all honesty, there is a tremendous amount of growth in the epayment business. And there is also the talk of 50 to 60 billion naira being withdrawn at the ATMs on monthly basis across the country". Payment system that uses ATMs (Automated Teller Machines) has constituted a frequent practice in the banking and business sector since its entrant into the Nigerian payment space in 2005.

In the years since its emergence, it has also affected the definition of epayment. In its most general form, the term epayment (electronic payment) includes any payment, to businesses, banks or public services, from citizens or businesses, which are executed through a telecommunications or electronics methods using modern technology.

Furthermore, epayment transaction is made from distance, without the physical presence of the payer and naturally, it does not include cash unlike the ATM which enables customers to perform basic banking activities (checking one's balance, withdrawing or transferring funds) even when the bank is closed.

This arena of epayment proper it is that Kyari thinks much is yet to be achieved: " We have not made a huge deal of inroads in epayments because our total monthly transactions at Point of Sales is probably in the neighborhood of 2 billion naira on monthly basis so, if you compare that to the ATM transactions you'll find that the country is still dependent on cash.

I suppose that the industry stake holders, regulators and indeed the government ought to look at how we can move the country from cash based transactions to cash less transactions by providing necessary incentives (in terms of rebates given if it is a VAT payable transaction) to migrate people away from heavily cash intensive payment mode to using cards or some kind of token to make payment transactions".

He also thinks that there ought to be a holistic look at the problem and have it solved as there are countries that have benefited immensely as a result of their epayment compliance. As a stakeholder in the business, Kyari Bukar tries as much as possible, whenever the opportunity present itself, to espouse the benefits of epayments:

"The fact that one stands and be counting naira notes when a transaction can actually be concluded within 10-15 seconds through epayment isn't just right for a modern society. The value proposition of epayment is just immense and studies have indicated that every 10% migration from cash to epayment enhances the GDP growth by 1%. And these studies were done in various countries both emerging market countries and developed countries.

And there was a correlation across board on the effectiveness of epayment on GDP growth so, again its value proposition to policy makers is also quite apparent". In mature economies, epayment is at the level of 50 to 60 % GDP showing that huge amount of transactions are done electronically, but back home, the question being asked is if the ideal operating environment for the new system can be provided in the wake of fluctuative power supply and other infrastructural challenges.

However, in aiming to reduce delays and bring transparency in the payment system, epayment has roundly been defined as government's subset-the application of electronic means in connecting government, citizens and businesses. Valu Card as a business, in Kyari's words, "would be better off if we have consistent power supply because then we will be spending less on diesel generating sets and that would actually reduce our cost of doing business as well as ultimately transform to lower cost to customers.

There are other infrastructural challenges that we face which include telecommunications and I would like to point out that there has been a lot of improvement in the last five years in the telecoms channel which we use to transmit our transactions. However, it still has its failures and of course some of the devices that we use are mechanical and occasionally there are hiccups here and there but it's an industry wide challenge which we must acknowledge".

Kyari likens the challenges his company is facing to trying to change the engine of a plane while it's still flying in the air: "Technology is something that is ever shifting and we try as much as possible to keep up with the relevant things that we need to make our services differentiated. And I think that has to do with having the right technology and processes in place. And the people must be competent.

These are the challenges that one faces as a manager of an institution that the core engine that drives the execution is technology". A pioneer of the Nigerian epayment industry with over 10 years experience, Valu Card is owned by Visa Inc, the global payment Technology Company and a consortium of leading Nigeria banks.

Its major businesses are Processing, Acquiring; and Value-Added Services & Solutions. Valu Card's scalable epayment platform offer an unrivalled portfolio of local and international payment methods through acceptance of EMV cards through Nigerian banks and Visa.

The introduction of this epayment technology has seen the company lead the migration of payment cards in Nigeria from magnetic stripe technology to EMV (Europay, MasterCard and Visa) standards and technology: "I believe that the EMV will address some of the incessant fraud in the magnetic stripe cards that were issued in Nigeria", Kyari says, "and with the chip and pin cards, the security is such that those cards are going to very difficult to clone whereas with the magnetic strip cards; it's very easy to clone.

And if they are more difficult to clone that would mean that the fraud level for those kinds of cards are going to be much lower than in the case of the magnetic strips cards. We along with Visa our partner, right from the outset decided that all Visa Cards issued in Nigeria must be EMV (chip and pin). And Visa being one of the components of the EMV standards and us as partners, felt that for the Nigerian market, we should only introduce EMV cards and that, to a great extent has given confidence to our member banks who actually are feeling more confidence of having little or no fraud with the EMV cards than with the previous magnetic stripe cards that they may have issued to their customers in the past".

Prior to Valu Card's partnership with Visa, it had operated as a card scheme offering its own product--the epurse that it was issuing at the time: "We killed that product long ago because the Visa partnership brought about a complete transformation of Valu Card Company from being a card scheme to an industry service provider. A card scheme is a company like Visa or MasterCard. Now by partnering with Visa and dropping the Valu Card e purse, we have now become an agent or a partner of Visa in Nigeria providing services to Visa member banks. With this arrangement, the more Visa Cards are issued in Nigeria, the more opportunity we have in providing services to those banks that issue the cards.

That basically is what we might call the transformational shift for us". Three years ago, there were probably less than a hundred thousand Visa Cards total in the market.

And that means that Valu Card had an opportunity size of a hundred thousand. With millions of Visa Cards in the market at the current time means that the company (Valu Card) have millions of opportunities in the market because for every card used is an avenue for the company to demonstrate to the market that it's in a position to help them process those transactions and by so doing, they own their keep: "As a Visa processor we have many different kinds of products that the banks issue and obviously, debit cards are quite common because most banks card holders need a debit card to have access to their accounts. Banks also give out different kinds of Visa credit cards: Visa Gold, Visa Platinum etc.

We issue as many products as the banks would demand and it is the banks that in their wisdom decide which product they are going to offer to their customers and we basically follow through and make sure that they are enabled to issue those card products (debit and credit) in various currency denomination. Responding to the question of what fuels Valu Card as a company, Kyari postulates that "staying true to form and doing what we say we'll do. And at the same time trying not to cut corners and paying particular attention to customer needs. Our customers are the banks and by extension, the card holders--customers of the banks and also the merchants-- the vendors that we reach out in deploying our terminals and using our services to accept Visa Cards. I believe success is something that is very difficult to define.

As a successful brand, I think we are on the right journey because I consider success to be a journey not a destination and that's what we'll continuously build on because the fundamental determinant of our success are our customers. And if they endorse what we are doing, I believe that gives me great satisfaction". The landscape of transactional payments has changed considerably in the past decade, and the momentum shows no signs of slowing down. And as someone involved with payment processing and point-of-sale solutions, Kyari Bukar plans to go wherever there are opportunities congruent to his own strategy and following the Central Bank of Nigeria's recent guidelines on mobile payments, the hanging question is: Will mobile payments replace cards?.

"I don't believe mobile payments will replace cards," he answers, "but what will certainly happen is that it may actually enhance cards and there may be more cards issued as a result. And it would also complement the functionality of card payment because it's actually another channel of payments and therefore it would be added to other modes of payment".

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