Central Bank encourages seamless central switch payment system


By Stanley Oronsaye September 23, 2010 


The directive by the Central Bank of Nigeria (CBN) that banks should migrate to the Nigerian Central Switch has elicited reactions from operators in the sector. According to them, the directive will affect the business of some payment companies currently operating.


In a circular titled ‘Interoperability and Interconnectivity of the Payment System Infrastructure in Nigeria,’ dated August 25, to all banks, switching companies, and other parties in the Nigerian payment system, the Central Bank directed that all automated teller machines (ATM) and point of sale (POS) terminals should be configured to accept and process all payment card schemes and other electronic payment instruments that are acceptable in Nigeria.”The deadline for compliance is December 1, 2010,” the circular added. The aim, according to the CBN, is to achieve an effective and robust payment system in line with best practice.


By the circular, the Central Bank stated that the Nigerian Central Switch (NCS) system exists to address the issue of interconnectivity and insisted that private switches shall not connect to each other.All banks were instructed to adjust “their switching systems connect to the Nigerian central switch and only one other private switch of their choice as determined by the type of business. All participants with multiple connections to private switches are hereby given till December 1, 2010 to terminate all multiple connections as appropriate,” the circular stated.


Policy somersault

A number of operators who spoke off record said the directive was contrary to the expectation in a free market economy.”Nothing I am going to say about this matter is going to be complimentary about the CBN,” said a staff of one of the new switching companies.


“A few years after licencing more switching companies and collected huge sums from them, you now create another company that all other switching companies must connect to.”Another industry operator said the NCS does not have the technology to play the role that the Central Bank is thrusting upon it.


“Right now, even the central switch is not yet in full operation. They do not have the capacity and they are yet to fully take off. Now, how can the Central Bank lump every payment system operator into a central switch, when our operations are different. Each one has its own business model with its own area of specialisation.”He said the directive will end up limiting the options available to consumers.However, Evans Woherem, executive director, operations and IT for Unity Bank, said Nigeria was in need of a central switching system in order to enhance interoperability in the payment system.


“I think it is a good thing because of the need for proper convergence. There was that need for proper interconnectivity and the way the country chose to do it was through the NIBSS (Nigeria Inter-Bank Settlement System),” he said.Mr. Woherem, who was the former chairman of Interswitch, said there was nothing wrong if the CBN reverses an earlier decision, so long as it was for the common good.”I think it is understandable that you might proceed on a particular path only to realise that you ought to have done it differently. l think it is okay. It shows that we are making progress,” he said.


Operational guidelines

The CBN in 2009 released the operational guidelines for the National Central Switch for all card and electronic funds transfer transactions in the country, with the directive to all switching companies in the country to connect to it. The NCS, which is operated by the NIBSS to provide interconnectivity and interoperability amongst approved electronic funds transfer switch platforms in the country.


Paul Lawal, CEO of NIBSS, said recently that, “The successful deployment of the Nigeria Central Switch is of national importance, as a successful national payments infrastructure has been proven to be crucial to the economic development and GDP growth of a country.”He said it will create a more efficient national payment infrastructure by electronically switching retail payment transactions between commercial banks.


There are a number of companies which offer payment switching services for the Nigerian financial industry. Companies like Interswitch, eTranzact, Chams Switch, Card Technologies, and ValueCard all operate payment card scheme which are not often compatible with each other.






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