Evolution of Payment Card in Nigeria; Evolution of Payment Card in Nigeria; Analysis of transactions at channels Analysis of transactions at channels

Olusegun SotolaOlusegun Sotola

Initiative for Public Policy AnalysisInitiative for Public Policy Analysis

Prepared for the workshop: “Engaging stakeholders in the economic regulation of payment cards in Nigeria”, 27 March, 2012.

Disclaimer: The opinions expressed in this presentation are the exclusive responsibility of the author and do not necessarily reflect those of IPPA.

IntroductionIntroductionThis analysis is based on volume and value of transactions at POS

(offline and online), Web/Internet, Mobile Payment and ATM:

o The analysis is on card issued by commercial banks in four party system framework

o There are no data on proprietary/retail card

Though ATM are mostly use for cash withdrawal, its impact on the entire electronic payment transactions in Nigeria suggests the need to include it in this analysis

Payment card at evolutionPayment card at evolutionAt inception, card transactions were done at ATM and POS (offline)

only:

o Up to 2005, all POS are offlineo Offline POS was phased out in 2006 with the emergence of online

POS

ATM was the most used channel in term of volume (with up to about 99.6% of transaction volume.

There is an inverse relationship between ATM and POS transaction (While one has a high volume, the other has high value of transaction).

What are the cause(s) of this?

Share of Transaction 2003-2005Share of Transaction 2003-2005

Year ATM Volume

(%)

ATM Value

(%)

POS Volume

(%)

POS Value (%)

2003 99.63 2.37 0.37 97.632004 53.36 6.62 46.6 93.42005 76.6 29.5 23.36 70.52006 93.5 73.5 4.29 22.43

Source: author’s calculation.

Tab.1: Shares of transaction at evolution (%)

What are the cause(s) of this?

The data suggests that POS are elitist; only for the elite class:

o The nature of the merchants and the cardholders and the type of goods and services.

ATM suits the need of the middle classo Moreover there were massive ATM deployment.

Payment card shares of transactions in Nigeria (%)Payment card shares of transactions in Nigeria (%)

.Channel Transaction 2003 2004 2005 2006 2007 2008 2009 2010

ATM Volume 99.6 53.4 76.6 93.5 92.2 91.0 95.3 95.2Value (N’m)

2.4 6.6 29.5 73.5 88.5 90.5 85.1 88.9

POS (offline

Volume 0.4 46.6 23.4 4.3Value 97.6 93.4 70.5 22.4

POS (online

Volume 0.55 2.47 1.8 0.8 0.5Value 0.65 4.33 3.7 1.7 1.2

Web/Internet

Volume 1.71 5.29 2.4 2.3 3.7Value 3.42 7.15 5.7 13.0 9.5

Mobile Payment

Volume 4.8 1.6 0.6Value (N’m)

0.1 0.2 0.6

Total Volume

Value (N’m)

100 100 100 100 100 100 100 100

100 100 100 100 100 100 100 100

Source:

Shares total transaction value (%) inShares total transaction value (%) in

Shares in total transaction volume (%)Shares in total transaction volume (%)

ATM transactions overshadow other channelsATM transactions overshadow other channels

• Apart from the high transaction value for POS at take-off, over 90% of card related transactions are at ATMs.

• Why is this?:– Stakeholders in the financial system stimulate the use of ATM than any other payment

channels: – ATM deployment was growing at a faster rate than other channels (156.3%) ; – Commercial banks aggressively stimulate the use of ATM card relative to other channels.

• The growth in the use of ATMs provide indication that other channels could be adopted if appropriate policy are made to stimulate their usage.

ATM dominance of Card transaction ContdATM dominance of Card transaction Contd• The continued dominance of card payment by ATM shows that Nigerians have high preference

for cash transaction.

• This trend will continue until direct effort are made to stimulate the use of card for direct transaction; e.g. by:– addressing the fears of consumers and merchants: fraud, delayed settlement, etc.– massive deployment of POS terminals and get people to be familiar with it.– introduce incentives for merchants and card holders

Online payment TrendsOnline payment Trends◦ Except at take-off where POS has high value of transaction

(97%), online channels have failed to establish itself as an acceptable mode of transaction for both merchants and cardholders.

◦ POS and web/internet payments have not shown any steady growth pattern to suggest their becoming acceptable payment channels.

◦ Transaction at POS have been in perpetually decline since 2006; in 2010 its share of transaction is 0.5 in terms of volume and 1.2 for value, from 46.6% and 93.4% in 2004.

Online payment trend (ctd)Online payment trend (ctd) Though web/Internet payment has generally seen some

modest and steady growth since 2006, however, its share in total transaction has not been significant and the changes over time less impressive.

Over the years, POS and Web/internet payment have higher shares of value of transactions than their shares of volume.

Mobile payment: While its share of volume of transaction is

declining, it shares in the value of transaction is growing slowly but steady. Volume from 4.8% in 2008 to 0.6% in 2010. Value from 0.1% to 0.6% over the same period.

Changes overtime (%)Changes overtime (%)Channels Transactions 2003 2004 2005 2006 2007 2008 2009 2010

ATM Volume - 402.7 189 247.8 29.6 282 81.7 69.8

Value (N’m)

- 260.3 298.5 265.2 108.0 204 37.2 73.8

POS (offline)

Volume - 118.913.8

0.78 -45.6

Value (N’m)

- 23.5 -32.5 -52.3

POS (Online)

Volume - 493.7 183 -24.6 22.2

Value (N’m)

- 1,053 150 -31.4 15.5

Web/Internet

Volume - 306 77.2 68.7 167

Value (N’m)

- 261 136 236 18.2

Mobile Payment

Volume - -43.7 -33.3

Value(N’m) - 85.7 415

Observed trendsObserved trends• Across all the channels, there are always huge growth at

initiation, usually followed by significant drops subsequently.

– E.g., changes in the first year of transaction volume for ATM, POS (offline), POS (online) and web/internet were 402%, 118,913%, 493% and 306%, respectively.

– These fell to 189%, 0.78%, 183% and 77% in the following year, respectively.

• What are the possible explanations?

Observed Trends (ctd)Observed Trends (ctd) All online payment channels tend to have larger shares of value than their

corresponding shares of volume of transaction.

The fact that this observed trend continued overtime in the data set suggests that:o Online payment channels are being patronised by a set/class of

people who could consummate transactions with high monetary value.

o Merchant adoption is largely elite-driven. o That is; merchants for goods that are mostly consumed by the rich,

overseas purchases, a lot of cards are denominated in foreign currency, etc.

Conclusions 1) There is limited access to payment card market in Nigeria.

Country Number of POS

Brazil 2,224 per 100,000

Nigeria 13 per 100,000

Uganda 453 per 100,000

South Africa 1,063 per 1000

Source: CBN 2011

Conclusion (ct2) Though there are plans to deploy 40,000 POS

terminals.• Penetration when 40,000 POS terminals are

deployed will be:

Country Number of POS

Nigeria 38 per 100,000

Conclusions (ctd.)• ATM has remained the dominant channel of card transaction.• Little headway with credit card channel. Credit cards has the

highest benefit compared to other channels.• What sort of public intervention (regulation) will improve

adoption of card usage by consumers and card adoption by merchants?

• Will restrictions on withdrawals improve card usage and adoption by merchants?

• Awareness campaign should address:– the fears of merchant and cardholder E.g. fraud, settlement delay,

dispense errors like in ATM etc.

Thank you