Payment Systems

Payments are the financial instruments that people and businesses around the world use
to transfer funds and this makes them one of the most important parts of a company’s
financial operations. The subject can become complex because there are often many
different payment systems in a given country—and most countries have their own unique
currency. Further challenges come with the continual introduction of newer payment
systems such as PayPal, Wallets and various mobile payment options. The result is well over
750 payment systems throughout the world; systems that are constantly changing due to
new technology or government regulation of the currency.
The purpose of this paper is to provide corporate treasury professionals with the working
knowledge necessary to make informed decisions about payment practices for their
organization. It is divided into six sections:
The key payment systems (modes) include:
• Cash Payment – it is the most easily utilised payment medium in the country, and forms a
component of the CBN’s currency outside the banking system. Consequently, it is outside
the sphere of influence of regulation, which thus limits the effectiveness of monetary
policy.
• Cheques (Personal, Corporate, Managers Cheque, Bank Draft) – cheques are a form of
bill of exchange, which facilitates financial transactions and constitutes part of Nigeria’s
payment system.
• Payment Cards – this is increasingly becoming an acceptable medium of payment and
it makes use of physical cards containing electronic information that are issued to
customers to facilitate the execution of financial transaction. The types of payment cards
include:
o Debit Card – this is linked to the bank account of a cardholder and enables the holder
to execute limited transactions on the account.
o Credit Card – this is linked to a customer’s credit line with a bank and allows the
customer to execute limited transactions, by utilising the funds on the credit line.

o Stored Value – this is linked to a virtual account created for the customer to facilitate
financial transactions. In this instance, money is deposited with the issuer but is not linked
to a savings or current account of the customer; however the money is stored on the
card. These cards are typically issued outside of banks e.g. apple cards, shopping cards
etc.

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o Reloadable/Prepaid Card – this is linked to a virtual account under a prepayment
arrangement for a cardholder, who may not necessarily have a bank account. The funds
are deposited with the issuer and maintained on the issuer’s database.
o Charge Card – this is a credit card that necessitates the customer to pay all outstanding
payments on the card prior to the settlement date, without the benefit of the customer
carrying the balance to another billing cycle. The CBN introduced regulations and
guidelines for the issuance of cards in 2008, directed all banks to migrate to chip and pin
cards by October 1, 2010 and instructed the cessation of exclusive acquirer agreement
effective June 1, 2012.
• Automated Teller Machine (ATM) and Point of Sales (POS) Terminals – this is also being
actively utilised in Nigeria as a medium of executing financial
transactions. ATMs are deployed in buildings to facilitate limited financial
transactions between the customer, DMBs and other third parties. Such transactions
include amongst others transfers, withdrawal & lodgement of cash, electronic payment of
bills payments and airtime purchases. POS terminals are hand held devices, with
functionalities similar to ATM. Customers are issued electronic cards that are linked to their
account to facilitate the use of these machines.
• Mobile Banking- This is the provision of limited but value adding banking services to
customers through mobile information and telecommunication hand held devices. It
facilitates the actualisation of financial transactions through mobile devices, without
physical visitation to bank premises. An individual must have an account with a DMB in
order to deploy or utilise mobile banking services, these services are directly linked to the
customers account. Some of the services that can be conducted through mobile
banking includes amongst others:
1 Funds Transfer
2 Payment of utility bills – electricity, cable TV, water,
3 Query of account balances and statements
4 Purchase airtime
5 Web/java enabled transactions on merchant website
The service is offered either through web based applications or SMS text messaging,
which communicates with DMB’s information technology. Web based mobile banking
application would require web enabled phones, on which the application would be
downloaded and operated. The primary advantage of mobile banking is that it helps
facilitate financial inclusion. Furthermore, it enables the consummation of transactions
and service delivery on phone device, outside of bank premises, thus reducing
congestion and possibly overheads

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• Three models of mobile banking currently exist, these are:
1 Bank–Focused – Licensed Deposit Taking Financial Institutions as Lead Initiator
2 Bank Led – Licensed Deposit Taking Financial Institutions and/or its Consortium as Lead
Initiator
3 Non-Bank Led – A corporate organization other than a licensed deposit taking
institutions and telecommunication companies as Lead initiator. There are currently
twenty one (21) licenced mobile money operators in Nigeria, and the CBN introduced a
cap of N10.0 million to engender the utilisation of e-payment platforms. The CBN has
different transaction and daily limits, as well as different Know Your Customer (KYC)
requirements for different categories of mobile banking customers. These are summarised
in table 1.
• Mobile Payments – this form of payment has seen a steady rise in its utilization in the
execution of financial transactions and it refers to provision of limited banking services to
customers through a platform embedded in a mobile phone (i.e. the delivery channel).
The universality and cheapness of mobile phone as an electronic channel, makes it an
attractive and easy route to facilitate financial inclusion of the
disenfranchised members of the economy.
• Online Web Portals – Increasingly, bank and non-bank institutions are enabling their
customers execute transactions and effect financial settlements for same through internet
platforms. This entails execution of payment for the purchase of goods and services on
the merchant website, as well as provision of internet banking for bank customers.
• Electronic Funds Transfer – this is a platform that facilitates the transfer of financial
values between banks on the instructions of customers. Various forms exist, including the
NIBSS fast fund. The two key types of payments made by customers using their banks
internet banking platform are:
o NIBSS Instant Payment (NIP) – this is an electronic payment platform that instantly
debits the initiator and gives the benefactor immediate value, and
o NIBSS Electronic Funds Transfer (NEFT) Transactions – this is an electronic payment
platform, that debits the initiator but does not give the benefactor immediate value and
settlement may occur at T+1, depending on the time of the day in which the transaction
occurred. It is a giro payment for retail transfers on the instruction of customers.
• International Payments – international transfers are done in Nigeria using the SWIFT
telegraphic network, the CBN and licenced banks are members of the network.
• Automated Clearing House (ACH) or E-payment Platforms – these are platforms to
facilitate transaction settlements on accounts of transaction initiators and benefactors,
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which is reflected in the net positions of financial institutions on which the accounts of the
initiators and benefactors are held.
• Central Securities Clearing System – this is a platform that facilitates and acts a
depository for transactions consummated on the floor of the NSE. It facilitates Delivery-
Versus-Payment (DVP) trading with a T+3 transaction cycle. Furthermore, it interfaces with
NIBSS to facilitate interbank transaction settlement between designated settlement banks
of CSCS, which maintains the trading account of brokering firms