Developments in Cheque Clearing and Settlement
The CBN adopted Magnetic Ink Character Recognition (MICR) technology in 1988 and commenced its operations in 1994. MICR was expected to facilitate faster document processing, shorter clearing duration and boost confidence of the banking public.
To further increase the efficiency in the clearing process and address the challenges of MICR implementation, the CBN decided to fully automate the clearing process by introducing the state of the art technology called Nigeria Automated Clearing System (NACS). NACS became operational in October 2002 in Lagos Clearing Zone before it was extended to other locations. NIBSS PLC, established in 1993 was mandated to manage the NACS.
In light of the persistent overdrawn accounts of banks as a result of clearing figures, the CBN, on 1st April 2004 installed a new settlement framework that categorized clearing banks into Settlement and Non-Settlement banks. Settlement banks participate directly in the clearing houses and receive its net clearing position in its settlement account with the CBN while the Non Settlement banks participate in the clearing house through a settlement bank and receive its net clearing position through the settlement account of its settlement bank. The criteria for becoming a settlement bank are as follows:
Possess the capacity to provide the required clearing collateral, which for a start was fixed at N15 billion, and subject to periodic review, ability to offer agency facilities to other banks and to clear and settle on their behalf and adequate branch network, in the CBN twenty-eight clearing areas.
Nigeria Cheque Standards and Nigeria Cheque Printers Accreditation Scheme (NICPAS) were issued in 2006 and commenced operations fully in January, 2007. The Cheque standards and the NICPAS were to address the fundamental problem confronting cheque transactions in Nigeria, such as poor quality of cheque paper, inadequate security on paper (watermark, hologram, threads, fibre, voids): non-use of security inks: cheque design, format not consistent with recommendations, absence of post-encoded cheques, absence of/or wrong sort code, and above all, proliferation of cheque printers in Nigeria.
Other developments in the Nigerian Retail Payments;
The Bank Verification Number (BVN) exercise was launched in February 2014 to address the challenges associated with the absence of unique identifier in the Nigerian Banking Industry. The implementation of BVN, a unique identifier of a customer in the Nigerian Banking Industry would increase the effectiveness of the “Know Your Customer” (KYC) principle, with its associated benefits in the reduction of fraud, reduction of credit risk and growth of credit and other credit-related products.
The Bank abolished fees on cash deposit above the cash-less policy threshold. It also conducted sensitization campaign on cash-less policy in preparation for take-off of the initiative in the remaining 30 states of the Federation. This was expected to broaden the adoption of electronic means of payment.
Revised Guidelines for Card Issuance and Usage in Nigeria was issued with a view to providing minimum standards and requirements for the operations of payment cards in Nigeria. This would necessitate issuing banks, processors and card schemes to upgrade and maintain their card operations to ensure optimum security and efficiency.
Guidelines on International Money Transfer Services in Nigeria was issued to specify minimum standards and requirements for offering international money transfer services (inbound/outbound), in a cost effective manner;
Implementation of industry e-reference portal for efficient processing of customers’ accounts references. The portal is meant to digitize the manual request for confirmation of customer’s account reference so that requests received from other banks can be verified online.
Implementation of Nigeria Uniform Bank Account Number (NUBAN) which consists of account serial number and cheque digit across all banks in Nigeria to facilitate electronic payment and increase increased efficiency of ACH processing
Cheque Truncation to increase the efficiency of cheque clearing and settlement
Maximum Cap on Cheque: The introduction of N10 million as the maximum cap for cheque payment by the CBN in January 2010, increased the patronage of electronic payments in Nigeria.
Migration to EMV cards: As part of its strategy to minimize the level of card fraud in the Nigerian Payments System, the CBN directed banks to migrate all their cards, with effect from October 1, 2010, from magnetic stripe technology to chip+PIN, otherwise known as EMV, due to the weaknesses of the former.
Help Desk on Card Related Complaints: In response to the growing complaints on disputed ATM transactions and banks' delay in responding to the issues, the CBN stipulated that such complaints should be responded to within 72 hours. In its effort to facilitate the ease of contact and rapid response to complaints on electronic card transactions, the CBN mandated all banks to set up effective help desks for handling card-related complaints. The CBN equally set up a help desk for receiving public complaints on card transactions with a view to fast-tracking resolutions and monitoring compliance within the 72 hour timeline.
Card Fraud Prevention Strategies: The Bank, in collaboration with key stakeholders has developed strategies for prevention of card fraud and had issued some circulars covering the following:
- Introduction of second level authentication for card not present payment.
- Banks to have real-time online monitoring tools for PIN entry attempts.
- Automatic blocking of card after three unsuccessful PIN attempts.
- Set limit for card-to-card transfers, POS and web payments.
- Banks to segregate the process of PIN handling and card activation.
- Proper due diligence should be done on all merchants before POS is allocated.
- Enlightenment campaign on protection of PIN/card details for cardholders
- Establishment of Nigeria Electronic Fraud Forum (NEFF)
- Collaboration with banks, Switches, EFCC, NIMC, NCC, PCC, CPC and other institutions to fight e-payment fraud.
Implementation of National Central Switch: The Bank in collaboration with Bankers Committee directed all banks and private switches to connect with the National Central Switch on or before December 2010, to address the issues of interconnectivity of different networks.
Implementation of Mobile Money Operations: The Bank licensed some mobile payments schemes to launch mobile payments services in Nigeria under Bank-led, Bank-focused and Non-bank-led models. The Bank had earlier approved the Regulatory Framework for Mobile Payments Services in Nigeria which addresses technology, security, operational and customer protection issues.
Standards and Guidelines on ATM and POS Operations in Nigeria: The Bank issued the Standards and Guidelines on ATM and POS Operations in Nigeria. The guidelines covered issues on liability shifts in the event of fraud on ATM/POS transactions and is expected to restore public confidence in the system.
Guidelines for Agent Banking & Agent Banking Relationship: The Bank issued the Guidelines to provide minimum standards and requirements for agent banking operations; enhance financial inclusion; and; provide for agent banking as a delivery channel for offering banking services in a cost effective manner.
The CBN adopted the following initiatives to reduce the cash intensity in the economy, encourage electronic payments and enhance the Nigerian Payments System:
- Fixed a daily cumulative limit of N500,000 and N3,000,000 on free cash withdrawals by individual and corporate customers of banks. Individuals and corporate customers that make cash withdrawals above the aforementioned limits shall be charged a service fee of 3 and 5 per cent, respectively.
- Disallowed encashment of third party cheques above N150,000 over the counter. Value for such cheques shall be received through the clearing house.
- Directed that Cash-in-transit lodgements services rendered to merchant-customers by banks shall cease. However, customers could engage the services of CBN licensed CIT companies to aid cash movement to and from their banks at mutually agreed terms and conditions.
- Stipulated that card schemes, foreign or local, shall not operate exclusive acquirer agreement or contract in Nigeria with effect from June 1, 2011. This is expected to facilitate interoperability of local currency POS transactions and increase its operational efficiency.
- Continued with the implementation of massive deployment of shared POS terminals under the shared service project, with a view to reducing cost of its operation.