Nigeria is steadily adding technology to tackle its fraud and risk problems, improving the country's reputation in the international payments landscape.
Chief among its recent developments: The Central Bank of Nigeria has deployed Swift's real-time gross settlement system, which banks can use to route and settle high-value payments in its region and across the globe. Nigeria is the 20th country in Africa to work with Swift for domestic and international payments.
"This provides significant advantage in reducing operational risk and increasing operational and cost-efficiencies," says Hugo Smit, head of Africa South for Swift. "Although high-value payments may represent a small portion of the total payments in the Nigerian economy, they represent the lion's share of the value that is transacted on a daily basis and therefore the system significantly reduces systemic risk."
This move is part of Nigeria's advancement as part of the West African Monetary Zone, which is Africa's answer to the Eurozone. The group also includes Gambia, Ghana, Guinea, Liberia and Sierra Leone.
The West African Monetary Zone is planning to launch a common currency and payments system in the region. Swift is working with the group on its intended payment system, and all participants except Liberia and Guinea have gone live on the Swift system.
The migration to Swift will also help Nigeria's banks handle electronic securities transactions for government and other money market securities, which would further reduce settlement and systemic risks in the payment system, says Ladi Asuni, senior Manager for management consulting for KPMG Advisory Services in Lagos.
Nigeria has scored successes some successes in securing its payment system, she says. In 2010, the country migrated from magnetic stripe cards to the more secure EMV-chip cards. As a result, Nigeria reduced payment card fraud in the country by 95%, according the Central Bank of Nigeria. More recently, the country began a pilot program for electronic payments, which Asuni says has "recorded a huge success rate."
Nigeria still faces major challenges, Asuni and Amit say. In particular, the country has issues of network connectivity, which has affected the reliability of the alternative payment channels.
"While efforts have been made in the past year to drive down occurrences of payment transaction failure from about 22% in 2012 to about 15% in 2013, network connectivity issues still remains quite a significant challenge in the industry," Asuni says.
And despite the success of Nigeria's EMV migration, fraud remains a concern.
The Central Bank of Nigeria revealed in late March that one of its banks was fined 245 million Nigerian Naira (about $1.5 million) last year for "violating the cashless scheme directive." To address such issues, the central bank recently established its own Nigeria E-Fraud Forum to monitor occurrences of electronic payment-related fraud and create the country's own consumer protection policy, Asuni says.