Creating the Enabling Environment for Mobile payment
- By Lawson Ovih
- Published May 31st, 2011
- ITWorld
- Unrated
The payment system in any economy represents a major nerve centre that provides the link between the real and financial sectors. The electronic method of payment, referred to as e-payment, has assumed a centre stage in economic activities globally and in Nigeria. There has been a modest move from cash to e-payment system thereby making the society a cashless one.
The e-payment initiative in the country dated back to 1973 with the implementation of Magnetic Ink Character Recognition (MICR) cheques and the introduction of the National Automated Clearing system. Also in pursuance of this objective, the Ministry of National Planning has covered the development of the payment system in the vision 20, 2020 document in 2007, in order to provide a blueprint for the development of payments system that would be conventional with the operating standard in the country and also of international best practices. The major objective is to promote and entrench electronic payment as the major channel for payment and settlement by economic agents and encourage cash free transactions.
Mobile payment is defined as paying for a product or service over a wireless network. In general you have two types of mobile payment. One is proximity payment at the merchant point-of-sale where you bring the cell phone close to the terminal to make the payment. It is expected to be done over near field communication (NFC) technology, the wireless connectivity standard endorsed by the industry for data transfer over the mobile phone.
The second type is remote payment over a wireless network. This type of payment uses mobile technology such as a short message service (SMS), Wireless Application Protocol (WAP), Unstructured Supplementary Service Data (USSD). It includes transactions that use cash, bank accounts or debit and credit cards, as well as travel cards, gift cards or PayPal.
In developing markets, together with mobile banking, it allows people to use financial services in a more efficient way and sometimes the only way at more affordable costs, and can greatly improve standards of living. In developed markets, mobile is more of an extension of the existing payment infrastructure that allows people to deal with their financial needs in a timely and convenient way.
E-Payment Initiative
To ensure the smooth operation of the e-payment system in the country, the Central Bank of Nigeria (CBN) in December 2010 gave “Approval in Principle” to 16 companies for mobile banking that was to end on March 31, 2011, and later extended with a period of two months for adequate implementation. This action is in line with payment growth globally and would usher in its benefits as currently being experienced in countries like Kenya, Brazil, Mexico and Malaysia.
However, studies have shown that there are four potential mobile payments business models which include open-centric, where the mobile operator acts independently to deploy mobile payment applications to NFC enabled mobile devices; the bank-centric model which deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (POS) acceptance capability; the Peer-to-Peer model where a provider provides secure mobile payments between customers or between customers and merchants and the collaboration model which involves collaboration among banks, mobile operators and stakeholders in the mobile payment value chain.
Enabling Principles and Environment
For mobile payment to thrive in any country, there is the need for enabling principles that are necessary for growth. The United Nations Capital Development Fund (UNCDF) report proposes a framework of principles which are necessary, although not sufficient, for mobile payments and mobile banking to be enabled in any country. The application of the principles which vary at different stages of market development includes first tier principles which states that there should be sufficient certainty around electronic contracting, that customers should be adequately protected against fraud and abuse, and that inter-operability should be encouraged by ensuring that providers can access payment platforms and customers able to switch financial providers.
The second tier principle ensures that customer due diligence procedures for account opening should be risk-based and not unduly prejudice remote openings by small customers. It also points that customers should be able to make deposits and withdraw cash through agents and remote points and that adequate provision must be made for the issuance of e-money by appropriately capitalised and supervised entities which are not necessarily banks.
Mr. Abayomi Atoloye, director, banking and payment systems department, Central Bank of Nigeria (CBN), said the framework for mobile payment recognises the need to comply with best international standards and relevant global regulations. For instance, the Know Your Customer (KYC) as well as anti-money laundering requirements and mandatory fidelity insurance for the activities of the agents are applicable in contracting agents. The framework stipulates rights and responsibilities of all the parties including users to avoid undue delay in resolving customer complaints. It stipulates a maximum of three working days for the resolution of all issues that may arise and the right of appeal of consumers to an ombudsman for dispute resolution.
Atoloye said CBN is collaborating with the Nigerian Communications Commission (NCC) to address issues that might hinder the efficiency of mobile payments in Nigeria especially from the telecom companies’ point of view.
He added that the risk of mobile payment fraud can be reduced by increasing customer awareness, but even more effectively by improving security. The current efforts of CBN and banks in public awareness campaign, he said, should be intensified while the Payment System Oversight Office intensifies efforts in monitoring compliance to guidelines and regulations on payments system. The current efforts of CBN management on shared services or common payment infrastructure will reduce cost of provision of payments services.
Mr. Sylvanus Ehikioya, director, new media and information security, Nigerian Communications Commission (NCC), stated that the security framework of mobile payment is not different from any other activities in the cyberspace. It includes a clear understanding of the assets that need to be protected, the threats against which those assets must be protected, the vulnerabilities associated with the assets and the overall risk to the assets from those threats and vulnerabilities.
Ehikioya emphasised that of all the mobile applications, mobile payment is the one in which security is of paramount importance because of the financial value at stake. “It is not an exaggeration to state that one has to be paranoid while analysing the security aspects of mobile payment systems. The integrity of the telecoms systems underpins other underlying technology such as Wireless application protocol (WAP), SIM Application Toolkit (SAT), Java 2 Platform, Micro Edition (J2ME), the operating system, and m-payment protocol,” he said.
The e-payment initiative in the country dated back to 1973 with the implementation of Magnetic Ink Character Recognition (MICR) cheques and the introduction of the National Automated Clearing system. Also in pursuance of this objective, the Ministry of National Planning has covered the development of the payment system in the vision 20, 2020 document in 2007, in order to provide a blueprint for the development of payments system that would be conventional with the operating standard in the country and also of international best practices. The major objective is to promote and entrench electronic payment as the major channel for payment and settlement by economic agents and encourage cash free transactions.
Mobile payment is defined as paying for a product or service over a wireless network. In general you have two types of mobile payment. One is proximity payment at the merchant point-of-sale where you bring the cell phone close to the terminal to make the payment. It is expected to be done over near field communication (NFC) technology, the wireless connectivity standard endorsed by the industry for data transfer over the mobile phone.
The second type is remote payment over a wireless network. This type of payment uses mobile technology such as a short message service (SMS), Wireless Application Protocol (WAP), Unstructured Supplementary Service Data (USSD). It includes transactions that use cash, bank accounts or debit and credit cards, as well as travel cards, gift cards or PayPal.
In developing markets, together with mobile banking, it allows people to use financial services in a more efficient way and sometimes the only way at more affordable costs, and can greatly improve standards of living. In developed markets, mobile is more of an extension of the existing payment infrastructure that allows people to deal with their financial needs in a timely and convenient way.
E-Payment Initiative
To ensure the smooth operation of the e-payment system in the country, the Central Bank of Nigeria (CBN) in December 2010 gave “Approval in Principle” to 16 companies for mobile banking that was to end on March 31, 2011, and later extended with a period of two months for adequate implementation. This action is in line with payment growth globally and would usher in its benefits as currently being experienced in countries like Kenya, Brazil, Mexico and Malaysia.
However, studies have shown that there are four potential mobile payments business models which include open-centric, where the mobile operator acts independently to deploy mobile payment applications to NFC enabled mobile devices; the bank-centric model which deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (POS) acceptance capability; the Peer-to-Peer model where a provider provides secure mobile payments between customers or between customers and merchants and the collaboration model which involves collaboration among banks, mobile operators and stakeholders in the mobile payment value chain.
Enabling Principles and Environment
For mobile payment to thrive in any country, there is the need for enabling principles that are necessary for growth. The United Nations Capital Development Fund (UNCDF) report proposes a framework of principles which are necessary, although not sufficient, for mobile payments and mobile banking to be enabled in any country. The application of the principles which vary at different stages of market development includes first tier principles which states that there should be sufficient certainty around electronic contracting, that customers should be adequately protected against fraud and abuse, and that inter-operability should be encouraged by ensuring that providers can access payment platforms and customers able to switch financial providers.
The second tier principle ensures that customer due diligence procedures for account opening should be risk-based and not unduly prejudice remote openings by small customers. It also points that customers should be able to make deposits and withdraw cash through agents and remote points and that adequate provision must be made for the issuance of e-money by appropriately capitalised and supervised entities which are not necessarily banks.
Mr. Abayomi Atoloye, director, banking and payment systems department, Central Bank of Nigeria (CBN), said the framework for mobile payment recognises the need to comply with best international standards and relevant global regulations. For instance, the Know Your Customer (KYC) as well as anti-money laundering requirements and mandatory fidelity insurance for the activities of the agents are applicable in contracting agents. The framework stipulates rights and responsibilities of all the parties including users to avoid undue delay in resolving customer complaints. It stipulates a maximum of three working days for the resolution of all issues that may arise and the right of appeal of consumers to an ombudsman for dispute resolution.
Atoloye said CBN is collaborating with the Nigerian Communications Commission (NCC) to address issues that might hinder the efficiency of mobile payments in Nigeria especially from the telecom companies’ point of view.
He added that the risk of mobile payment fraud can be reduced by increasing customer awareness, but even more effectively by improving security. The current efforts of CBN and banks in public awareness campaign, he said, should be intensified while the Payment System Oversight Office intensifies efforts in monitoring compliance to guidelines and regulations on payments system. The current efforts of CBN management on shared services or common payment infrastructure will reduce cost of provision of payments services.
Mr. Sylvanus Ehikioya, director, new media and information security, Nigerian Communications Commission (NCC), stated that the security framework of mobile payment is not different from any other activities in the cyberspace. It includes a clear understanding of the assets that need to be protected, the threats against which those assets must be protected, the vulnerabilities associated with the assets and the overall risk to the assets from those threats and vulnerabilities.
Ehikioya emphasised that of all the mobile applications, mobile payment is the one in which security is of paramount importance because of the financial value at stake. “It is not an exaggeration to state that one has to be paranoid while analysing the security aspects of mobile payment systems. The integrity of the telecoms systems underpins other underlying technology such as Wireless application protocol (WAP), SIM Application Toolkit (SAT), Java 2 Platform, Micro Edition (J2ME), the operating system, and m-payment protocol,” he said.
