Nigeria:Insurance cover for banking transactions

Banking transactions will, from next month, be fully insured and risks associated with them underwritten by insurance companies, the Managing Director, Nigeria Interbank Settlement System (NIBSS) ,Ade Shonubi, has said.

Shonubi, who spoke  at a briefing in Lagos, at the weekend, said banks and NIBSS approached insurance companies and operators, who accepted to underwrite the risks that come with each financial transaction. He added that four banks and three telecommunication firms (telcos) were already committed to the project, while a final approval from the Central Bank of Nigeria (CBN) was expected early next month before the project’s commencement.

He said the insurance cover, would also include transactions done via mobile money channels, like the Unstructured Supplementary Service Data (USSD), which is a global system for mobile (GSM) communication technology used to send text and payment between a mobile phone.

“All we are saying is that we want to make money transfers as simple as possible especially for  USSD where we set a maximum limit to start. We have gone to the insurance industry and they are willing to underwrite the transaction risks. So hopefully, we would start this idea of insurance cover for financial transactions.

“And why are they willing to underwrite the risks? It is because everybody who uses it has a bank account. Every bank account has Bank Verification Number (BVN). So, if you do transactions, we would pay you, but when we investigate and find out that you are a fraudster, we would blacklist you,” he said.

Shonubi said companies that secured mobile money licences in Nigeria are interested in getting a banking license for as cheap as N20 million, which is cheaper than getting a proper banking license. However, the operators did not understand what they were getting themselves into, he stated.

Hear him: “More than half of them are in trouble today, because their operating cost was more than revenues they were making. So, back to the question that you asked, there are more mobile transactions going through the banks today than the mobile money companies and it would always be like that.”

There is a significant set up cost and a long gestation period. Most of them did not get sufficient capital for that. So, they got N20 million which was required. Very few capitalised with more than N20 million except operators like Paga which raised foreign capital, he said.

Shonubi described mobile money business as high fixed cost that has a break even volume. “Until you achieve that volume, you can’t be profitable. And until you attain it, you must have the liquidity to keep the business going. Many of them didn’t,” he said.

On when the insurance cover for financial transactions would start he said: “We are hoping by next month. We are waiting for one final approval from CBN, not approval as such but their consent. We have four banks that are already tested and ready to go, three telcos and one is ready to go. Next month, we start a pilot. We have a brand that is agreed on and we would make the noise”.

He said with the new transaction cover, banking fraud will be drastically reduced and bank customers involved in fraudulent transactions would be blacklisted. “The thing about this is that even if there is fraud, money must come from somewhere and go somewhere and where that happens, the transactions will be tracked and fraudster will be blacklisted. But if the complainant lied, he will be blacklisted from doing banking transactions”.