NIGERIA: PoS transaction failures threaten cashless policy, financial inclusion

By Babajide Komolafe & Elizabeth Adegbesan

THE widespread and incessant failure of transactions through Point of Sale, PoS, terminals is threatening the cashless policy as well as the financial inclusion efforts of the banking industry. Consequently, growth rate in value of transactions decelerated in the first quarter of 2019 (Q1’19) due to inadequate capacity on the part of electronic payment operators to cope with rising volume of transactions.

Financial Vanguard analysis of data from the Nigerian Inter-Bank Settlement System, NIBSS, showed that value of PoS transactions grew by 34 percent (as against 66 percent in Q1’18) to N633.8 billion, year-on-year (y/y) in Q1’19.

It also represents 65 percent deceleration in growth rate when compared to the growth rate of 98 percent recorded in Q1’17.

Also following the same trend, volume of PoS transactions grew by 56 percent in Q1’19 to 83.8 million from 53.6 million in Q1’18. But this represents a 45 percent deceleration in growth rate when compared with the 101 percent recorded in Q1’18. It also represents a 56 percent deceleration in growth rate when compared with 127 percent growth recorded in Q1’17.

PoS transaction failures persist

Though NIBSS recently met and agreed on measures to address PoS transactions failure and delay of reversal credit to cardholders account, but Financial Vanguard investigations revealed that the problem has not abated, prompting some bank staff to advise customers to temporarily stop using PoS terminals for transactions.

Data obtained from NIBSS showed that as at Tuesday April 2, PoS transactions failure rose to 20 percent, from 16 percent average for March. This means that one out of every five transactions initiated via PoS terminals across the country was not successful.

NIBSS data also revealed that out of about 948,000 PoS transactions initiated on April 2nd, about 198,000 failed or were unsuccessful. This is worsened by the fact that most times, the account of cardholders initiating the transaction is debited and the reverse credit is usually not executed within 24 hours as expected.

Threat to Cashless policy and financial inclusion

The enormity of the problem and how it may undermine the cashless policy as well as the financial inclusion efforts of the banking industry are reflected in the experience of some agents of banks and mobile money who spoke to Financial Vanguard.

“The good thing about the PoS is that it makes people have access to their fund through their ATM card. The bad experience I had using PoS is the network problem coming from Interswitch,” said Salami Olarenwaju, Samsoft Global Concept Limited, a bank and mobile agent.

Failure in transaction

Continuing he said: “The relationship between Interswitch and the power bank of the PoS is not smooth. Then peradventure, when a customer is debited through PoS without pay, the time frame for the reversal of such fund is longer which makes most of the customers to stop using the PoS because by the time there is failure in transaction and they expect a reversal in 24 hours which they didn’t get, they get frustrated.

“Another issue is with interrupted withdrawals. This is a situation where the customer account is debited without completion of transaction, we ask the customer to go to their bank to fill an error form. The duration of the reversal takes a long time because of the processes involved to solve the problem.

“When I carry out a PoS transfer, the fund is supposed to drop to the recipient bank account but because of the network issue, the fund will neither go to the recipient nor come back to my account from where the money is transferred. On such occasion, as an agent I would need to follow up with my bank for a fund reversal.”

Also narrating his experience with customers, Kosoko Sheu Tijani, of TK Investment, a mobile money and bank agent, said: The PoS has solved the issue of people standing in queues from the bank to get their money and save their money but despite its usefulness I have had problems with the network. It sometimes fails during transactions which causes  a lot of inconveniences to the customers and myself. The worst part of it all is when the network goes off completely the transaction is not successful and the customer is debited. That is the most annoying situation in this PoS business.

“The reversal of their debited fund is now the real issue because according to the issuers of the PoS, they won’t be held responsible for any declined transaction. When customers get debited when a transaction is declined, they expect to get fund because they had already gotten the debit alert. There is  50 percent certainty that the money would be reversed immediately or within the  next 24 hours but there is  much certainty that  after the declined transaction and debiting, the money would be reversed into their account later.

“So while processing the reversal at the bank, what I have been noticing is that the bankers or let say the customer care officer  at the bank have been telling the customers to stop using PoS because they are getting debited and they find it difficult for them to process their reversal to get the money back into their account and they make it look as if it is the agents that are trying to manipulate or take their fund away from their bank account. This situation has really been the fault of this business.”

Inadequate capacity

Financial Vanguard investigations revealed that the root cause of the above challenge is inadequate capacity on the part of electronic payment operators in the PoS ecosystem to cope with rising volume of transactions.

Some bank staff who spoke to Financial Vanguard on condition of anonymity, however, pointed accusing fingers to Interswitch, operators the Verve card scheme, which accounts for about half of electronic payment transactions in the country. They alleged that the PoS transaction failure is frequent with the Verve cards.

“Interswitch is the one doing these things to us. There is no issue with our system. It is Interswitch system that is responsible,” a branch manager of a Tier 1 bank told Financial Vanguard on condition of anonymity.

Interswitch, however, declined to respond to these allegations when contacted by Financial Vanguard.

Financial Vanguard investigations as well as data from NIBSS, however, indicate that banks and card holders were responsible for about nine out of 10 PoS transaction failures in March. NIBSS data for March 29, 2019, showed that five out of ten (51 percent) PoS transactions failure were caused by cardholders while banks caused four out of ten (42 percent) of the failures.

According to an industry source, who spoke on condition of anonymity, some banks are not making the investment to upgrade their capacity and this is what is affecting the system. He said given the interdependent nature of the PoS ecosystem, all the operators should be upgrading their capacity simultaneously as failure on the part of just one operator to do this will affect the whole system. He added that the reason why some operators are foot dragging in terms of capacity upgrade is because there is no sanction for not doing so, and hence the problem may persist for a while.

NIBSS reacts

However, Acting Managing Director/Chief Executive, NIBSS, Mr. Niyi Ajao, told Financial Vanguard that stakeholders are making efforts to address the challenge and the efforts are yielding good results.

He said: “PoS failure rate has always been in double digits because of the complexity of the PoS network. In the best of times we record 12 percent  failure rate, with  six  out of this 12 being caused by insufficient funds (in cardholders’ account). The PoS problem has abated in the last two weeks, as all stakeholders have been working together to improve performance and the effort is yielding good results as can be seen in the NIBSS real-time monitoring dashboard available to the public on NIBSS web site”.