INTRODUCTION

The economy remains a vital sector of human society and a sound financial system is the pillar of every economy.[1] Invariably, a vibrant financial system allows for a seamless flow of money thereby engendering consumer trust and economic growth. The importance of a sound financial system is underscored by the fact that instability in a society’s economy can halt the very machinery of the development and enforcement of orderliness in such a society.

An essential component of a financial system which may determine the level of risks associated with the financial system is the payments system.[2] Thus, where the payment system in any economy is operational and efficient, other risks will be minimal.[3] A payment system can be described as a framework of institutions, rules and procedures, standards, computer networks and stakeholders which allow economic agents to discharge their financial obligations.[4] It is the physical and administrative framework that allows for an exchange of value between entities that fulfil reciprocal obligations. As earlier alluded, the payment system is critical in every economy as it continues to be the main route for inter-sector, inter-industry, inter-company, and interpersonal[5] financial resource transfer, fostering economic growth and serving as the primary basis of the contemporary market.

In Nigeria, the Central Bank is saddled with the mandate of ensuring monetary and price stability, issuing legal tender currency, promoting a sound financial system, etc.[6] In fulfilment of its mandate, the CBN has, over the years, implemented several strategies to enhance its internal ability to handle the swift changes occurring in the payments system. These strategies include issuing pertinent guidelines and regulations, granting approvals and licenses, monitoring and control of key players in the sector, etc.

As a result of the intricate nature of the nation’s financial system, other entities exist which aim to enhance the sector through CBN’s regulatory oversight. One of these is the Nigeria Inter-Bank Settlement System (NIBSS).

This article will provide an overview of NIBSS and its mandate, its role in the nation’s financial system, challenges bedeviling the sector as well recourses for effectiveness.

AN OVERVIEW OF THE NIGERIAN INTERBANK SETTLEMENT SYSTEM AND ITS MANDATE

NIBSS is a public limited company incorporated in 1993 on the mandate of the Banker’s Committee with the primary purpose of facilitating the transfer of monies between the banks and discount houses.[7] The company is owned by all licensed banks and discount houses. The principal objects of the company include:

1. Providing infrastructure for automated processing and settlement of transactions between banks acting on their own account as regards deposit placements, treasury bills transactions, and naira settlement on inter-bank foreign exchange transactions.
2. Carrying on business as a service-oriented institution providing the mechanism for same-day clearing and settlement of inter-bank transfers and payments.
3. Initiating and developing an integrated nationwide network for electronic or paperless payments, funds transfer and settlement of transactions.
4. Providing a framework for elevating the efficiency levels of funds transfer services in general.[8]

In furtherance of its objectives, NIBSS provides a wide range of services including payments, making use of systems such as NIBSS Pay, Electronic Pension Contribution Collection System (EPCCOS), Nigeria Automated Clearing Systems (NACS), ETC.; collections through mCash+, Central Pay, e-BillsPay, NIBSS Direct Debit, NIBSS Universal Switch, etc., data and identity services such as Name Enquiry, VerifyNow, USSD Validation Services, Bank Verification Number; Payment Terminal Application Certification;[9] participation in special projects which are aimed at enhancing the financial sector such as the Global Standing Instructions (GSI), Payment System Consulting, Business Activity Monitoring, etc.[10] moreover, in fulfilment of its mandate, NIBSS partners with several institutions including financial institutions, payment solutions service providers (PSSPs) Switching Companies, regulators, such as the Central Bank, the Nigerian Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC) etc.[11]

ASSESSING THE ROLE OF NIBSS IN ENSURING A SOUND FINANCIAL SYSTEM IN NIGERIA.

As can be gleaned from the afore, the Nigerian Interbank Settlement System is key to the stability and efficiency of financial transactions in a complex and dynamic terrain like Nigeria’s. Over the years, NIBSS has participated substantially in the digital transformation of Nigeria’s banking sector, guaranteeing easy and secure interbank settlements and promoting a culture of dependability and trust within the system.[12]

One of the primary inputs of NIBSS to the nation’s financial system is enhancing financial inclusion across all sectors and levels of the society. No doubt, the unbanked and under-banked communities have benefited from the expansion of banking services which has been enabled as a result of the peculiar activities of NIBSS. As an instance, the BVN scheme introduced by the collaborative efforts of CBN and NIBSS allows for a unique identification of customers thus enhancing KYC procedures, engendering trust and transparency in the system and simplifying other procedures such as account opening and overall fostering financial inclusion across all sectors. Moreover, partnerships with fintech institutions such as PSSPs, PTSAs, switching companies, etc., have enhanced access to financial services to persons who could not depend on traditional banking institutions for their transactions either as a result of proximity or other technicalities.[13]

In addition, Nigeria’s economy as a whole, benefits from NIBSS’s promotion of financial inclusion and the development of effective payment systems. By lowering transaction costs, sophisticated payment systems help organizations run more smoothly and competitively. This in turn promotes growth and investment in the economy. In addition, the introduction of financial services into previously untapped markets via programs like mobile banking boosts regional economies and encourages entrepreneurship. Small and medium-sized businesses (SMEs) benefit from NIBSS’s access to funding and other financial instruments, which promotes their growth and helps create jobs and economic development.[14]

Also, NIBSS has, through its activities enhanced operational efficiency in the nation’s financial sector. Using cutting-edge technology and a reliable platform of operation, it lessens the time and cost of interbank settlement transactions. Payment procedures have been greatly expedited by the use of electronic money transfer systems, such as the Nigerian Automated Clearing System (NACS), the NIBSS Instant Payment, etc., as they facilitate transactions in real-time, thus enhancing efficiency resulting in customer satisfaction and seamless operations.

Furthermore, In the current digital era, where financial fraud and cyber risks are common, NIBSS has taken the lead in putting security measures in place to safeguard the integrity of financial transactions. The organization uses best practices and innovative technology to protect against fraud, data breaches, and other security threats. For example, the BVN scheme’s deployment has greatly decreased the frequency of fraud and identity theft in the banking industry. The BVN program has improved Nigerian financial transaction security by offering a reliable and safe method of identity. In addition, NIBSS works in conjunction with financial institutions, regulatory bodies, and other relevant stakeholders to continuously assess and enhance the financial system’s security architecture. Through these initiatives, Nigeria’s financial ecosystem is kept strong in the face of changing risks.[15]

Finally, NIBSS by its activities, eliminates administrative and procedural bottlenecks to the clearing and settlement of interbank transactions. NIBSS complements the CBN’s clearing and settlement procedures as a result of which delays are eliminated and real-time settlement of high-value transactions.[16]

A PEEP INTO THE FUTURE

As the society advances, particularly with the rate of adoption of technology globally, innovation, no doubt, is accompanied by novel challenges. There is no gainsaying the fact that Nigeria’s financial sector continues to battle with diverse issues such as security threats, inadequate infrastructure, a complex framework, etc.,[17] thus it is expedient that measures be put in place to tackle these as they are capable of grinding the machinery of government and disrupting the peaceful existence of the nation.

Combatting cybersecurity issues is particularly important as NIBSS stands as a prime target owing to the peculiar nature of its activities and the role it plays in the ecosystem. There is a need for the provision of advanced security systems and frameworks through strategic partnerships with relevant stakeholders, enhanced surveillance and investment in cutting-edge technologies and upgrades of existing ones.[18]

Moreover, with the accelerating intrusion of the financial markets by fintechs, NIBSS has got to roll up its sleeves and keep pace with technological advancements, while prioritising customer protection before allowing an integration network into its network. There is also a need for increased synergy among regulators to ensure that the financial system is fortified against unscrupulous elements.

CONCLUSION

In the dynamic landscape of Nigeria’s financial sector, NIBSS stands as a pivot of stability, efficiency, and innovation. Established with the mandate to foster secure, efficient, and reliable interbank transactions and settlements, NIBSS plays a pivotal role in shaping the contours of Nigeria’s financial ecosystem. As a crucial infrastructure provider and facilitator of electronic payments, NIBSS plays a multifaceted role in underpinning the functionality and integrity of Nigeria’s financial system. However, it is believed that a lot still needs to be done to promote a sound financial system in Nigeria and NIBSS is not left out in this. There is, thus, a need for innovation, efficient stakeholders and intersectoral collaboration to address the challenges which bedevil the system.

SNIPPET

The Nigerian Interbank Settlement System is key to the stability and efficiency of financial transactions in a complex and dynamic terrain like Nigeria’s. Over the years, NIBSS has participated substantially in the digital transformation of Nigeria’s banking sector, guaranteeing easy and secure interbank settlements and promoting a culture of dependability and trust within the system.

KEYWORDS

Nigerian interbank settlement system, Central Bank of Nigeria, fintech, payment solutions services provider.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Banking and Finance Law, and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

CONTRIBUTOR: Anthony Akejelu

Anthony is the team member of the Dispute Resolution Department at OMAPLEX Law Firm. He also holds commendable legal expertise in Banking and Finance Law.

He can be reached at anthony.akejelu@omaplex.com.ng

[1] Granovetter M. Society and economy: Framework and principles. Harvard University Press; 2017

[2] Malaguti MC. Payment System Regulation for Improving Financial Inclusion. Washington, DC: Center for Global Development. 2015.

[3] Central Bank of Nigeria, ‘Understanding Monetary Policy’ Series 6, 2021 Published 28^th March 2022; available at https://www.cbn.gov.ng/Out/2022/MPD/Series%206.pdf accessed on the 17^th of May, 2024.

[4] Ibid.

[5] Ibid.

[6] Section 2 CBN Act 2007.

[7] Nigerian Interbank Settlement System, ‘About NIBSS’ available at https://nibss-plc.com.ng/about-nibss/ accessed on May 17, 2024

[8] Ibid.

[9] Nigeria Interbank Settlement System ‘Services’ (NIBSS PORTAL) available at https://nibss-plc.com.ng/special-projects/ accessed on May 22, 2024.

[10] Nigeria Interbank Settlement System Special Projects, ‘Sub-services’ (NIBSS PORTAL) available at https://nibss-plc.com.ng/special-projects/ accessed on May 22, 2024.

[11] Overview of the Nigeria Inter-Bank Settlement System (NIBSS) Harlem Solicitors, 2021 available at https://www.harlemsolicitors.com/2021/04/14/overview-of-the-nigeria-inter-bank-settlement-system-nibss/ accessed on May 22, 2024.

[12] See Alawiye-Adams, A. A., & Afolabi, B., ‘Analysing the Impact of Electronic Banking on the Payment Systems and the Intermediation Function in Nigerian Banks’ Social Science Research Network (2013) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2350405

[13] See Okorie, G., & Uwaleke, U. J. An overview of financial sector reforms and intermediation in Nigeria. Bullion,; 2010; 34(2), 3.

[14] Egwurube, O. A. “The role played by payment systems and settlement institution in the growth of small and medium enterprises in Nigeria.” Journal of Research in Peace, Gender and Development 2.3 (2012): 72-80.

[15] See Murat A., Tony L.W, and Opusunju M.I. “Impact of bank verification number (BVN) on corrupt business practices in united bank for Africa in Abuja.” International Journal of Management Studies and Social Science Research 51 (2019): 39-52.

[16] Central Bank of Nigeria, ‘Understanding Monetary Policy’ Series 6, 2021 Published 28^th March 2022; available at https://www.cbn.gov.ng/Out/2022/MPD/Series%206.pdf accessed on the 17^th of May, 2024.

[17] See Oyeleke, Morenike. “Digital Disruption in the Banking and Financial Sector: Creating a Sustainable Framework for the Future of Banking in Nigeria.” (2023) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4703991

[18] Omotayo, Funmilola, and Oluwatobi Dahunsi. “Factors affecting adoption of point of sale terminals by business organizations in Nigeria.” International Journal of Academic Research in Business and Social Sciences 5.10 (2015): 115-136.