Toluwalope: Banks, FinTechs Need to Build Elastic Infrastructure to Accommodate Electronic Transaction Surge

In this interview with Nume Ekeghe, the Managing Director/ Chief Executive Officer eTranzact, Niyi Toluwalope speaks on the need to invest in expandable infrastructure to accommodate the surge in electronic transaction in the country, as well as the FinTech landscape in Nigeria. excerpts

Can we meet you?
My name is Niyi Toluwalope, I’m the MD/CEO at eTranzact and my primary job is to execute the company’s strategy, growth, and vision and to maximize shareholder value. Those are the three-pronged pillars of my function.

Our readers will like to know your company, can you tell us more about eTranzact?

eTranzact was the first real FinTech to start operations in Nigeria and we are multi-platform award-winning switching and transaction processing capability. We are licensed by the CBN to do switching and transaction processing, financial inclusion, by the way of mobile money agency banking, and also a payment service provider facilitating payments across different payment channels in the industry.

Nigerians tend to gravitate towards a sector that is booming, do you have concerns of your sector being saturated?

Well, I don’t think payment is saturated. If you look at electronic payment density in Nigeria is less than 50 per centmeaning that cash is still predominant. New players are coming in because the opportunities are there you have the private equity investors sitting outside the country looking at the landscape looking at the opportunities, and then you have venture capital investors looking at the opportunities and these guys are still willing to bet on startups or very good strong solution service providers and invest in them to take advantage of the opportunities to see the market. If it is saturated, foreign investors wouldn’t come especially as they are very financially savvy to know when something is to become a bubble and all of that, so the opportunities are there.  Yes, there are so many players, but how many of those players have true capabilities to initiate the process and consummate a payment transaction? You see a lot of crowding out in the beginning, the interface level where everybody’s creating an app, everybody’s creating a channel, but for a transaction to go through, you need licenses from the Central Bank. The central bank has to license so as to regulate and then if you are licensed, for you to consummate and push through a transaction, you need to connect to a payment gateway or a switching and transaction processor, which is still a very small subset of the licenses. And then there are the clearing and settlement houses. Today, only eTranzact, Interswitch, Nigeria Inter-Bank Settlement Systems (NIBBS), and unified payments do settlement because those are the core switches in the country. So four out of the entire landscape. And if you really break it down, there is a crowding out at the entry stage because the barrier is low, and that is where the opportunities, the small quick turnaround opportunities are but the good thing about that is that’s where you build the followership, that’s where you build the subscriber base, that’s where you build the user base, that’s where you build the transaction activity that’s where everything starts from. And then it flows through the value chain to the end user. So is it attracting a lot of people? Yes, it is, but it is still a very segregated landscape where you need specific licenses for the functionalities and the processes you want to do. So I’m not worried because the opportunities are there, but then before you can play in the market legitimately, you need a license and you have a regulator, who is still managing that process.

How would the deployment of 5G technology impact the payment systems in Nigeria?

Stability. 5G improves network coverage and network bandwidth and it allows you to do more with 4g, 3g, 2g and 5g, the differences is stability and coverage. So if there’s more stability, and there are more coverage, there’ll be the ability for people to do more transactions, simple.

How would the policies around Open Banking impact FinTechs in Nigeria?

It is going to explode the market. You don’t need everybody to build the same thing to do the same things. Open banking will allow a standard set of operating protocols and a standard set of Application Programming Interfaces (APIs) available in the industry. Anybody that has an idea that needs an API that we build by eTranzact, can connect and go and build his market, regardless of whether eTranzact owns that API, whether he owns that space or not. eTranzact becomes a service provider to anybody that needs that service. It is open.

Let’s look at the banks and look at what the banks do, you can’t really blame them because they own the customers. They’ve invested in recruiting customers, they’ve invested in managing customers they’ve invested in, in doing everything to ensure that they have 10 million 15 million customers. So a FinTech cannot just come one day and say you know what, all you people that bank with Bank A, I’m going to create a solution, connect your Bank A account to me, and then you can do transactions and Bank A doesn’t get paid or doesn’t do anything doesn’t have any control over that. That’s why the banks have always shut down or shut out their process or their customers or their agents to anybody. But what open banking does is that it is going to set the guidelines or the standards for bank A  to open up its system in a secure manner so that anybody that wants to sell or cross-sell to bank A’s customers can do so with the knowledge of Bank A and for a fee. So I don’t need to now go and start creating markets to recruit all bank A customers again, and spend money to sell stuff to them as it is already a captive market, but there is a gateway, there’s a good controller now. That’s what the open banking,  open API tell us. So through those protocols, you can access their customers and sell whatever they want, you want to sell to them. But for a fee because you need to pay for Bank A’s asset but it’s now an industry asset managed by Bank A.

Cybersecurity is an issue in your industry, what is your company doing to mitigate this trend?

My company will always make the necessary investments in the right infrastructure, training, and awareness to secure what we do for the industry. But it’s an evolving industry. I see two things that I shared at the cybersecurity conference last week. I see two things, the good side, and the not-so-good side.  The fact that cybersecurity is on the increase, there is a good side it means that great things are happening. The third-party hackers, the professionals in the dark web, are seeing some significant evolution here. So they want to understand what’s going on. So that’s progress, things are happening, but the not-so-good side is the fact that a lot of investment has gone into building some of these capabilities. And you could easily destroy shareholder value if there is a cyber attack on the system. So you need to secure it. You need to adequately secure and build the necessary firewalls and you need to monitor and maintain those firewalls. Now, fraud will always happen,  some of the bigger international card schemes make a fraud provision of 2 per cent of their revenues every year for fraud. They expect it, it’s going to happen. If it happens, I have a provision and If it doesn’t happen, I write it back to my income. Fraud attempts would be a growing concern in electronic payments. But what do you do when there is fraud? That’s my concern. Collaboration. If someone takes money out of your account, it goes out of your account digitally, and it goes into another account until it is taken out of the ecosystem as cash or now Bitcoin it is moving from one account to another account to another account in banks. We all know. Now, if there’s collaboration across banks and across payment systems, you can stop that fraud before it goes out as cash. And you can do this in 48 hours before it goes

 Last year, NEFF said there was a decline in fraud cases in Nigeria, do you see this trend sustaining?

I would say reported cases.

The recent cash crunch revealed that there was a lack of infrastructure and readiness by banks and payment processors for the surge of electronic transactions. There is a deadline of December 31^st to phase out old currencies, are you prepared?

The infrastructure is available and the infrastructure was okay. But this surge was beyond anybody’s expectations. It Is technology, you build and chase capacity, you don’t get capacity and build. So what was happening during the first quarter when we had this explosion was we got the capacity and we started building. Our capacity managed what it could manage. But some banks are just not ready, they were not just ready to take in that volume of transaction, what do you do? Nobody expected it that way. So now that they have given a headroom by December 31, we need to build an elastic infrastructure. The reason why people don’t want to build infrastructure the same way is that you don’t want to build infrastructure that will not be used because you’ve paid for it. And your ROI from day one goes down if there’s no throughput, passing through that infrastructure, and you’re not making money from it. But now you have to build the elastic infrastructure meaning that its there and already doing what is passing through the minute there is a surge, the flexibility is there and you can turn things around within a very short timeframe to accommodate the transaction throughput. And I think that’s how most people are thinking now. we have seen what happened in Q1, and we would be ready by December.

Can you give a rough estimate of how much investment is needed for the payment systems space to function optimally?

Billions of dollars. November and December witnessed the highest transaction throughput in the country. And in January, February, and March we were seeing seven times November, December transaction volumes, and compliance on electronic payments, even at that time, was still less than 50 per cent. If you have 100 per cent compliance and then you factor in the rate of growth of Nigeria, you pretty much need to replicate everything everybody has invested over the last 20 years in infrastructure within a year. That’s going to be a lot of money.

What can your customers, shareholders, and stakeholders expect from your firm in the coming years?

Use eTranzact products, they are secure, you can never lose using eTranzact products. We are the only listed fintech in the country so everything is transparent. Big things are coming before the end of this year. We are transforming one of the verticals in the industry and we are going to be releasing new products that would help make payments quicker, faster, and easier.