How your bank configures its ATM systems can help you model the trust factor in the land. In Nigeria, the bank debits you before the ATM dispenses money. If the seconds between debiting you and dispensing money, a technical glitch happens, you will go home with no cash even though you have been “paid” according to the bank’s general ledger. So, you need to return to the bank hall to clear it up. That happens in POS terminals: the payment fails with the merchant only to notice later that you were actually debited. In Nigeria, it is Debit and then Pay.
In the US, they actually “lock” your money, then pay before they debit you, making sure under no circumstances would you be debited with no dispensing of cash. But they have something working for them: they have access to your credit file, and that means even if they have paid and you do not have cash, you cannot run away; they will mess up your credit.
Bank transfers via ATMs, POS, etc are failing in Nigeria. In this piece, I explain how we can fix this paralysis. Simply, move from our current system of debiting before releasing cash or value, to one that follows “lock” value, release value to the recipient and then debit the originating account.
The implication is clear: you will never visit a restaurant where the owner tells you that your debit card payment failed only to receive a debit alert from your bank in 4 hours. Why? Before the bank can debit you, it has to have established that the recipient has received the value.
Yet, technically, there is no way they can pay you when you have no cash because the systems that check balances and release cash are entwined. And 99.99% of the time, the tech does not fail due to many layers of warehousing and redundancies built in. Everyone is happy and technical glitches do not cause bad customer experiences.
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So as Nigeria struggles with the current mess where banks debit and do not deliver value to recipients, a simple solution could be to reconfigure ATMs, POS and evolve how we do business: “lock” value in originating account, release value to destination and debit the originating account. If you cannot lock value, then, do not follow the subsequent phases. And if you lock value, irrespective of anything, including technology glitch, go ahead and release value. Later, you can debit the account.
The failures we are experiencing are not just about tech. The Service Level Agreements with the customers are not well designed and that requires another stack layer.
They have to move higher to technology stacks if they want to prevent that nightmare experience where after customers have eaten in a restaurant, and try to pay via POS, and are informed that the payments have failed, only later to receive successful debit alerts after they have left the restaurant (after substituting with cash payment), on the same failed POS payments.
In the US, they lock the value, and give credit to the restaurant (the merchant), and then debit the bank customer. In other words, there is no way you can have a failed payment for a transaction that was successfully debited. Once they have paid the merchant, they will debit the locked value later. What this means is that a technology glitch will not affect the sequence of events and at the end of the whole process, superior service is delivered.
Nigeria needs a Lock, Release and Debit sequence to avoid this mess!
Addition: in US banking, there is a PENDING state (you see that in your online account) before any debit as the bank “warehouses” the fund, making sure the payer cannot re-use it. Notice that it has already sent value to the recipient. Once it establishes the recipient has the value, it moves from PENDING to DEBIT. Where it is unable to deliver value, it aborts that process and returns money to the payer. By doing this, it cannot debit you without serving your purpose; a great system design which works irrespective of network speed. This whole thing takes a short time.
Comment on Feed
Comment 1: Dear Prof. Ndubuisi Ekekwe quite a number of Fintechs that offer Agency Banking services have similar functionality in place already. The transaction amount is placed on hold in the customer’s account while the Banks are left to pass manual debit later on. One of the problems of this method is its impact on customer experience; particularly the spike in customer complaints that occur after the manual debits despite SMS notifications with clear transaction description.
However, the actual problem currently encumbering the channels appear to be capacity related rather than methodology.
To improve e-channel related service offering in Nigeria will require developing a conscious road map to drastically improve infrastructure in the chain of services that support these channels.
Case in point using POS: Telcos provide the connectivity for transmitting this data from the POS devices, there is the data traffic that takes place at the payment gateways, there is the data verification and exchange at the switch, data exchange between switch and host (Banks where the accounts are domiciled). Each of these nodes of information exchange needs to ramp up capacity to be able to handle the volume of transactions.
My Response: Sure, but I do not understand why a bank should be posting “manual debits” . If that is the case, that should be stopped. Nigeria has the capacity to build end-to-end closed look system which ensures you ONLY DEBIT after the recipient has value. Note – that happens in seconds. It seems the Nigerian stacks do not have a closed feedback. That has to be fixed.
Comment 1R: Ndubuisi Ekekwe – Prof. I agree that debiting after value has been given can be achieved.
What you are proposing would work in a manner similar to how automated charges are taken from accounts- a service that debit accounts without manual intervention. However, I can confirm to you that such services also fail intermittently. When it does, then the fall back would involve manual debits using uploads.
I still insist that the fundamental challenge has more to do with capacity rather than methodology.
Comment 2:
Ndubuisi Ekekwe What you just explained has been in existence for years in other countries but only applies to international transactions initiated by cardholders in Nigeria.
There is a single and dual message system of processing transactions which 99% of the banks in Nigeria don’t use the dual message for processing local transactions. It involves placing a hold of the fund in the customer’s account and then taking the fund after certain criteria has been met to move funds to the merchant(Pos agent/Bank).
The reason why banks run away from this method is because it is not cost friendly and also it requires a lot of system configuration.
At one point in 2019 the CBN mandated banks/merchant acquirers to apply the dual message system to POS transaction processing but the full compliance was never adopted.
It is something that can be done if we want to. https://www.cbn.gov.ng/Out/2019/PSMD/Circular%20on%20Pre-Authorisation%20of%20Cards%20in%20Nigeria.pdf
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For an account that has only N5k which the owner wants to withdraw, by locking up the fund and then a technical glitch stops the machine from dispensing cash, will the system unlock automatically? Because if takes several minutes before unlocking the failed transaction, if you put the debit card on another machine, you won’t still get cash, since there’s no other money in the account aside from the locked one. Do you get the drift now?
There’s a trust issue in the current design, so the banks didn’t want to be taken unaware; rather than presumption of innocence until proven guilty, you are rather presumed guilty until you prove your innocence.
Nigeria is a very tough place, some borrow from telcos, only to discard the SIM card later, rather than paying back.
It is not only the technology stacks that need fixing, the minds need fixing too; not many people honour contracts here, after signing…
I will align more with earlier commentators who mentioned infrastructural deficiency and integrity in the system components (customers, e-channel owners, card schemes and regulatory bodies such as NIBSS and CBN) involved.
If we can operate successfully the “but now pay later” model in electronics and real estate where some stipulated fraction are deducted per time over time, same procedure can be modelled after in fintech, even at real-time.
Technical, most web services that are deployed to do name inquiries can also supply account balance alongside other parameters or data of the account to deal. So locking value on the originator’s account until debit is initiated makes the transaction consummation process smoother, more dependable and makes have integrity (system integrity is key in financial services).
Like I earlier affirmed, lots needs to be done on existing infrastructures revamping.
Critical too is the ability to reduce the failure points by narrowing the nodes between the transaction cycle to the exigent ones, other legs such as settlement, reconciliation, fraud monitoring etc. can be handled asynchronously.