AN HISTORICAL PERSPECTIVE: NIGERIA'S EARLY FINTECH INDUSTRY (1990-2005)
A Case Study I wrote in November 2006 during my MBA program at the Lagos Business School.
I came across this a commendable article by Future Africa on the history of fintech in Nigeria. Commendable because of the attempt to begin to actually take the pains to write our own history. However, I felt it had a handful of errors that I was going to take time to correct later this next week.
Then, I remembered I had done a case study during my MBA program at the Lagos Business School that provides a more accurate snippet into the period the writer was doing his best to document. I had done that case study from the point of view of the fintech company I was Chief Operating Officer (COO) of at that time, Cards Technology, as part of an assignment for a course on the Sociopolitical and Economic Environment of Business (SPEEB) in Nigeria taught by Opeyemi Agbaje and for which I aced an A grade. I also have same case study done by one of the co-founders of InterSwitch, who sat beside me in our MBA class and was discussion group throughout the 2-year program but I do not intend to put that out because significant sections of it have information that is proprietary to InterSwitch. However, you can read and enjoy the one I wrote. I have no qualms putting this out in the public now, to serve as a better source of information for others who may choose to do historic takes on the Nigerian fintech industry as the writer that inspired me putting this out had attempted to do. Here goes:
“The IMPACT OF ENVIRONMENTAL FACTORS ON BUSINESS:
A CASE STUDY OF CARDS TECHNOLOGY LTD —by Olumide “D.O” Olusanya
It is not the critic who counts, or how the strong man stumbled and fell,
Or where the doer of deeds could have done better. The credit belongs
To the man who is actually in the arena, whose face is marred by dust and sweat
And blood, who strives valiantly, who errs and comes short again and again,
Who knows the great enthusiasms, the great devotion, and spends himself
In a worthy cause; and if he fails, at least fails while daring greatly, so that
He'll never be with those cold and timid souls who know neither victory nor defeat.
-- President Theodore Roosevelt
Olumide Olusanya looked into the horizon as the car he was in sped past the slow-moving haulage truck on the long stretch of the Third Mainland Bridge this Tuesday night of November 2006, his mind on what the future held for Cards Technology Ltd (CTL) while at the same time raising back to the past, four years ago, one other Tuesday night in November 2002, just before he joined the organization and had had to stay overnight to resolve one of the major technical issues the organization was facing at that time. No. His lot had never been with those cold and timid souls who know neither victory nor defeat. Rather, his last 6 years had been one of several battles and excellent victories in most of these. His mindset, as he closed his eyes to recline in his seat with his thoughts on the future of CTL, was one of consciousness of victory in the end—as he had always been used to. Nonetheless, the road ahead appeared riddled with many land mines. How should he navigate the ship he has just been saddled with to captain, as the new Chief Operating Officer, in the difficult terrain and environment of business in Nigeria? The opportunities were limitless but the risks were equally humungous.
The basis for competing in the Nigerian electronic financial and payments industry was clearly changing from what it was when ValuCard was the most prominent payment instrument in 2002. There was more widespread awareness among the general populace in most city centres of the availability of plastic card-based online real-time electronic payment instruments as well as of the presence of international brand products, such as MasterCard and Visa, within the country. New entrants were beginning to enter the local transactions payment space. Entrenched players were attempting to enter the international payment and brand space, something that had, up until now, been the exclusive preserve of CTL, through its MasterCard exclusive franchise. The Central Bank had just given Nigerian Inter Bank Settlement System (NIBBS) the nod to build a central (national) switch.
HISTORY OF CARDS TECHNOLOGY LTD
Cards Technology Ltd (CTL) was founded in February 2000 as a transactions processing company leveraging technologies developed and supported by TNS Payment Solutions, New York, USA. CTL opened its doors in the month of August 2000. The company itself was an idea started by Ayo Arise while still domicile in the USA. The idea came about as a result of his observing that when he opened an IT training outfit in the US, most of his customers made and consummated their payments through financial plastic cards. This got him thinking about the idea of a similar possibility in Nigeria. Realising his lack of experience in this line of business, he started speaking with MasterCard and VISA in New York. He spoke extensively with MasterCard International and they reluctantly mentioned the names of few companies they have done business with in the past and would most likely do business with in the future. The following names came up: ACI Worldwide, Total System and First Data Corporation.
Ayo approached these companies and was advised to attend a bank show in Miami Florida where most of the payment systems vendors would have their products on display. He therefore attended the largest bank show in America in October 1999 with the goal of selecting a vendor that could build a switch in Nigeria that would facilitate the switching and processing of MasterCard and VISA transactions in Nigeria and West Africa. He met several vendors including IFS, ACI, Oasis and MDS of Canada and decided to evaluate the products of the vendors. Most of the initial list provided by MasterCard had no experience in Africa and so he focused on ACI, IFS and Oasis International, who had varying degrees of experience. Nevertheless, he traveled to Canada to speak with MDS which had many North American banks on its list of customers. Through this interaction, he learnt a lot about switching systems and transaction processing in general and he was able to come up with adequate information with the assistance of some other consultants in academia in the state of Georgia. By this time, Ayo had been able to co-opt a couple of other Nigerians based in the United States at that time into the idea and they proceeded to define requirements for the Nigerian Market. They ultimately settled for TNS Payment Solutions’ TPII and TPCMS product suite. (TNS Payment Solutions was at that time known as IFS International, New York.) Ayo subsequently left the US for Nigeria with the mission of setting up Cards Technology to make this idea a reality.
The company started off with a loan facility of $1,800,000.00 from the US EXIM bank which was guaranteed by NAL Merchant Bank, as the local investment bank. Virtually all the proceeds from the US EXIM facility was used for procurement of the necessary hardware and software requirements. IBM was the supplier of hardware equipment and TNS Payment Solutions provided the application software. NAL also extended an overdraft facility of =N=95,000,000.00 at the project startup. This was used for other related startup costs as well as for working capital. This short-term financing arrangement later proved to be one of the sources of the critical internal risks and problems that had severe and adverse impact on the business of CTL.
CTL opened its offices in February 2000 pregnant with dreams of promoting a cashless society in Nigeria. This is reflected in the motto of the company, “the future of money.” CTL from the onset had been focused on MasterCard-related transactions hoping to leverage the experience and brand name of MasterCard in the industry for both local and international transactions from debit and credit products, with an initial focus on the international transactions and product/service offerings. (This initial focus soon turned into a disadvantage resulting from a strategic miscalculation from which CTL is still trying to recover.) The company set out to achieve the following as its primary objectives:
To be the number one switching and processing company for all the banks in West Africa, with initial focus on Nigeria.
These dreams were not to reach fruition as early as was planned by the purveyors of the business due to some external factors as well as some critical internal factors. Ultimately, the first live online transaction was consummated in December 2003 via a $20 transaction done on a First Bank POS terminal by a foreign-bank issued international MasterCard credit card. Notwithstanding, the company has carved a niche for itself in the industry as the de-facto provider of all MasterCard brand transactions processing-related services within the country. This was made possible through its licensing in August 2001 by MasterCard International as its Member Service Provider/Third Party Processor (MSP/TPP) for the West African region. First Bank, which was already a MasterCard International member-bank at that time, although it was not yet processing transactions online, acted as the principal bank to facilitate this licensing agreement with MasterCard. In June 2003, CTL completed the installation of the MasterCard Interface Processor (MIP) at its site on Lagos Island. Six months afterward the installations and implementations were kicked into live mode in December 2003 via the first live online MasterCard transaction to be acquired by a Nigerian bank and switched and processed by a Nigerian company. History had just been made.
Furthermore, the Central Bank of Nigeria also licensed CTL as a processor of international and local electronic financial transactions. The provisional license was given in the second half of 2002 while the definitive CBN license was issued in the first half of 2004. It was not until October 2004 that the first MasterCard international credit card was issued by Ecobank of Nigeria. Shortly afterwards and within the space of 8 months, 4 other banks issued similar products. These banks were Standard Trust Bank (now UBA), Intercontinental Bank, Guaranty Trust Bank and First Bank.
EVOLUTION OF THE PAYMENT INDUSTRY IN NIGERIA (2000 – 2006)
Prior to the time the company was set up, cash had indeed been the all-round king in Nigeria as there were no online real-time electronic payment systems. The banking industry itself had just woken up to some reality in this regard as was evidenced by the drive by virtually all the banks for online linkage of their branch networks. First Bank increased the feverish pace of this activity in the industry via its Century 2000 vision, of which an online real-time bank branch network was a key point. This saw several of the banks worth reckoning with jettisoning their legacy banking applications for more modern banking applications that made this “one-branch” banking possible.
Nevertheless, there were virtually no payment systems. Offline payment systems such as ValuCard and SmartPay were still in their introductory phases. These were basically electronic wallet solutions. There were virtually no ATMs: a few people were planning on introducing these. Funds transfer systems constituted the largest chunk of the industry. For example First Bank had Western Union Money Transfer; UBA with MoneyGram; Union Bank with Vigo Express. Zenith and Diamond bank were resellers of Western Union. Mobile e-banking was also being introduced into the industry via First Atlantic Bank Flash Me Cash product. The ValuCard and SmartPay systems were highly localized and proprietary systems: no payment system with international scope or recognition was yet in the country. Internet banking was unknown in the industry because Nigeria’s tele-density was still low and PC ownership was just beginning to catch on.
Notwithstanding, awareness and embrace of e-banking was beginning to grow and the advent of the GSM was also seeing some banks beginning to play in this area via the earlier mentioned Flash Me Cash product of First Atlantic as well as the availability of electronic airtime vending by the banks. This period also saw the advent of Universal Banking.
As a consequence of the above, customer awareness started growing and this ultimately led banks to start thinking of payment products and service channels that can be offered to the public that was now becoming aware. Societe General Bank (SGBN) started implementation of its Bankworld Multichannel Banking Application which allowed it to drive ATMs. Consequently, a large percentage of the very small number ATMs available in the country in 2002 and 2003 were those deployed by this bank. These were largely proprietary and closed i.e. the ATMs were only accessible to cards issued by SGBN to its customers and SGBN customers were the only ones that had access to SGBN cards. Soon afterwards, several banks, including Union Bank and Diamond, also launched their own proprietary ATM card products and ATM service. One major characteristic of these was the fact that they were all proprietary and closed solutions. Consequently, the payment card product and service penetration was very low. Despite the comparative increase in awareness, general awareness was still at a very low level.
With the concurrent inroads that were made into the social psyche of society by the advent of GSM in 2001, electronic payment began to catch on too. But unlike the active role the government played in structuring and making the telecoms industry take off, the payment industry evolved and grew largely on the back of private initiatives. It was not until several banks started taking interest in this market segment and actually started coming up with additional products and services delivered and supported by such payments companies as ValuCard, SmartPay/Gemcard and Securecard Trust Company, that the government, through the CBN, decided to constitute in July 2003 a industry study group and committee to come up with proposals for the regulation of this space. The members of the committee were drawn from the existing banks at that time, the above mentioned payment companies, as well as CTL and CBN officials. A draft proposal document released in 2004 titled “CBN Electronic Commerce Guideline” was the result of this effort. Notwithstanding, there is yet to be an enabling law guiding this industry. Presently, the Nigerian Cybercrime Working Group is about the only organization that has come close to pushing an Act that has implications for the Payment industry into legislation i.e. “the Computer Security Bill 2006” which is currently in its Final Reading stage in the National Assembly.
By year 2004, the industry was already becoming interesting, with frenetic activity, through the entry of several participators, local and international, all based on private enterprise and initiatives. By this time, such names as CTL, eTranzact, Interswitch, ATM-One, ATM-C, Euronet and several others were now giving the existing legacy electronic purse-based service providers such a ValuCard, SmartPay, Securecard and other proprietary bank products a run for their money. By 2005, several of the existing legacy systems were either moribund or near collapse because of the new entrepreneurial drive that the new entrants were bringing into the industry. Several of the newer ventures too ultimately became moribund as well, so that by 2006 the industry was pretty much settled between CTL, Interswitch and ValuCard as the major players in the industry—that was until the CBN gave NIBBS the nod to build a central switch. The impact this is to have on the industry is still unclear largely because the role to be played and the value to be added by this new entity are yet unclear. Furthermore, the legislative backing to be given this instrument, being the baby of CBN, and which may be adverse to the existing players is also yet unclear.
THE CTL ENVIRONMENT OF BUSINESS (1999-2006)
Nigeria at a Glance
Nigeria had an estimated population of 130 million in 2003—nearly one quarter of the Sub-Saharan Africa’s population. It was estimated at that time that one in every black person in the world was a Nigerian. The country has more than 20 ethnic groups, with three major tribes. More than 500 indigenous languages and dialects are spoken. Average life expectancy at birth is 54 years. Nigeria spans an area of 924,000 square kilometers, the topography ranging from mangrove swampland to tropical rain forests and savannah. Some 10% of this land is covered with forest. The country’s fishery resources are small and concentrated in coastal areas.
Agriculture is the dominant economic activity in terms of employment and linkages with the rest of the economy. Roughly 75% of Nigeria’s land is arable, of which 40% is cultivated. However, despite two major rivers, agriculture is still largely rain fed. Yam, cassava, rice, maize, sorghum and millet constitute the main food crops, the principal export crops being cocoa and rubber, which together account for nearly 60% of non-oil merchandise exports. The country has estimated proven oil reserves of 32 billion barrels, mainly in the south-eastern and southern coastal areas and it is the 6th largest producer in OPEC. Proven natural gas reserves are estimated at 174 trillion cubic feet. It is also blessed with abundant solid mineral deposits, including coal, tin ore, kaolin, gypsum, columbite, gold, gemstones, barites, graphite, marble, tantalite, uranium, salt, soda, and sulphur. Capacity utilization in industry is about 50% whereas it has a large domestic market.
It has more than 60 universities and boasts an educated labour force. Various estimates put the unemployment and underemployment rate at more than 15% of the labour force, with a very high rate of unemployment among university graduates. The adult literacy rate is 49% with 20% participation rate for children of secondary school age.
Nigeria is traditionally considered to be a difficult terrain in which to do business due to poor infrastructural development coupled with a history of inconsistent government policies. The consequences of these along with there economic and social impacts have been the demons militating against sustainable economic growth. However, with the advent of democratic rule in 1999, the Federal government of Nigeria began to give some semblance of serious commitment to political, social and economic reforms aimed at stabilising Nigeria in a bid to encourage local investments and also attract foreign direct investments (FDI) to promote the stable polity required to jump-start the consistent and sustainable economic growth that is so much sort.
Political Environment
CTL started its business in 2000 in the nascence of the democratic dispensation of the Third Republic instituted in May 1999. Prior to that time the political terrain had been marred with political and social unrests, human rights violations, coups, general insecurity engendered by rampant assassinations of prominent national figures, “June 12” crises, near-dictatorship, inconsistent and repeated political transition programs, three different regimes in the space of five years, institutionalised corruption at all levels of society, etc. Nigeria’s legacy of mismanagement and corrupt governance had encouraged many people to seek ways of sharing in the national cake instead of helping bake it.
By 1999, corruption was practically institutionalised. Government was widely regarded as a provider of large contracts, distributed by officers in power to people wealthy enough to buy their influence. This was particularly so in the case of the oil industry. Over time, the judiciary became intimated, as the rich and powerful manipulated laws and regulations to their advantage. Instead of engaging in productive activities that would help the economy grow, people chose instead to peddle their influence and position. The legitimacy and stability of state suffered, as people began to device ways to survive that lay outside the law.
Consequently, when the new democratically-elected government headed by President Olusegun Obasanjo assumed power in May 1999, its initial distraction, rather than focus, was the consequences of the above political issues. The government attempted putting several incoherent programs in place to stabilise the polity and to consolidate democratic governance structures. Unfortunately, at the initial years of this democratic dispensation, the government faced serious challenges in ensuring a stable polity because it was perceived by the populace to be dictatorial rather than consultative. Thus, riots, political unrests, social unrests, several of which were associated with fuel price hikes dotted the first 4-year term of the Obasanjo government. These coincided with the initial period of setup at CTL involving the importation, installation and implementation of the equipments and software purchased from the United States for the project.
As a consequence of this unstable polity in the country in this initial period, the United States government at various points in time issued bulletins of security threats to its citizens in Nigeria, advising against travel to the country at this time. This seriously impacted on CTL as the technical support staffs of TNS Payment Solutions that were supposed to fly in from the US to complete the implementation of the purchased solutions on site could not make it into the country. The chronic inefficiencies and rampant corruption in the Customs and Immigrations of the country also caused a prolonged period before the purchased equipment, as well as the MasterCard Interface Processor (MIP) device that was critical to CTL’s initial outlined strategy, could be delivered on site. In fact, several aspects of equipment were missing and had to be re-ordered. These added to the prolonged delays in the take off of the project despite the full complement of staff (technical, marketing and administrative) and other overhead working capital expenses that had been committed to.
Pending the arrival or implementation of some of this equipments CTL had to recourse to sourcing for general technical contracts unrelated to its stated objectives such as supply of computers to universities, organization of trainings, bidding for MTEL scratch card production and Immigrations equipment and solutions supply, etc. These definitely had an impact on the focus of the management which was at this time thinking of ways to generate revenue to address the gap caused by the delay in project take-off. These delays also caused frictions in the relationships of CTL with NAL Bank as well as with its suppliers of equipment and solutions who were insisting on prompt settlement of all outstanding payments since they had nothing to do with the fortunes CTL had ran into with the delays. Ultimately, this began to have impact on staff moral so much so that within the 2nd quarter of 2002 all technical staff resigned as they were becoming bored with more or less nothing to do because of the limbo, particularly when these were beginning to have impact on promptness with which salaries and emoluments were paid.
Fortunately, through the ingenuity and resourcefulness of a new set of technical staff recruited in the 4th quarter of 2002, among who was Olumide Olusanya, who at that time acted as the Head of Systems, the hardware equipments and software were successfully implemented and cut over to live in the following year, 2003, through sheer determination, hard work and a belief in a larger and utilitarian role of CTL within the fabric of the Nigerian polity.
By 2003, when the government of Olusegun Obasanjo was re-elected, it had come to grips with the peculiar challenges facing the country and had become more politically adept at running government in the diverse, multiethnic, multicultural and multireligious polity called Nigeria. It had changed its pose to that of a collaborative government with the interest of the people at heart. A comprehensive government image-laundering program was also commenced, both locally and internationally. Nigeria had reintegrated with the regional and international community that had isolated it during the “Abacha years.” Nigeria had actually started playing the role of “big brother” in the regional and African political landscape, through several intermediary roles it played in brokering peace in the regional war-torn countries, such as Sierra Leone and Liberia.
Locally, the Police force had doubled in size between 1999 and 2003. Ingenious policing programs were implemented that significantly reduced the level of crime that was rampant. The counterpoint to this was that the Inspector General of Police that accounted for this was stung by the commitment of the government “to fight corruption to a standstill” and became one of the many big casualties of the Economic and Financial Crime Commission (EFCC). As a consequence of the perceived success the government had in dealing with corruption and implementing its economic policies, there was relative stability in the polity with minimal unrests or riots during the 2003 to 2006 period. Notwithstanding, the political landscape during this period was dotted with several skirmishes, prominent among which were the spate of impeachment of state governors, fighting in the Niger Delta that impacted Nigeria’s oil production capacity, the “Third Term” project and the subsequent public face-off between the president and the vice president. Nevertheless, none of these political skirmishes had any direct impact on the fortunes of CTL. What is however yet to be seen is if the foray of the Chairman and CEO of CTL, Ayo Arise, into the political arena (through his vying for the governorship seat of Ekiti, his home state, bedeviled with many political upheavals since 2003) would have any impact on the fortunes of CTL. Time would ultimately tell.
Economic Environment
Prior to the period during which CTL operated in Nigeria, the economic management of the country had been characterised by a “boom-and-bust” pattern, encouraged by the dominance of oil in the economy. Oil income had influenced spending: when income was high, spending was high, while dips in oil prices were treated as temporary. Together with poor coordination between federal and state governments in budgeting and expenditure, this practice fell to spiraling debt, with external and domestic debt at 70% of GDP. Consequently, current revenue was largely eaten up just by debt service. Despite oil export earnings of about $300 billion since the mid-1970s, average income in 2000 was 20% lower than in 1975. There was a hostile environment for private sector growth. Businesses wishing to operate in Nigeria faced many constraints, including poor infrastructure, particularly bad road networks and poor electricity supply; inadequate physical security; corruption; weak enforcements of contracts, and a very high cost of finance. These factors had deterred foreign entrepreneurs from investing in Nigeria and induced many Nigerians to take their money and skills abroad. This was the point at which CTL opened in Nigeria for business.
The economic environment in which CTL operated could be similarly reviewed in the two stages implied above under the review of the political environment i.e. first term and second term of the Obasanjo democratic administration. The first term period was characterised by incoherent economic policies that were shoddily implemented. The second term has been associated with coherent policies enshrined in the National Economic Empowerment and Development Strategy (NEEDS) framework (see Appendix 1) which were relatively adequately implemented by a professional and experienced economic reform team. The seeds of NEEDS were however sown in the first term era through the Kuru Declaration of 2001 (see Appendix 2), taken along with previous initiatives, such as Vision 2010, and the widespread consultation and participation throughout Nigeria that was part of the NEEDS process.
In the first term era, government support to agriculture boosted productivity. According to the UN Food and Agriculture organization, Nigerian agriculture grew an unprecedented 7 percent in 2003. Industrial capacity more than doubled, from 29% in 1999 to 60% in 2003. Income grew at an average rate of about 5% between 1999 and 2003—a significant increase over the 2.8% rate of growth during the 1990s. Unemployment fell from 18% in 1999 to 10.8% in 2003, and 3.5 million new jobs were created. Foreign Direct Investment in the non-oil sector grew at an average annual rate of 3.6% between 1999 and 2003.
Furthermore, corruption and other economic and financial crimes were more vigorously fought through the agencies of EFCC and ICPC. As at 2003, more than 200 Nigerians were being detained or tried for fraud, and illegally obtained assets worth more than $500 million had been confiscated. The introduction of due process in government procurement had saved the government more than $600million. Aggregate annual GDP growth averaged about 5% between 1999 and 2003. This was largely driven by growth in the oil sector of 23% and growth in the agricultural sector of 7% (see Figure 1 below). The minimum rediscount rate fell steadily, from 20.7% in 1999 to 15% in 2003. Other rates followed the same trend, with the prime lending rate falling from 22.55 to 19.6%. The annual depreciation rate of the exchange rate averaged 9.7% over the period (see Figure 2a and b below), down from the 29.4% of the previous 5 years.
The country’s external reserves were close to $10billion, enough to cover 10 month’s import.
Liberalisation of the service sector also had significant impact, particularly with the licensing of GSM and other wireless fixed line operators. Aggregate installed telecommunication lines grew from a paltry 450,000 in a country of almost 130million to more than 4 million lines in 2003. This singular development had a substantial impact on the various aspects of society. Furthermore, growth in the hotel and tourism industry was also observed, with total number of hotel beds nearly tripling, from 12,900 in 1999 to 37,528 in 2003. The number of visiting nationals, who typically carry foreign-issued MasterCard cards tripled, from 1,392 to 3,897. Foreign Direct investments in the non-oil sector also rose. A survey indicated that more than $10billion had been invested during this period. Private investment in power and other infrastructure also grew. These developments generally had an impact on unemployment, which dropped from 20% in 1999 to 10.8% in 2003.
The following second term era saw the government taking a more proactive approach to economic administration and management that was more consistent when compared with the first term era. NEEDS was the major policy framework and vehicle that drove most of the economic programs of the government during this period. This NEEDS agenda impacted on the economy in several ways. Firstly, through the liberalisation of the downstream oil sector, monetisation of public servants perquisites to reduce government expenditure and waste in maintaining these facilities, the commitment to the Extractive Industries Transparency Initiative (REITI), renewed drive in privatisation of government interest in business through the Bureau for Public Enterprises, all led to a broad national consensus around the government’s economic reform agenda. Secondly, there was better coordination of state and federal government programs, with statutory organs for coordination and monitoring, such as the National Economic Council, the National Council on Development Planning. These translated to state governments implementing their own version of the NEEDS program under the SEEDS framework. Thirdly, the right people were put in place to implement NEEDS, with the President constituting a strong economic team to drive the process of reforms. Fourthly, NEEDS became the basis for government budgets and formulation of medium-term expenditure framework. The government in the process of doing all the above was able to exit the Paris Club debt burden while at the same time shoring external reserves to more than $40billion.
As can be seen, all the above economic developments had favourable undertones for the economic environment within which CTL operated. The exception to this rule may be the financial system reforms instituted by the CBN in the year 2004 and 2005, shrinking the number of banks from 89 to 25. This had the impact of significantly reduce the possible revenues that CTL could generate from implementation of these banks to the MasterCard network. The implementation revenue from the 5 principal banks on the network played critical roles in CTL in the light of the financial risk it was exposed to by virtue of its outstanding debt to NAL Bank. An additional 10 implementations at this time would have made a significant difference in the performance of CTL but the frenzied activity of banks and their focus in trying to meet up with the deadline on N25billion capital base requirement by 31st December 2005 took the shine out of the banks’ interest in electronic payment solutions and services. However, following the conclusion of this exercise, renewed interests have been awakened in the financial services industry in 2006, with several of the banks now pushing for and churning out various plastic card-based electronic financial payment products and services. CTL is presently at various stages of completing implementation of 5 additional banks.
Social Environment
Despite a rich endowment of natural and human resources, most of the country is still poor—a startling paradox. The growing incidence of and dynamics of poverty in Nigeria has traditionally polarised the Nigerian society between the haves and the have-nots, between the north and south, between the educated and the uneducated. Other social indicators such as the following were also weak: only about 10% of the population had access to essential drugs; only 50% of the population had access to safe drinking water, more than 5 million people were estimated to be living with HIV/AIDS.
The issue of social impact most relevant to this case study is the general attachment of Nigerians to cash. Cash dominated the psyche of the populace so much so that, in the past, several government officials had been reported as stacking their houses with physical cash. This societal attachment had and still continues to have impact on the adoption of CTL’s products and services. At the moment there are no government policies that punish or make cash unattractive or more expensive for individuals to carry. Other related social factors include the lack of a social security system and lack of a functional and institutionalized national identification system.
PERFORMANCE
The performance of Cards Technology Ltd has been influenced by factors in its business environment, some favourable and others unfavourable. Some of them relate to changes in government policies and others were indirect consequences of those changes in policies. Favourable among government-related actions was the licensing of CTL at that time as the only switch and processing facility in Nigeria allowed to switch and process both local and international transactions in the country. This enabled it to gain an edge and entrench itself in the international payment space through its signature promotion of the MasterCard brand. InterSwitch, the only other switch that was licensed around the period under review, was licensed to process only local transactions, despite trying all possible means of entering this space.
Lack of a clearly defined regulatory framework for the electronic payment industry also had a negative impact on CTL when it lost the business of Zenith Bank to a Lebanese-based processor for the processing of the bank’s MasterCard transactions. This had the threat of opening the door to other Nigerian banks to tow the same line and thereby cause CTL to have its potential market further shrink radically. CTL responded appropriately by getting the CBN involved, rallying the other existing MasterCard member-banks together to issue protest letters which made the CBN to make pronouncements preventing any other intending bank from going outside the country for a processor of transactions for which a local provider already exists and over which the CBN had better control. Zenith bank was also given two years to wind down its relationship with the Lebanese processor.
As far as the environmental factors affecting the business of CTL is concerned, one can safely conclude that the management of the company, up until very recently, in its responses to the various environmental factors and competitive forces affecting its business, has largely been reactive in character and mould. Notwithstanding, it has actively striven with significant degree of success, through its good will with the authorities as a honest and fair play business, in influencing and shaping the mould of the regulatory framework guiding the operations of the financial payment industry. However, its management was not as anticipatory and proactive as it ought to have been in pre-determining and identifying the relevant factors, trends, needs, discontinuities and driving forces of the business environment and industry, as well as the sources of uncertainty and risk in its environment. On the positive side, however, management has recently been able to pin-point an emerging trend in the payment industry with respect to the avid interest of global players in the Nigerian and West African payment space and is appropriately positioning the company.
From the foregoing, it is safe to conclude that the CTL management was aware of the various socio-political and economic risks that affected the company’s business activities but were at the same time unaware of a couple of others, particularly at the initial start-up stages. This appears to be attributable to the lack of a deep knowledge of the Nigerian business environment at the initial stage because of the largely American background of the initial purveyors of the business. Notwithstanding, serious attempts were made to manage and minimise the impacts of the factors they were aware of on their business. And in fairness, particularly in the context of the quote by Theodore Roosevelt at the beginning of this case write-up, one must appreciate and commend the great entrepreneurial spirit that ventured into this uncharted terrain of business in Nigeria, especially in the face of the great hurdles initially in the way of seeing the original idea to reality, especially when the initial milieu within which they had to operate and face these risks is taken into consideration. Nigeria is better for it.
FACING THE FUTURE
As the car reached the end of Third Mainland Bridge and was about to turn into the Anthony axis for its final destination to Ilupeju, Olumide opened his eyes, with thoughts and visions of victory and success on his mind, as he gazed through the window of the car. This time he saw no slow moving truck.”