NIBSS downtimes: Is Nigeria's fintech sector built on a house of cards?

2024-06-19 14:59:42

Ventures Africa

Last week, Nigeria's financial technology (fintech) sector faced a significant setback when the Nigeria Inter-Bank Settlement System (NIBSS) experienced a three-day downtime. This critical infrastructure disruption led to delays and failures in electronic transactions, impacting millions of users. Fintech firms, heavily reliant on NIBSS for processing payments, were particularly affected. For instance, Kuda Bank, a leading digital bank, informed its customers about the delays in transfers between banks due to NIBSS's issues. While Kuda ensured internal transfers between Kuda and PalmPay accounts remained functional, the overall disruption highlighted the fragility of the current infrastructure and its impact on customer experience.

The Nigerian financial technology (fintech) sector has experienced explosive growth in recent years, driven by a youthful, tech-savvy population and increasing smartphone penetration. However, the recurrent downtimes of the Nigeria Inter-Bank Settlement System (NIBSS) have highlighted how vulnerable the sector is relying on the system.

NIBSS serves as the backbone for various financial transactions in Nigeria, including electronic funds transfers, instant payments, and point-of-sale (POS) transactions. It is a pivotal infrastructure supporting the operations of banks, mobile money operators, and fintech companies. Fintech startups, in particular, rely heavily on NIBSS to process transactions swiftly and efficiently. Any disruption in NIBSS services can lead to delayed or failed transactions, impacting customer trust and satisfaction.

Operationally, fintech companies face significant challenges during NIBSS downtimes. Fintech companies often generate revenue from transaction fees. Downtimes mean fewer transactions, directly impacting their earnings. With e-payment transactions reaching N234.4 trillion in Q1 2024, even a minor disruption can result in significant revenue losses for fintechs. When transactions fail, customer support lines are inundated with complaints, increasing operational costs for resolving these issues. The increased volume of transactions, from 887.58 million in January to 986.6 million in March 2024, exacerbates this challenge.

The reliance on a single point of failure shows the need for diversified infrastructure within the fintech ecosystem. The surge in e-payment transactions in Nigeria exacerbates the issue. As of Q1 2024, e-payment transactions rose to N234.4 trillion, an 89% increase over the N123.9 trillion recorded in Q1 2023. This rapid growth has put immense pressure on NIBSS, originally designed for a different era, leading to frequent failures and delays. The value of transactions through the NIBSS instant payment platform surged from N71.9 trillion in December 2023 to N83 trillion by March 2024, while the volume of transactions jumped from 887.58 million in January to 986.6 million in March. This exponential increase underscores the growing reliance on digital payment channels and the consequent strain on the existing settlement infrastructure. According to Statista, the number of smartphone users in Nigeria is projected to reach over 140 million by 2025, up from 104 million in 2020. This rapid increase in smartphone usage has been a significant driver of the adoption of fintech solutions, as mobile devices provide a convenient platform for accessing financial services. While NIBSS remains a cornerstone of financial transactions in Nigeria, there may be a need for fintech companies to build more resilient systems and for regulators to ensure the robustness of the financial infrastructure.

2024-06-19 News