The Ponderer's Bend

Food junkie. Financial Services by day, Technology Dreamer by night. An outlier in many respects. I have learnt to ask 'why' and proffer an alternative view.

[niyoma]

Startups: Lessons from Nigerian Churches

The Pentecostal and Evangelical movements in Nigeria remain a staggering multi-billion dollar industry. What is more staggering is the impressive growth seen in the last 20-25 years. I am intrigued, but more importantly I want to understand what strategies work. What strategies can new businesses, startups et al. learn from these organisations. This is no innuendo.

Product

Product is a key ingredient in the marketing mix (four Ps). What customers want is perhaps the most pertinent question any business needs to answer. From a coffee shop to a technology service provider, the product remains a key denominator for every business. No product, no business. 

The basics suggest a product’s value proposition needs to be compelling and is often an extension of the overall business strategy - a congruence of product, vision and strategy. This value proposition is indeed a promise to the customer and is typically considered the overall net benefit (often quantifiable) to the customer. Put in simple terms it is: Why should I use your product?

I reviewed the vision statement of the largest of these establishments in Nigeria. What I found was a rather clear value proposition including a well thought out growth and execution strategy. One thing that was also evident was the use of emotion (or sentiment as some would call it) to drive the message through.

 It’s a known fact that each day, emotions play a crucial role influencing our choice of products. Whilst having a compelling value proposition is great, an emotional connection or sell has an even greater impact. Emotion is a rather wide spectrum. Apple for example churn out some great products, however a key success factor is their ability to generate a deep emotional connection with customers even with not so great products. I recently played around with the new iPhone 6+ and still can’t understand the frenzy about a 5.5” phone that won’t fit into my pockets. The Apple effect is all I can call it. 

User experience

I really should not decouple the user experience (UX) from the product. For the purposes of this post I reckon I should. UX extends well beyond the product. I see it as encompassing the end-to-end customer interaction with the business.  Whilst aesthetics of an app might tick many boxes (from a user’s perspective), equally important are logistics, support and other back office functions to complement the end-to-end experience. A great app and wacky business support process only translates in a rather quick anticlimax.

These churches understand that the overarching importance of the user experience is fundamental to business success.  This ideology is embodied in extending the product offering to great (often sensational) music, a charged up atmosphere including all the ambience and aesthetics required to deliver a rewarding end-to-end experience. To understand the level of planning and logistics required to deliver this level of excellence you need to visit one.

These establishments also understand that UX extends to removing the hurdles (inconveniences) towards achieving a product’s climax. The image above is one example. Shuttles pick members from major stations in London. The message this sends to me is -  a seamless user experience. We will take you to our product.

Brand

While most of these establishments sell a similar message (salvation, prosperity etc.), a key differentiator (from a customer standpoint) is the brand. The brand goes beyond aesthetics like the name and logo. Customers identify with brands. A delicate balance between brand identity (how businesses want to be seen) and brand image (how customers perceive a business) is one metric every business must monitor.

Brands are difficult to build and the value created isn’t set in stone. It requires businesses to continually work hard at ensuring the accrued value is sustained at the very least.  For this very reason, these establishments have commendable communication strategies to filter (or counteract) negative information cascading to stakeholders.

I reckon every business requires a communication strategy which at a minimum addresses who their customers are, what messages (including channels) to disseminate, why the chosen communication strategy is ideal and how this aligns with the overall business strategic goals and objectives.

Data. Know your customer

One thing these establishments excel at is their data repository. If you have ever been invited to any of these gatherings, there is usually a few minutes dedicated to welcoming ‘first time comers’. While welcoming first time comers is great, a key objective is usually to solicit data – i.e. know your customer even better.

Newcomers are asked to fill out cards which tease out key details like phone numbers, email and physical addresses. Don’t be surprised when you get that unsolicited knock on the door or a barrage of text messages. For those that opt to stay as members, knowing your customer remains a continuous and intimate relationship. Arguably, the more you know your customer, the better you are able to use this data to offer tailored products to them.

The concept of data isn’t new. What is new is how we as humans interpret and exploit data. Business intelligence tools and techniques allow even the smallest of companies gain new insights into customer behavioural patterns to drive everyday decision making. Data is king. For successful businesses, data drives not just the product but also the shape of back and front office operations to deliver end user products. Businesses that ignore data insights do so at their peril. Businesses need that data, they need to know their customers better.

Execute quickly

Ideas are a dime a dozen and execution speed is perhaps the most competitive advantage any business can exploit. I recently fell into the trap of developing a product over an extended period due to various commitments etcetera. Whilst I took the time to deliver a full-featured-all-encompassing product, the market moved on by the implementation date. The lesson was simple – be quick to the market.

One integral element in most successful growth strategies is the ability to validate ideas rather quickly. There in an inherent cost in validating ideas and if you must do so, you must do so quickly - ideally with a minimal cost base.  These establishments understand this concept. As part of their growth strategy, most start as satellite meetings (little to no cost base) with a handful of people which quickly morph into full-fledged nodes. This aligns with the concept of a minimum viable product (MVP). Like a scientist, you validate the concept in a lab in the first instance. A number of these establishments have perfected the art of quick validation and are able to churn out 2 parishes a day! Now that’s commendable.

Viral is cheaper

Most new ventures have little to zero marketing budgets. The quest remains how to drive customer growth up vis-à-vis a limited budget to achieve this. This dilemma translates in many products never taking off. Interestingly, these establishments start with only a handful of members and growth is fuelled by the word of mouth multiplier effect from person to person. They rely on rather keen (and free) product evangelists to spread the word. WhatsApp comes to mind here - i.e. products customers simply fall in love with. Get customers to fall in love with the product and they’ll inevitably spread the word.

Kaizen. Good change

Kaizen is a philosophy of continuous improvement. Good change. Kaizen is about standardizing and making business and/or system processes more efficient – think about eliminating waste in a supply chain.

Kaizen and Agile are also closely linked. In this digital age, the process of morphing into a dinosaur can happen rather quickly. Technology is evolving ever so quickly driving customer wish lists and sophistication to the roof. Businesses cannot continue with the same business as usual luxuries they enjoyed years ago. Think of Kaizen and Agile as essential methodologies every business should embrace in maintaining continuous customer engagement.

These establishments understand that the message (or product) has to be new (agile) or at best renewed frequently (a different slice of the same thing). They understand that customer engagement isn’t a one-off but a continuous investment in being relevant to the customer. Customer acquisition is an expensive game and accordingly customer retention is a must do strategy for any business venture.

Channel (platform) agnostic

While the pulpit is the main medium to spread the word, these establishments increasingly realise that members are channel agnostic - they want the product in a variety of ways. For many, a podcast suffices while others they require a daily newsletter or boost via email. Accordingly, the product reflects the varied touch-points of interaction with the customer. Customers drive channel scope and these establishments understand their success depends on transmedia storytelling.

Multiple channels however can translate in a convoluted message, particularly with poor integration across channels. The message (and timing) needs to be consistent and technology can help with this seamless integration. As businesses grow larger, poor integration can contribute to crippled operations which translate in a higher cost base and business lethargy. A multi-channel approach is great, however integration is key.

Revenue and cost models

It’s all about the money (unless you are a charity that is – even that). Most of these churches appear to adopt a freemium (or variant) revenue model. The model is simple really:  Showcase that your doors are open to all who care to meander through and work out a strategy to monetize. 

While a freemium revenue model can be expensive for most businesses (due to required cost base required to push through), the holy grail remains how successful the revenue extraction strategy is. Otherwise, the customer becomes a cost burden to the business.

In addition, while one-off earnings are great, businesses have an aversion to volatile and unpredictable earnings. Volatile earnings mean planning and forecasting become difficult. For this reason, these establishments push the tithing narrative (a subscription based revenue model) to reduce earnings volatility. As most business costs are fixed (or at least semi-fixed), the minimum success criteria is to generate enough revenue to shoulder these costs (i.e. breakeven at the least).

Keeping business costs within check is crucial and I am also a fan of lean strategies. While I appreciate there are business justifications to burn cash to achieve rapid growth, these strategies aren’t sustainable in the long term. Cash isn't bottomless (regardless of how it is showcased) and many startups could learn some cash management strategies from these establishments. 

[niyoma]

The Mẹkunnu Nation

Mẹkunnu

Peasant:

a coarse, unsophisticated, boorish, uneducated person of little financial means.

Commoner:

one of the ordinary or common people, as opposed to the aristocracy or to royalty.

       I seldom enjoy getting into political debates, however when I do my views are predominantly aligned to the left. I sympathise with the fact that given the right opportunity, the average person simply wants a better life, the basics we all take for granted each day. The man on the street, the gateman etcetera all strive for a better future. I am only one generation away from being that very man. My dad’s parents were stark illiterates and that one opportunity he got meant I had an education by default. I’ll argue (albeit based anecdotal evidence) that a considerable percentage of Nigerians are one to two generations away illiteracy.

Apparently a mẹkunnu revolution is emerging in Nigeria. The common men are ceasing the bull by the horn to vote for things that matter to them, the basics of life, the things the privileged take for granted. The recent Ekiti elections have been belittled as ‘stomach infrastructure’ by many considering the fact that a credible incumbent failed to rouse the support of the so called plebs in society.

There are varied debates why Fayemi lost the elections. However it would seem there is some agreement that the incumbent offered strategic and long-term policies while the challenger Fayose massaged the shorter term needs of the electorate – a tactical fix in the scheme of things. In my mind, Fayose perhaps played on the fact that people for starters have very basic needs. However as people get more exposed, their needs become more sophisticated.

Many argue that a key prerequisite for any thriving democracy is an informed electorate. This prerequisite is famously attributed to Thomas Jefferson.

“A sense of necessity, and a submission to it, is to me a new and consolatory proof that, whenever the people are well-informed, they can be trusted with their own government; that, whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights. You say you are not sufficiently informed about the nature and circumstances of the present struggle here.”

While being informed would to some degree translate to a literate electorate, more important is the ability (sophistication) to absorb the benefits and ramifications of an electorate vote. A ‘good vote’ (as with a bad vote) is all relative to what side of the camp you sit. After all, democracy is about the will of the people (majority) irrespective of what that will is.

The Mẹkunnu Nation

“Such, then, being the highly favored condition of our country, it is the interest of every citizen to maintain it. What are the dangers which menace us? If any exist they ought to be ascertained and guarded against.

In explaining my sentiments on this subject it may be asked, What raised us to the present happy state? How did we accomplish the Revolution? How remedy the defects of the first instrument of our Union, by infusing into the National Government sufficient power for national purposes, without impairing the just rights of the States or affecting those of individuals? How sustain and pass with glory through the late war? The Government has been in the hands of the people. To the people, therefore, and to the faithful and able depositaries of their trust is the credit due. Had the people of the United States been educated in different principles had they been less intelligent, less independent, or less virtuous can it be believed that we should have maintained the same steady and consistent career or been blessed with the same success? While, then, the constituent body retains its present sound and healthful state everything will be safe. They will choose competent and faithful representatives for every department. It is only when the people become ignorant and corrupt, when they degenerate into a populace, that they are incapable of exercising the sovereignty. Usurpation is then an easy attainment, and an usurper soon found. The people themselves become the willing instruments of their own debasement and ruin. Let us, then, look to the great cause, and endeavor to preserve it in full force. Let us by all wise and constitutional measures promote intelligence among the people as the best means of preserving our liberties.”

Above quote is from the James Monroe, fifth President and Founding Father of the United States.

Clearly a government is a reflection of its people and the decaying values in society are not unique to those who eventually attain positions in government. People are rather quick to castigate government one minute only to become the very problem the next minute – a mẹkunnu nation. A nation with a huge divide between the rich and poor is truly an impoverished nation. What makes it more a mẹkunnu nation is the ‘privileged’ in society ensure those born poor or vulnerable in society remain so.

Anecdotal evidence perhaps, but my candid experience is that Nigeria is up there as a classic and oppressive society. If there is one thing you don’t do in Nigeria is be born to a poor lineage. Unfortunately by default, the unborn is unable to pick a lineage.  Society will however punish you immensely for making this very decision of being poor and vulnerable. This is the very reason why decamping from that vulnerability becomes a life or death decision. For many in society, that life or death decision is the next meal - a dearth brought about by the scorn for the vulnerable in society.

A nation that fails to embrace the vulnerable in society is a poor nation by all standards – a mẹkunnu nation. The social mobility ladder in Nigeria is a rather steep one to climb as the odds are stacked sternly against those who attempt to escape the low-lying strata of society. What seems to concern me is as people climb up this mobility ladder, they become intolerant to the very place they emerged from. The man, who suddenly stumbles on education, deprives his kindred from that very same education. The woman who barely paid a few pennies for her University education is the first in line to cry out for increased fees for those in University. The privilege in society holds to that privilege fiercely. More disturbingly, with their feet they kick down on those attempting to climb the same social mobility ladder – a king of the hill syndrome.  This is a true tale of people becoming the very monster they once abhorred.     

I would sincerely question if Nigerians really want change, real change that is. Change unfortunately would mean people losing (rebalancing) many of the privileges experienced by many today. Change would mean equal opportunities for the vulnerable in society - the mẹkunnus. Change would mean an end to child labour ensuring every child receives a minimum standard and level of education to propagate the very democracy we have been gifted with. Change would ultimately mean closing the gap between the very rich and the very poor, the rich and the poor.

The highlight of Nigeria as a mẹkunnu nation is the fact that religion has become a daily anaesthesia for many. People queue unwittingly to receive a dose of nothingness from religious leaders who drive flashy cars and live in super mansions only to offer a supernatural dose of a ‘breakthroughs’ from the upheavals of the Nigerian society. The very vehicle that could rebalance society simply dulls the brain of the main on the street.

[niyoma]

Iya Alamala you dey take Paga? Mobile Money and the Nigerian unbanked.

Truth is I love amala. I love amala so much so that at some point years back, my friends would tease me saying I had sold my soul to the amala seller. There was a point I ate amala Monday to Friday without fail. I would have gladly done so over the weekend but my amala joint wasn’t open over the weekend.

Now I have been trying to imagine if after my meal I asked - Iya Alamala you dey take Mobile Money? Well I’m pretty sure what the answer would be. "Alakori (foolish man) please pay me my money for the thing you chop".

However thinking aloud, what if she surprised me by saying "yes oh, which kind you get? We get Paga for here." Translated “yes, we accept Paga here.” What would this mean for adoption rates of Mobile Money in Nigeria? What if she could also spend her Mobile Money units to replenish her stock? Lots of ‘what ifs’ I guess.

  The M-PESA comparison

Mobile Money in Nigeria is forever compared with M-PESA. I however think this comparison is highly misleading as the dynamics at play are rather dissimilar to draw any meaningful comparisons. Amongst many dissimilarities, I picked up on the motive for mobile transfers/payments and differences in literacy levels between both countries.

    Motive for payments/transfers

Depending on who you ask, Kenya’s rural population is anywhere between 75-80%. This shows up as a key success indicator considering the proliferation and domination of urban-rural transfers with M-PESA users. Urban users have served as ‘evangelists’ by driving the M-PESA adoption rates roof-top due to urban-rural remittances.

 In addition, Nigeria was ahead the curve in terms of bank penetration in general. This is evident in the % number of users with access to financial services (2005 estimates). Kenya on the other hand has lagged behind Nigeria comparing bank branches considering Nigeria saw a significant increase in the number of bank branches from circa 2000.

Notice the increasing trend with the number of bank branches (per 100,000 adults) in Kenya?  Some have attributed this to the role M-PESA driving awareness around financial services. I suspect this would play a crucial role in how much longer the M-PESA ride would last considering M-PESA isn’t that sophisticated.

On the other hand, Mobile Money in Nigeria appears to be dominated by bills payment (DSTV, PHCN etc.), payment for recharge cards and some local transfers. However, the bills payment and local transfer market is a highly competitive space with banks already providing many of the services these Mobile Money operators offer.

There is little traction with merchant payments like me wanting to pay Iya Alamala or the small grocery store around the corner – and I am not talking using ATM cards.

  Literacy rates

Adult literacy in Kenya is close to 90% with Nigeria averaging at 60% (50% adult female population) - depending on where you look. I suspect this played a key role in how M-PESA was perceived and propagated.

The unbanked in Nigeria have a known reluctance for banking in general and it doesn’t help that wealth distribution is highly skewed translating in little or nothing to bank due to low income levels.

Our low literacy rates also showcase in meeting minimum KYC/AML requirements. It is no surprise that a recent report by Lafferty Group showed that 93 percent of the Mobile Money users use the service along with an existing bank account. In effect, the same recycled money by the banked.

However with NCC’s initiative to compulsorily register mobile phone users in Nigeria, there is some level of KYC requirements available albeit unbanked users may need to operate at lower funding and payment/withdrawal limits.

The unbanked and Iya Alamala’s role

I am of the opinion that Iya Alamala plays a crucial role in onboarding potential unbanked Mobile Money users. I have however been told the time for paying for amala will come – suggesting once there’s a high proliferation of Mobile Money in Nigeria, Iya Alamala will jump on the trend. I very much doubt this.

Looking at Rogers’ Diffusion of Innovations Theory, saying the time for amala would come suggests Iya Alamala jumping in as a late majority or laggard. However is it the case that Iya Alamala should lead the trend as an early adopter and evangelist?

While I agree that you need agents to play key roles around cash-in/cash-out, signup centres and in general evangelists for Mobile Money, I would question how effective they have been thus far in evangelising to the unbanked.

There is clearly an engagement issue at play here.

Now my reference to Iya Alamala is used rather loosely and the same argument extends to my mai suya and grocery shop round the corner. They are the people to win over as merchants and perhaps also act as cash-in/cash-out centres. Perhaps not signup centres – just yet.

  There are a number of reasons why Iya Alamala should be encouraged to get on the Mobile Money train.

  1. Liquidity: sighted as a key issue plaguing many agents as they simply do not have the reserve capacity to act as true agents. It is a difficult task to have any meaningful cash float for payouts when the average agent only manages to do a few transactions a month. Telll you what? My Iya Alamala does on average N250k to N500k daily while my mai suya averages N1m -N3m daily - yes selling suya. There are clearly cash-back opportunities to leverage on as most of these businesses would rather not have such large cash floats.

2. Trust & relationship: any business relationship involving cash revolves around trust – the agents have to earn this trust. However for most unbanked users, they already have some form of relationship with Iya Alamala hence providing merchant services including cash in/out facilities should be well received.

The same is true of the informal savings accounts used by those at the bottom of the pyramid (unbanked) – called ajo in Yoruba. There are no guarantees the ajo provider will turn up the next day, however there is a strong element of trust between both parties. In addition, both parties communicate at same level. Communication is key for Mobile Money to scale with the unbanked.

3. Visibility: like I said already, I would normally visit my amala joint Monday to Friday. If there was a sign that said Paga accepted here, I would be inclined to ask at some point what is Paga? I don’t like to carry cash. I guess this is not about me.   Anyone in the FMCG industry would tell you how crucial a role the likes of Iya Alamala play in the success or failure of new product entrants. It is not ShopRite that determines if a new product entrant fails or not, it is the evangelists, the mai suyas and Iya Alamalas.

These roles should never be understated and I reckon to get Mobile Money viral, Iya Alamala needs to be onboard sooner than later if only as a merchant for starters.

[niyoma]

Revenue Recognition. The case of the Nigerian Ecosystem

Joel Gascoigne from Buffer recently put up this post apologising for providing a wrong baseline for calculating their annualised revenue estimates. Buffer doesn’t have a CFO from what I gather and I suspect this is rather widespread amongst tech startups considering the immediate focus is to stay afloat.

Key terms like gross versus net revenue, OPEX (operating expense) and cash flow are often given a techie connotation to make it look sexy. I think it’s okay to use terms like how much ‘runway’ (cash) a business has, however founders with non-finance backgrounds must understand the fundamentals of each term used. In fact, a number of these financial metrics remain key indicators akin to symptoms a doctor looks out for before dishing out a prognosis. 

Unfortunately, terms used in accounting/finance aren’t necessarily sexy and a number of finance terms make no sense until faced with a real life scenario to actualise them. Suddenly, that avoilà moment happens when you are able to apply that finance 101 principle and attribute it to real life scenario.

I have observed a key misconception amongst Nigeria's growing ecosystem as to what revenue is and when to recognise revenue. With regards to what, grey areas are particularly evident in agency relationships (commissions, fees, etc) and in instances where contractual relationships aren’t necessarily clearcut.

Revenue recognition in reality is a job in its own right for larger organisations. This is particularly true where complex financial relationships need to be created for reasons beyond this post.  If you like technical details and long-reads, there is abundance of material on revenue recognition – just Google it.

However if like me you prefer to keep it simple and understand the basics, I will attempt to summarise some of the key principles using some examples.

  Example 1

I recently saw this post on Techcabal

“…The updated Circuitatlantic.com clocked a record $240,000 in sales this January”

The quote above suggests gross revenue of $240,000 in January (annualised $2.8m). However, circuitatlantic.com charges a fee of between 5-10%, this would suggest a transaction value $2,400,000 - $4,800,000 in January alone. I doubt that is the case.

From all indications, I would assume this should read transaction value (not sales/revenue) was $240,000 translating in average revenue of between $12,000 and $24,000 (fee income).

While the transaction volume may be useful for internal management reporting/analysis, it should not be convoluted with revenue as it sends the wrong message.

  Example 2

If a site acts as a middleman, earns commission or acts as a broker (e.g. a hotels booking site), then revenue (gross) in this case is the fee or commission earned and not the total value of the said transaction. This is true of sites like Hotel.ng and Jovago.com irrespective of who does the payment processing.

There are some exceptions to recognising the full transaction value. However this would depend on a primary test on the merchant versus agency relationship.

  Example 3

Payment providers charge fixed and variable fees for services provided (e.g. Paga). Gross revenue in this case is the fee income charged to the merchant/customer and not the total transaction value. Example, looking at Paypal’s 2013 results, transaction volume was $180 billion and actual revenue was $6.6 billion (average 3.6% of transaction value).

  Example 4

Marketplaces (e.g. Ebay, Amazon and Konga) are becoming increasingly widespread. The marketplace provider would normally charge a range of fees for services provided to the merchant. Revenue for a marketplace provider would be the various fees and charges and not the total transaction value.

There are exceptions where the marketplace provider may show revenue as gross (total transaction value) but again it would depend on the agreement, risks and rewards.

-          Who is the obligor in the agreement?

-          Who determines pricing?

-          Who holds credit and inventory risk?

  Why is this important?

Showing revenue gross or net makes no difference to bottom line results. However where revenue is shown as gross and not net (other than exceptions), this disclosure could give external users a rosier picture than it would seem.

[niyoma]

Corruption beget Boko Haram. Corruption deprived our kids the education they deserve.

Corruption (Latin - corrumpo, corrumpere, corrupi, corruptus);

damage/ruin, undo

destroy/deface

digest

infect

spoil/rot

taint/contaminate

It‘s no news that Nigeria is one of the most corrupt nations on earth. The 2013 Corruption Perceptions Index by Transparency International ranks Nigeria 144 of 175 countries surveyed.

If I was asked to give a ranking, I would put Nigeria in the region of 165-170 – but that’s just me. I like to call it as it is.

This morning like many Nigerians, I woke up to news of yet another bomb attack by suspected Boko Haram militants. So far, authorities estimate 71 people have been killed and 124 injured during the Nyanya attack.  

Only yesterday, I had a brief conversation about the state of Police Colleges in Nigeria and the dismal conditions our law enforcement officers endure on a day to day basis. If you have never visited a Police College in Nigeria, this video should give you a good feel.

  The entry point salary to the Nigerian Police force starts at N28,000/month (or approximately N900/day or  $5.80/day). There is push to set the minimum Police wage at N50,000/month. You don’t need to study quantum physics to work out the impact to insecurity.

But that is only one side of the coin.

What value would you place on a Nigerian life?

I often ask this question when engaged in conversations around the general state of Nigeria. Is the value of a Nigerian life $0? Perhaps more? $10 or even more $1m? The answer really depends on who you ask.

The corrupt rich place a relatively high value on their lives and little to no value on the life of the average man on the street. The corrupt rich simply ‘buy’ the quality of life they desire (security, health, education etc.) and to hell with the man on the street.

“I say to hell with their kids and to hell with their generations to come.”

No health care? No problem. It’s only a flight away to Europe or Asia.

No infrastructure? No problem. We ‘create’ the infrastructure needed.

No security? No problem. Just ‘hire’ a couple of armed MOPOL (Mobile Police).

No education? No problem. We simply send the kids to private education in the UK.

Boko Haram attacks? No problem. Certainly not in our coffers. Not Abuja! We have driven them to the fringes where a value of a life is a miserable $0.

But no, they have broken your coffers. Now let us pray.

This is what corruption does. Corruption creates the perfect bubble.

  Corruption beget Boko Haram. Corruption deprived our kids the education they deserve.

The word Boko Haram means “Western education is sinful”.

Now some may say that’s a ludicrous claim. Who could ever believe Western education is sinful? Well it really depends who you ask. Try asking the 10.5 million children classed as out of school or perhaps the 70% living in abject poverty as a result of corruption.

“Only 3% of females complete secondary education in northern Nigeria. Now how do you build the country when 93% of the girls in the most populous region of the country do not complete secondary schools..” - Sanusi Lamido Sanusi

Corruption fuels illiteracy. Illiteracy denies a future which begets poverty. Poverty begets a hapless void which religion fills.

There are no jobs to go to, we scramble for jobs.

Our futures are mortgaged to the rich and corrupt.

What hope do we have for the future?

There is no hope with corruption. Corruption places no value on your life.

RIP to the souls that perished today in Abuja. You are worth much more that the value you country Nigeria places on you.

[niyoma]

I had a dream. Nigeria was the largest economy in Africa.

Today I had a dream. I had a dream that Nigeria became the largest economy in Africa. I dreamt that for some reason, our GDP figures had been rebased which meant we leapfrogged South Africa to become the number one economy in Africa. I was elated and filled with unexplainable excitement and amazement. Finally I thought, we could truly say we were the Giant of Africa and more importantly, we had the numbers to back them up. Wow!

I fell into deeper sleep and wondered what the GDP rebasing would mean for Nigeria. Could we perhaps become part of the elitist G8 club now that Russia has been pushed to the sidelines? I didn't know what the rebasing meant in real monetary terms and could only assume these were huge leaps in the scheme of things. If we ever did attain this mammoth G8 achievement, I tried to envision what this would mean for our endemic corruption? Surely we couldn’t speak to the world with a split mouth on corruption as new entrant into the elitist club of G8 nations? 

In my mind’s eye, I thought it was rather silly of me to think Nigeria could be part of the G8. Perhaps the G20 association was a more realistic achievement I thought? I was however too caught up in excitement about the news to gather my thoughts. This couldn't be real. Could it? It had to be a dream I reiterated to myself. However, if it was a dream, I'd relish every moment whilst it lasted I thought.

 I fell into even deeper sleep.

I wondered whilst drifting further, what would this mean for our epileptic infrastructure? Whilst deep-thinking in my dream, I heard in the background what sounded like Nigerian Finance and Power Ministers discussing putting together a plan to sell excess production on the National Electric Grid to neighbouring countries. How could this be? I wondered. The last time I checked, we were struggling to even deliver a mere 3,000 MW of electricity output. How could we suddenly be in a position to sell excess capacity to other countries I thought?

I was slightly irritated with what I heard to say the least. I however chose to listen more intently into their conversation. It was at this time I overheard the Finance Minister brag about how FDI inflows into Nigeria had catapulted in the billions. The Finance Minister spoke with astute arrogance about how countries were queuing up to pump money into the leading economy in Africa. “Nigeria had fully diversified beyond its reliance on oil” the Finance Minister giggled. Hearing this, my ears tingled and rattled as I listened in more intently.

  I certainly had to digest all this information and excitement I thought. The children! The children out of school I thought. What would happen to the 10.5 million Nigerian children who are deprived a future for lack of education? Surely we could now tackle this problem head-on with our new revenue streams and investment inflows? Almost immediately, I envisioned the multiplier effects this could have on the Nigerian economy and the future of these kids. I was extremely happy.

I continued to eavesdrop into their conversation. I could see the lips of the Finance Minister moving but I could not really make out what the Minister was saying. I assumed it was something to do with jobs based on my limited ability to lip-read. I thought for a second, perhaps I'd interrupt the conversation between the Finance and Power Minister to ask about their thoughts on job creation in Nigeria. I thought for a few more seconds and summoned the courage, walked up to the pair and asked my question. I am very sorry to interrupt your conversation I said, but couldn’t but ask what all this meant for jobs and the man on the street? 

The Finance Minister chose to respond to my question. I was extremely overwhelmed with euphoria and also felt a rush of fear run through every nerve ending of mine. The Finance Minister was responding to a mere me I thought? The Finance Minister started to respond, the bravado exhibited was even more exaggerated than I could ever imagine. Don't you read I was asked? I responded with a trembling yes I do. The Minister continued to speak. “We are now experiencing single digit unemployment numbers in Nigeria. Gone are the days where we pack people into stadiums to be interviewed for jobs that don't exist. Gone are the days where we ask people to pay fees in lieu of prospective jobs only to get killed in the process.” “We have come a long way” said the Finance Minister with a sheepish smile.

I thought to myself, now that I had the Finance Minister all ears, perhaps I'd ask as many probing questions as I could particularly on what frameworks had been put in place to sustain all these amazing things I had been privy to hearing. I was keen to understand what frameworks had been put in place to stem the corruption rates and crippled legal system. I thought for a second, was this too much to ask the Minister? Would I simply have this conversation dismissed?

Perhaps not I reckoned. I somehow summoned the courage and asked what about corruption? “What about corruption?” The Minister asked in a rather condescending tone.

I paused for a few seconds whilst trying to reframe my question in my head. I wanted to be diplomatic yet still wanting to get a direct answer to my question. After all, this was a chance in a lifetime and I certainly did not want to blow this chance.

Why did I need to be diplomatic a little voice in my head muttered? I needn't be diplomatic the little voice reassured me, just say it as it is. Reluctantly, I did. With all the zeal in me I asked, is corruption still rife in Nigeria and what frameworks had the government put in place to tackle corruption?

The Minister smiled and then chuckled for a few seconds. The Minister's chuckling soon became laughter. The laughter became increasingly louder and louder and echoed all over the room. “Bwahahaha, bwahahahaha, bwhahahahahahaha....” was all I could hear the Finance Minister utter. “Do you really want to know?” Yes I answered.

“This is Nigeria we are talking about my friend. Bwahahaha, bwahahahaha, bwahahaha, this is Nigeria we are talking about my friend.” The Minister continued to repeat these words louder and louder. My ears were hurting, the decibels coming from the Minister’s laughter was too intense for my ears to handle. I covered my ears trying to shutout the excruciating pain I was now starting to feel in my ears. I crouched down in a corner to get away from the Minister.

In a flash, just as I had started to dream I was awake. 

I had been dreaming I thought. Suddenly an intense sense of sadness filled my soul. I was deflated. It was a dream as reality started to sink in. The GDP numbers had been rebased and that was no dream. There was however no tangible changes to the status quo. The GDP rebasing was meaningless to me I thought as the ear numbing sound of generators resonated in the background and the fumes from the generators filled my room.

Again I thought, these GDP figures are meaningless to me.

  END.

  The fact is that following the rebasing of Nigeria’s GDP, it will have little to no effect on the average Nigerians day to day livelihood. The OECD put this in a rather insightful way

“If ever there was a controversial icon from the statistics world, GDP is it. It measures income, but not equality, it measures growth, but not destruction, and it ignores values like social cohesion and the environment. Yet, governments, businesses and probably most people swear by it.”

As I write this post, Nigeria's GDP will be rebased Sunday 6th April 2014, potentially catapulting Nigeria to the number one economy in Africa.

However

1. An estimated 10.5 million children are out of school, who perhaps will never receive any formal education in their lifetime, potentially having a rather bleak future ahead.

2. An estimated 80 children in every 1,000 will not live to celebrate their 1st birthday

3. Her citizenry continues to endure enormous hardship and her young have no hope of jobs or a future to cling to

4. Life expectancy remains dismal at an average life expectancy of 52 years (17th lowest globally)

5. Her poverty gap continues to be some of the largest globally with an estimated 70% living below the poverty line in Nigeria

6. Nigeria continues to have little to no legal framework to bring people to book and corruption still stares me in the eyes as I write this post

Yes Nigeria will become officially the largest economy in Africa. However do the benefits of the rebased GDP trickle down to the average Nigeria?

[niyoma]

Sponsor a child to school today

Today is World Book Day in the UK (April 23rd in other countries).

"World Book Day was designated by UNESCO as a worldwide celebration of books and reading, and is marked in over 100 countries around the globe. A main aim of World Book Day is to encourage children to explore the pleasures of books and reading"

So I watched my 6 year old daughter prepare eagerly for her school show celebrating World Book Day - she ended up with the artwork below.

  It got me thinking.

Now I have raised her to appreciate the little things. The little things we all take for granted. One of such little things is appreciating the fact Nigeria has around 10.5 million kids classed as out of school.

According to UNESCO, Nigeria ranks top in the world for children out of school - a rather worrying statistic.

Whilst thinking, first I remembered my dad who passed away exactly 7 years today – bless him. He was an intelligent, witty and a fine man born to illiterate parents. The level of illiteracy meant my dad never knew his birth date and simply picked a lucky date in February to celebrate his birthday.

His dad passed away a few years after he was born and he often talked about the rather rough times he had to endure growing up. He had little to no formal education in his early years, but somehow, he had a lucky break.

Even with the little formal education he had, in his late twenties he was sponsored by an older family member to study in the UK and qualified as an Accountant. This single opportunity meant numerous people passed through his tutelage over the years.

I never really appreciated growing up why he was so willing to welcome others under his winds to educate and sponsor them until I had my own kids. I also cannot imagine how things could have panned out should my dad had never got that game-changing opportunity.

Next I remembered Jameela and her dad papa Jameela who both lived on my childhood street. Jameela’s dad was a guard and had no formal education. Jameela however had her primary school (private school) sponsored by Dr. Frank (now late), an Architect who had an office next to papa Jameela.

I really don’t know why he opted to sponsor Jameela. What I do know is the transformation I saw when she started formal education. I saw Jameela grow up as a bright and intelligent kid, confident and well mannered with such clear and eloquent speech. It is really hard to imagine Jameela without that all brave and generous move by Dr. Frank to sponsor her education.

Sponsoring a child is undoubtedly a brave move and certainly not for everyone to embrace. The results are however rewarding and certainly can transcend generations. Truth be told, you may never live to see the benefit of sponsoring a child but the legacy will remain. Sponsoring a child is an investment for tomorrow.

[niyoma]

I need a developer like yesterday - Part 2

You may want to ready the first part of this post here.

Following my initial post, there has been an interesting take from a developer @Ajibz's on Techcabal here and another on bootstrapping to bridge the developer deficit with seemingly low budgets here. 

  Both posts buttress the fact that we are not there yet and there remains a deficit of developers to drive the ecosystem. Poca a poca? Perhaps.

  It was also good to hear Sim Shagaya’s speech on inshoring some of Konga’s development activities at the just concluded Techcabal Battlefield.  Sim was clear about one thing, if we don’t build it, the Amazons of this world will.

    The 170 million jigsaw puzzle.

  There is abundant chaos and commotion to be tamed with technology in Nigeria and Africa in general. From the farmer in the village to the city worker living the dream, there remains countless untapped opportunities. 

  No surprise, these markets did not just appear - there is nothing new under the sun as they say. What is new though is a great opportunity to tackle age-old problems using technology – a new perspective to the same problem.

  The 170m jigsaw puzzle however will only be solved with the right calibre of technical subject matters to drive the ecosystem – developers being one. The 170m bucket is just one market, a bigger market I see is the human capital and technical prowess we can export to other countries and be the go-to place like India.

  The world is becoming increasingly competitive. Human capital will no doubt become the next priced commodity - transferable skills that know no physical country boundaries. I would like to see Nigeria and indeed Africa building awesome stuff beyond our shores.

    Who will bell the cat?

  It would take a combined effort of both the private sector and government to drive this change. There is great stuff being done by private hands like the CcHUB so I focus on the role of government in accelerating the ecosystem.

  Now governments don't necessarily create markets. They can however create the enabling environment for markets/ecosystems to thrive. Their role is to recognise there is a budding potential and provide the nurture and support required to grow an industry. After all, the Nigerian government should in reality have vested interests in seeing this ecosystem succeed and reducing our reliance on black gold.

I hear a hmmm, but... Either way, we cannot excuse the fact that government have a crucial role to play.

They can add value in a number of ways

  1. The Nigerian government must put their money where their mouth is. Governments are big spenders anywhere in the world and you expect them to play a key catalytic role in gingering the shoots that are appearing within the ecosystem. Globally, governments are undoubtedly some of the biggest spenders on technology with the USA reportedly spending $3.6 trillion on ICT in 2012. These amounts have a massive trickledown effect in ensuring the right skill sets are trained and available to meet the demand side.

  According to this article, Nigeria spends $550m on ICT related expenditure with the bulk of this going to foreign providers. This had to change. The Government of Nigeria must encourage local players by using locally sourced software solutions. They cannot speak with two mouths. As a nation, we spend over $7bn on ICT imports.

An added incentive to invest in technology is using it as a tool to help fight corruption (if there is a willingness to do this). Whether or not there is an appetite to create these controls remains questionable.

  2. Providing incentives to start technology businesses in Nigeria is a move that must be embraced. From tax breaks to job subsidies and technology grants, these are simple tools to encourage technology houses kick-start. I am not necessarily talking about big players here. I am keen to see SMEs grow, the small software houses that employ 2-3 people.

  3. One key role of any government is being a sales representative and ambassador – yes a PR job. We have done a particularly woeful job in selling the Nigerian story. The FDI numbers in my previous post provide evidence of this. We must get better at selling our story. India and Brazil remain classed as a ‘risky nations’ to travel to because of crime etc. However, it does not stop companies from going to do business there by the truckload.

  The Indian success story is as a result of heavily driven PR started in the early 1990’s, selling how good it is to do business in India. We can learn a thing or two from them. We can start now.

  4. Education will remain a key ingredient in achieving the objective of building a skilled workforce like my developer friend Vlad. Now this is a difficult nut to crack due to years of neglect and depravation. However we can begin to rewind these effects by making a conscious effort to invest in educating the next generation. It is a long-term play after all? We can start now.

  In addition, I would like to see the focus shift away from university education to producing well rounded SSCE holders as a starting point. The Nigerian  government should first look to produce a cadre of high quality school leavers who are ready to take on the world. University education should be a bonus for those who seek to follow this path.

  We are not all built for the university path right after secondary school and for many it adds little value. I for one did not take this path and I do not have a 1st degree – a story for another day. We must encourage apprenticeships – those looking to learn on the job. People should be willing to finish off as school leavers (SSCE) and go straight into a technology houses to learn the trade. However they must be well equipped to make these decisions. Government can play a key role in selling this as an alternative.

[niyoma]

I need a developer like yesterday - Part 1

I remember working with an Indian developer called Ajay in 2003 whilst building a VOIP billing portal to interop with Vocaltec's proprietary VOIP gatekeeper. Long story but Ajay never delivered and he also made away with a database of clients. We ended up working with Vlad a developer from Ukraine to complete the project.

Now over the years I have needed to outsource a number of projects I have been involved with. I don't code and my skills in this respect remain limited to project management, requirements gathering, and planning. I could throw in some basic UNIX, HTML and PHP, but that’s about it.

So being the patriotic Nigerian that I am, my first thought when I have a project to execute is always can I get a developer in Nigeria to implement this? Would they execute per plan? Will they deliver on budget? Will they have the right skill set? Will they deliver to expected standards/quality and best practice? In most cases I have found it rather difficult to give a yes answer.

I am rather sure my quest isn't an isolated one.

Now I am not saying there are no skilled developers/technology professionals in Nigeria. The question is where are they? If I needed a good developer like yesterday, where would I go without pulling teeth? If the visible players like iROKOtv have their development teams in London and not Nigeria where labour is presumably cheaper, then it is worrisome what ecosystem is really being built. 

In a similar light, a few months back I heard of a new app and wanted to read up on it as it was well hyped up (name withheld). I Google the app only to find out the app was actually designed by a freelancer in Europe. But why would they need to go all the way to Europe I thought?

It’s really simple in my view, if we don’t have the required skill sets, we certainly don’t have a technology ecosystem. No doubt there is a  market to exploit, however we must recognise there is a huge skills deficit.

Are we really open for business?

There is no doubt there is focus on how huge the Nigerian potential is. The pitches are similar if you have been listening. We are underexploited, a country of 180m people, year on year GDP growth even close to double digits.

These are mouth watering propositions to any investor but I would question how open we are for business.

The numbers speak for themselves. Countries like India and Brazil have come a long way. Good fortune? I would like to think not. I pulled out the FDI numbers for Nigeria, India and Brazil - they give a glimpse into our readiness and openness to trade in general. Our numbers are worryingly lukewarm.

The Nigerian Investment Promotion Commission Act 1995 was enacted to attract foreign participation in Nigerian enterprises. Twenty years down the line, the numbers speak. The bulk of incoming FDIs still relate to the oil and gas sector.

A skilled workforce (like the developer I needed like yesterday) is certainly required to build this budding ecosystem and no doubt FDI will play a significant role in accelerating the current skills deficit via skill transfers, education and training. A nationalistic plea to keep the 'foreigners' out will certainly not resolve the current skills gap. I also don't think the willingness and gravitas of one individual (without the right policies and environment) will do so. The change has to be driven by policy, yes government policy.

Having the right skill set is one thing, having the enabling environment to use those skills another. This is not what people want to hear but all evidence suggests we have a huge skills deficit driven by years of corruption and neglect. Who will build these awesome technology companies?

  Follow me to Bangalore, the India Silicon Valley.

Bangalore contributes around $83bn to India’s GDP primarily from IT and BPO services. Now that number is close to a 3rd of Nigeria’s GDP before the current GDP rebasing. These impressive stats have led the Bangalore ICT cluster being dubbed the Silicon Valley of India.

India’s GDP make up has gravitated steadily into a service industry driven primarily by technology and innovation. When multinationals and major corporations join the outsourcing race of major IT services to countries like India then you need to stop, look and listen.  

The Indian story is an intriguing one, a story built on a clear vision to be at the forefront of technology and innovation. For me, the greatest takeaway is the highly skilled workforce serving both local and international markets.

Can Nigeria surpass these stats? Most certainly we can. We have the potential to do so with the right leadership and vision.  

What market do we really speak of?

In my mind the Nigerian technology driven market potential is two-fold

1. The use of technology to unwind the chaos of reaching out and monetizing the circa 180m Nigerian market

2. Creating a robust technology ecosystem with the right technical skill set and support framework to serve both local and international markets

It’s really hard to see how we achieve exploiting the market potential of reaching out to 180m Nigerians without a clear vision on how we achieve 2 above albeit for local requirements only. There are laudable strides being made but we must recognise there remains a huge skills deficit. That for me is a first step in the right direction.

I really don’t want to have to go to Ajay or Vlad when next I have that all so wonderful idea to implement. I would like to think we have the potential and ability to compete in this space. However the success criteria remains tied to having right government policies and enabling environment to achieve this.

If we dismiss the role of government policy in driving and enabling the future of this ecosystem, we dismiss the very opportunity we speak of.

I explore these markets and policies in my follow-up post.

PS. We are estimated at 170m :)

[niyoma]

Dear startup, please look after your jaws

Practically every nook and cranny you look these days, there is someone starting or looking to start something new in Nigeria. In many cases, it's not enough to start something new, it really has to big, it has to be HUGE. We love the very idea of Silicon Valley, venture capital frenzy, funding, exits and aggressive growth.

Starting a new venture is hard work. The word hard cannot be overstated. When you do get to start-up, the first battle most businesses come to terms with is staying alive or as some will call it, not running out of cash, not dying a sudden death while awaiting that eureka moment beyond the abyss of failure.

But dear startup, while you engage on that epic and uncertain journey please look after your jaws.

Now jaws is yet another financial ratio to assess the performance of a company. I know, yet another one to digest. Well it's not a ratio in its true sense and it’s rather easy to understand.

  Jaws = % growth in revenue - % growth in cost

Positive jaws – good

Negative jaws - not good

It’s that straightforward really. However you would have to look at a trend (e.g. 12 months) to gauge the direction of your jaws and to make any sense of the data.

We are obsessed with revenue growth and as long as you are making money, i.e. what we call revenue :), the future is rosy. Not really.

Jaws tend to aid forward looking analysis and a negative trend even when a business is profitable could spell doom and gloom if the drivers are ignored.

Just like people just don't drop dead, businesses don't simply just die or run of cash. Businesses exhibit symptoms, warning signs and a simple metric like jaws could give a good indication of the direction of travel.

In practice, it would however be a number of indicators/metrics and not jaws in its isolation used to assess performance. Nonetheless, as it is such a simple metric, it is one really worth having up your sleeves.

[niyoma]

OTP (Oh That Payment) - demystifying the risks of card payments

I wrote an initial post about the poor implementation of OTP by Interswitch (ISW) - you may want to read that post first. This post looks to demystify some of the assumptions around online card fraud and associated risks as this is the main justification for implementation OTP in such a crude manner in Nigeria.

I smiled when I saw this from a user…

 “I just got back from an ATM where I have made an attempt to register for safetoken. I have got all the way to paying the due 1 naira. 

But now I am trying to make a payment via quickteller.com and I am not getting the expected prompt to add OTP.

Is it supposed to be this hard?”

The comment really sums it up. These guys have bungled the process of authenticating a cardholder and have simply focused so much on the technical issues rather than processes and objectives being sought after. No doubt the banks have some part to play in making this process more streamlined. 

   With or without Mr. OTP, the issue is really about risk.

 OTP as a second layer authentication broadly serves two purposes

1. Helps validate (to some degree) the cardholder initiated the said transaction

 2. Increases the probability of a liability shift to the issuing bank should a chargeback occur

To appreciate these points, it is worth exploring the lifecycle of a typical card transaction.

In an ideal scenario, you would expect the cardholder pays via merchant site, acquirer processes via card associations (VISA et al), issuing bank settles and merchant gets paid and everyone gets a slice of the deal. Voilà! 

Unfortunately this is not always the case. Often, a cardholder may contact their bank (issuer) to dispute a transaction because of fraud, non delivery etc. The card issuer on behalf of the cardholder puts forward a dispute to the acquiring bank to challenge the said transaction(s) which could result in a chargeback (reversal of the original transaction).

  As most chargebacks relate to fraud/unauthorised transactions, what ISW’s OTP does is provides a stronger case for the acquiring bank/ISW by bolstering their position and reducing the chances of a chargeback/reversal.

I am of the school of thought that there are many ways to skin a cat - there are many ways (or a combination of ways) to achieve a similar objective and I explore a number of these.

  A merchant account is akin to line of credit.

It is worth noting that a merchant account is in fact like a line credit as it exposes the acquiring bank/provider to credit risk (the risk that the merchant will be unable to repay debts due or make required scheduled payments) due to chargebacks etc. 

Such exposures need to be managed efficiently no doubt and banks worldwide rely on complex risk engines in addition to manual intervention to process transactions. It remains a delicate balance of ensuring that the merchant provider’s risk appetite is satisfied (profits etc.) versus the user experience, costs etc. If ISW are looking to take a zero tolerance approach towards risk by closing the door, they might as well be willing to bow to new players who will take their place.

When a merchant account is viewed from the perspective of a line of credit, it becomes ever more evident that merchants have a huge role to play around fraud management. However to achieve any traction, merchants need to be equipped with the tools to manage/control transactions they receive.

It is never a silver bullet but a holistic approach towards risk.

It is really about a combination of methodologies towards accepting and managing risk and never a one shoe fits all approach.

I explore a number (or combinations of) of strategies as alternatives...

1. All Nigerian MasterCard/Visa cards should automatically be enrolled under 3D Secure by the respective issuing bank(s). Activation of 3D secure by the cardholder should be a simple intuitive process based on KYC data available to issuing banks. Enrolment not only protects local merchants but also international merchants wanting to accept Nigerian cards. By doing this, if a merchant in the USA looks to accept Nigerian Visa cards, s/he can simply switch 3D Secure rules on and get the same protection irrespective of location.

2. Implementing 3D Secure should be a choice left to each merchant/store and there should never be a blanket approach. After all, the merchant benefits from implementing a scheme such 3D Secure as it provides evidence in transaction not authorised disputes. If ISW really want better adoption of 3D secure, then incentivising merchants by providing lower fees on transactions that pass 3D secure is one way or transferring such benefits or costs (for non adoption).

3. Merchants need tools to review and reject payments depending on their risk threshold. If you are going to put me on the hook for something, I really need to have some level of control. Basics such as controlling the state of a transaction (e.g. authenticating vs authorisation), rejecting payments and refunds are a must.

4. Implement a variable Merchant Discount Rate (MDR) to take into account the risk profile of a merchant - ISW currently charge a flat rate of 1.5%. The MDR is the rate charged by a provider to process cards transactions and covers fees paid to 3rd parties (issuer, Visa, MasterCard, agents etc.). The MDR must take into account fraud/credit risk. It’s only common sense that riskier merchants (no trading history etc.) should pay a higher fee to process card payments.

Store merchants in Nigeria must wake up to the fact that they would have to pay a premium in the interim to accept card not present transactions.

5. Implement cash reserves based on the merchants risk profile. This could be anything from 1% of sales held for a specific period (to cover exposure). This reserve serves as a buffer for future chargebacks that may occur. Again this will depend on the risk profile of the merchant.

6. Increase the settlement period to take into account the risk profile of the merchant. For example a new merchant with no trading history could be placed on 14 day settlement period which creates a buffer.

This list is by no means an exhaustive one.

PS.

What is ISW's chargeback policy?

If implemented well OTP could work - remains an if.

[niyoma]

OTP (Oh That Payment) - why Interswitch just doesn’t get it

It is no news that online payment solutions in Nigeria remain in the dark ages. I have seen numerous calls for Paypal, Google and more recently Stripe to save Nigeria from the likes of Interswitch (ISW). Interswitch’s OTP (One Time Password) is one of such concerns featured in many conversations lately.

OTP or SAFETOKEN according to ISW is “a system that generates a 6-8 digit One-Time-Password (OTP) whenever a transaction is initiated via the Interswitch Web Payment Platform”. Notice the emphasis on “…via the Interswitch Web Payment Platform”. It goes on “…this is needed to permit your transaction that is above the bank set limit go through provided the merchant site is integrated to the Interswitch payment gateway”.

So I had this rather fascinating conversation on Twitter about OTP and how Interswitch ought to follow international best practices with regards to card not present transactions and not create additional loops in managing inherent risks with such transactions.

Celestine who as far as I know works for ISW attempted to educate the audience on OTP but failed to articulate why ISW’s introduction of OTP is the way forward towards a safer environment for promoting card not present transactions.

In his words…

@niyoma I‘m quite sure that d folks runnin ISW knw more abt intnl best practices than u do @dikachim @editieffiong @iaboyeji @seyitaylor

— Celestine Ezeokoye (@celestocalculus) January 25, 2014

To be fair to Celestine, he would not be privy to the fact that my background is banking amongst other things I try to dabble into hence his rather dismissive chatter.

So why introduce OTP?

OTP is about an attitude towards risk management and mitigation. Let’s put aside the technical rigmarole of implementing OTP for a bit. Card not present transactions by their very nature carry a much higher fraud risk compared to face-to-face transactions hence the need for additional security checks to validate that a cardholder has indeed authorised a transaction.

I don’t have any issues with OTP per se, what I have an issue with is a convoluted and ill-thought-out process introduced by ISW. Risk management is about risk reduction in addition to identifying and accepting some level of risk. It is clearly not about shut-the-door-we-are-too-scared-of-fraud. It is also not meant to introduce unnecessary inconveniences and additional costs to the cardholder. However, I imagine a key driver for OTP is a wider CBN initiative to introduce second level authentication for card not present transactions. But surely this should be the role of the banks and not ISW?

There are a number of things worth considering.

A risk management strategy must be balanced against the nature and probability of such risk. Nigeria isn’t even ranked in the top 10 percentile for card fraud according to this Forbes article. I mean why would you use bazooka to kill a mosquito?

There should be no reason to reinvent the wheel. Rather, ISW and banks need to adopt international best practice where available. VISA and MasterCard already have 3D Secure under the umbrella of Verified by VISA and MasterCard SecureCode. Reinventing the wheel introduces new risks to the whole payment process.

A risk management process must be seamless to the end-user and should ideally not create additional loops and costs to the cardholder

The onus on risk mitigation must go beyond the cardholder. Merchants (store owners etc.) and banks have a huge role to play in risk mitigation. I mean why as an end-user should I have to pay (SMS costs etc.) to validate that I am indeed Mr. Sule? This is rather ridiculous to say the least.

  So why the fuss?

I reckon part of the problem is that there isn’t a clear definition of what role ISW plays or should play in the Nigerian payment industry. As far as I am aware ISW is a payment processor and not a bank. They should have no business introducing any new layers of authentication to the payment process. However taking a closer look, it would appear Nigerian banks have outsourced a shed load of responsibilities and infrastructure to ISW hence the mess we find with payments and OTP.

  Is OTP’s introduction purposeful or obtrusive?

Banks worldwide rely on rather complex risk algorithms to whittle out potentially fraudulent card transactions. The rather strange thing though is that Interswitch’s OTP appears to be local and does not protect a Nigerian MasterCard from fraudulent use abroad. For example, if a Nigerian MasterCard is fraudulently used to buy Skype credits online, OTP won’t be triggered as OTP is specific to the ISW payment gateway. Ridiculous if you ask me.

Put in another way, OTP punishes a user with a Nigerian debit/credit card on a Nigerian store yet allows a fraudster in another country free access to the same card without OTP.

My recommendations

It would be unfair to whine about ISW's OTP without proffering any solutions.

So here they are…

Interswitch should stick to what they do best – payment processing. They have no business creating additional authentication loops

Scrap OTP and work with banks/card issuers to introduce internationally recognised card and user authentication standards such as 3D secure by MasterCard and VISA

Greater onus needs to be placed on store merchants with regards to risk profiling payments they receive

Introduce better risk management metrics (CVV match, AVS, IP, risk scoring etc.) to help store merchants make informed decisions

Work with banks on robust policies on chargebacks and fraud