NIGERIA INTER-BANK SETTLEMENT SYSTEM (NIBSS) PLC.

1. LAGOS PoS ADOPTION SURVEY for NIGERIA INTER-BANK SETTLEMENT SYSTEM (NIBSS) PLC. PROJECT REPORT Commissioned by: Conducted by: Financial Derivatives Company Limited December 04, 2012

2. Outline Executive Summary Background Methodology Survey Findings Summary and Conclusion Recommendations and Next Steps

3. Executive Summary

4. Executive Summary • NIBSS commissioned FDC in October 2012 to conduct a PoS adoption survey in Lagos (Project NIBSS) • The project goal is to ascertain the level of adoption and/or inhibitions to the widespread adoption of PoS terminals in Lagos • The project scope entails a market survey of both merchants and end-users (cardholders) of PoS terminals in Lagos • Market survey conducted via administration of questionnaires in four categories of market areas across Lagos

5. PoS Adoption Rate In Context Deductions from available data on total number of PoS terminals deployed and volume of transactions conducted indicates that PoS terminals deployed recorded an average of 46 transactions and a maximum of 56 transactions per PoS terminal monthly over the period under consideration Source: NIBSS

6. Research Objectives • Active profiles • Understand the profiles of merchants and end-users • Service attractiveness • Investigate the attractiveness of the PoS Terminals • Compare with other means of payment • Service weakness • Identify perceived obstacles with the use of the PoS Terminals • Identify solutions that will enhance the adoption, subscription and effective utilisation of the card payment system • Geographical Dynamics • Understanding the dynamics and challenges in the use of PoS Terminals, geographically

7. Results and Findings

8. Merchants with PoS

9. Merchants with PoS Terminals • According to the survey results, of the 3,562 merchants with PoS terminals • 47% are general merchants • 22.4% operate supermarkets • 10.9% are pharmaceutical stores/hospitals • 7.3% are restaurants/eateries • 12.4% are other forms of businesses • These business types are mostly located in open markets (39.5%) • Neighborhood shops constitute 29.5% • 29.5% are in shopping malls and 1.5% are kiosk locations Business Location

10. Accepted Payment Methods Merchants with PoS Terminals • In spite of having PoS Terminals, avenue to EFT and Cheques payment most Merchants still accept cash above PoS • Cash payment was selected as the most accepted mode of payment (93.9%) • 73.2% of the merchants surveyed accepted card payments • 61.7% of these respondents accepted cheques • 25.5% accepted electronic fund transfers (EFT) for payment, and 0.9% accept other means of payment • Investigation on why they accept cash over card payment while they have the PoS Terminals show that: • PoS deployment was involuntary as they were deployed by banks unsolicited • PoS deployment is not PoS availability for usage as some keep it under their lockers • Delays associated with access to funds after sales from the PoS

11. Accepted Payment Methods Merchants with PoS Terminals • By preference • 75.5% of merchants prefer cash as the method of payment • 9.1% rating for cheques • 11.5% for cards • 2.5% for EFTs • 1.3% for other means of payments

12. Merchants with PoS Terminals • For the non-cash options, • 47% of merchants prefer the card payment scheme to other payment schemes. • On the available card types • 40.7% of merchants prefer the Master Card • VISA is the next preferred card payment type with 31.9% of the responses followed by Verve with 27.4% of the responses.

13. Merchants with PoS Terminals • A total of 24.4% of merchants indicated that the success rate of cards is less than 25% • 29.8% of merchants believe the success rate to be between 25% and 55%. • 29.6% claimed that success rate was between 55% and 75% • 16.2% of the merchants indicated that the success rate of card payment was above 75%

14. Recommendation – Merchants With PoS Terminals • Based on the findings above, our recommendations are as follows: • Periodic checks should be carried out by the Payments Terminal Service Providers (PTSPs) in order to ascertain the condition of the PoS Terminals and get feedback about the functionality of PoS Terminals • The PTSPs’ technician contact number should be made available to merchants, so that they can receive quick/first hand technical assistance when they need it • The role of the NIBSS certification laboratory/facility to certify/approve PoS Terminal models should be popularised and communicated to merchants to boost confidence in the system and regulate PoS Terminals in circulation • PoS Terminal certifying agency should conduct periodic spot-checks of PoS Terminals with merchants.

15. Recommendation – Merchants With PoS Terminals • There should be partnership among banks, mobile payments operators, all other existing payment schemes and other support service providers to foster high availability and adoption of PoS Terminals, with the goals of: • Mitigating current network connectivity problems • Delays in accessing proceed of sales • A fair transaction charge should be agreed upon among banks, which should be communicated to the merchants, as: • Some merchants in certain locations are price-sensitive

16. Merchants Without PoS

17. Merchants Without PoS • From the surveyed 1,627 merchants without PoS • 57.5% of them are general merchants • 16.4% operate supermarkets • 8.2% run restaurants/ eateries. • In terms of location, 49% are in open markets • 26.9% are in neighborhood shops • 21.1% are in shopping malls • 1.8% are kiosks.

18. Merchants Without PoS • Cash payment was selected as the most accepted mode of payment (65.8%) • 24.3% accept cheques • 7.9% accept EFTs • 2.0% accept other means of payments such as bank deposits • This establishes the expectation of high preference for cash by merchants without PoS terminals. • To engender the imperative of the Cash-Less Lagos project, this should not be accepted as a do nothing case. Bankers to these merchants need to introduce PoS Terminals to them and adopt more friendly criteria for PoS Terminal deployments

19. Merchants Without PoS • Reasons alluded for not having PoS Terminals in descending order are: • Fear of default and fraud - 30.2% • Easy access to cash – 27.7% • Bank refusal to deploy – 26.6% • Customer’s insistence to use cash – 25.7% • Technical malfunctioning – 21.6% • PoS Deployment/Transaction fee – 20.0% • Connectivity – 18.1%

20. Merchants Without PoS • 70.0% of the merchants expressed willingness to accept PoS Terminal mode of payments.

21. Recommendation – Merchants Without PoS Terminals • We make the following suggestions based on our finding above: • Banks need to revise the criteria for PoS Terminal deployment in such a way as to encourage Merchants without PoS Terminals • A massive awareness program should be undertaken to publicize the purpose and benefits of the PoS system and allay fears of default/fraud in the following ways: • Publicity through radio and direct contact • Focus on high and medium density areas (e.g. Oke-Arin, Nnamdi Azikiwe markets) because less sophisticated merchants are located in this areas. • Publicity in more sophisticated areas (e.g. Ikoyi, Victoria Island) should emphasize direct contact with the merchants and/or formal letters of introduction. • Other publicity means to be explored like bill boards, fliers, social media and TV adverts

22. Recommendation – Merchants Without PoS Terminals • PTSPs to be encouraged to accept frontal roles in PoS deployment in line with approved guidelines • Training on the usage of PoS Terminals immediately after deployments • PTSPs should check on the merchants after a few days of training in order to ensure that merchants understand how to use the PoS Terminals and are using them appropriately • The same procedures mentioned under the ‘merchants with PoS’ section should be followed in order to ensure network problems and technical faults are addressed promptly • The fear of frauds would be resolved once the PoS Terminals are functioning properly because trust in the PoS system would have been built

23. Consumers/End-Users

24. Consumers/End-Users • Of the 1,587 consumers/end-users surveyed, • Current and savings account holders constituted 31.5% and 32.2% of responses from high-density (HD) areas • 34% and 34.5% from medium-density (MD) areas • 34.6% and 33.3% from low-density (LD) areas respectively • Card holders constitute 82.4% of total responses while 17.6% do not own cards • Despite the high ownership of cards, cash was still highlighted as the most used means of payment across the density areas (88.5% - HD, 93.9% -MD, 87.7% - LD) •  The reasons highlighted by the consumers for their continuous use of cash include • connection and network difficulties of the PoS Terminals • delay in transaction time • fear of fraud amongst others

25. Consumers/End-Users • We also identified the closeness of banks and ATMs’ to both merchants and consumers as a major inhibition to PoS Terminal adoption • Despite the inhibitors, the respondents indicated that they feel most comfortable using the PoS and card payment systems where available and secure. This explains comfort to use cards in supermarkets than in the open markets • Supermarkets (24.8%), malls (17.0%), general merchants’ stores (15.0%), pharmaceutical stores and hospitals (11.5%), others (17.8%) • 73% of consumers indicated they would encourage others to use the PoS and card payment systems based on their experience with the payment systems so far

26. Recommendations – Consumers/End-Users • Based on our findings above, our suggestions are as follows: • A massive awareness program to publicize the purpose and benefits of the PoS system (similar to that recommended for merchants without PoS) • Publicity through radio, bill boards, fliers, social media and TV adverts • Town storms and road shows are recommended to fast track end-users adoption • Ensure transparency in the PoS system process • All transaction costs and other issues associated with PoS Terminal usage should be made known to consumers during the publicity program • Necessary steps to ensure that the PoS Terminals are working as expected should be publicized to build trust

27. Recommendations – CONSUMERS/END-USERS • Carrying cash by consumers should be made less attractive through policy formulation • The cash withdrawal limit by individuals should be revised downward with more stringent charges for withdrawals above specified limits • The cash deposit limits for corporate account holders should be reduced and the penalty for large deposits should be increased

28. Conclusion • The potential for growth of the usage of PoS Terminal in Lagos metropolis remains strong. • With a population of over 16 million people, there are presently approximately 8 million card holders in Lagos State • Based on the aggregated data from the 6,776 survey sample, the study found out the following: Challenges / Perceived Obstacles to usage of PoS Terminals • Two out of the three categories of respondents (i.e. Merchants with PoS and Merchants without PoS Terminals) identify basically the same challenges and perceived obstacles to the smooth operation of the PoS Terminals

29. Conclusion • The obstacles in order of priority are as follows: • Connectivity and network challenges 24.5% • Transaction charges/charges to bank account 18.9% • Consumers/merchants insistence to pay cash 12.7% • Rejected transactions 11.8% • Card reading/technical difficulties 11.3% • Consumers/merchant lack of card/pos 10.1% • Access to after sales funds 6.6% • Others 4.3% • Poor awareness of the PoS payment systems and benefits • Long transaction time/late transaction notification

30. Conclusion • Challenges that deter consumers from making use of the pos terminals • According to priority, factors that inhibit consumers’ usage of the card payment system include: • Connection and network difficulties with the terminals • Non-Availability of PoS Terminals at merchants’ points/stores • Attributed to the poor rate of deployment as noticed by the Merchants with PoS • Merchants demand for cash • As a result of obstacles listed above

31. Conclusion • Long/delayed transaction time • Fear of fraud • Some consumers gave personal experiences on being debited twice • In some cases the terminals reject the transaction, however the consumer receives a debit alert some hours after the unsuccessful transaction

32. Next Steps

33. Next Steps • We suggest a follow-up integration survey in Lagos State most importantly in the areas not covered by this survey • This will help to further identify other cultural and fundamental barriers to the adoption of the PoS Terminals • Popularisation of NIBSS role as PoS Terminal certification agency and regular spot checks of PoS Terminals in use at merchant points • There is need for a pilot survey in other key cities where the Cash-less policy will be introduced before implementation • This will help to identify the necessary pre-implementation steps to be taken; identify the trend and compare results with the Lagos density areas • This will help underscore the model to be adopted for each of the new locations

34. Background & Methodology

35. Background and Methodology • The “Project NIBSS” entails a market survey of both merchants and end-users (cardholders) of PoS terminals in Lagos • Market survey conducted via administration of questionnaires in four categories of market areas across Lagos • Stratification of sample area (Lagos State) into • Lagos • Yaba • Ikeja • Badagry • Further stratification into high, medium and low density areas

36. Background and Methodology • Spot Check on enumerators during enumeration • By both FDC and NIBSS team • Project update presented during the course of the survey • Feedback from update incorporated

37. Scope of Survey

38. Scope of Survey • 7, 000 questionnaires were administered • 6776 were successfully filled and analysed • Covering merchants with PoS, merchants without PoS and end-users ( Card and Non-card holders)

39. Drawbacks • Drawbacks included • Several duplication of addresses of merchants with PoS • Incorrect addresses of merchants with PoS • Difficulty in meeting owners and managers where sales personnel's/other staff insist they cannot fill the questionnaires • Some questionnaires administered were not returned as a result of merchants insistence on enumerators picking them up later • Respondents fear of confidentiality • Angry respondents (basically as a result of their bad experiences with PoS terminal)

40. Survey Findings -Quantitative Merchants with PoS

41. Respondents Status in Relation to Business

42. Respondents Status in Relation to Business Responses from Survey shows • More business owners (45.43% - Yaba) responded to the questionnaires • 20.8% - Ikeja, 16.5% in Badagry and 11.6% in Lagos • 21.1% in Ikeja were by managers • 20.7% were by secretaries and personal assistants in Badagry • 40.5% were other staff and workers in the various outlets

43. Respondent Status in Relation to Business • A greater proportion of the respondents in Yaba (46.7%) and Ikeja (24.0%) are Owners • Majority of the respondents in Badagry (24.0%) and Lagos (61.7%) zones are Managers • Sales representatives were 30% in the Lagos area • Equal number (25%) of respondents from the Ikeja, Badagry and Lagos zones are Owners, Managers, Partners and Sales representatives • However, a majority (38.5%) of the respondents in the Yaba medium density area were Owners

44. Nature of Business

45. Most of the respondents in the Lagos (31.8%) and Yaba (43.9%) medium density areas were general merchants • In the Ikeja zone, 32.1% were owners of other kind of businesses • 20% of respondents in the Badagry area were general merchants, own restaurants, supermarkets, pharmaceutical stores and hairdressing salons each • 35.6% (the majority) of the respondents in the Yaba high density areas were General merchants (traders) • Most respondents in Lagos (37.7%) own supermarkets • In the Badagry and Ikeja zones 20.2% and 20% own restaurants.

46. 46.7% and 24.7% of respondents were general merchants and supermarkets respectively in the Yaba area • In the Ikeja zone,19.6% own barber shops/hairdressing salons • 35% of Lagos respondents were mostly owners of other kind of businesses

47. Nature of Business and Business Location

48. General merchant stores (18.1%), supermarkets (7.2%), and restaurants (5.7%) were located in the open market, shopping malls, and kiosks respectively. • However, a majority of pharmaceutical stores (3.4%) and hair dressing salons (2.4%) were located in neighborhood shops. • General merchant stores (14.4%) and pharmaceutical stores (2.6%) were located in the open market • Supermarkets (7.1%), restaurants (3.7%) and hair dressing salons (1.3%) were located in kiosks, shopping malls and neighborhood shops respectively.

49. Like other density areas, a majority (13.5%) of general merchants were located in open markets Supermarkets (6.1%) and pharmaceutical stores (3.1%) were located in shopping malls Majority of restaurants (4.1%) and hair dressing salons (2.4%) were located in neighborhood shops.

50. Nature of Business and Proximity to Banks and ATMs