Adoption Of The National Financial Switch (NFS) in Zambia

Brief History

We all have come to benefit from the transfer of money between Mobile Network Operators (MNOs for short), or from an MNO to a bank and vice versa, within the comfort of our convenience.
 From transferring huge sums of money for a business transaction while paying for a service or goods, or paying household bills, to sending money to a distant relative all in the comfort of your home, without the fear of being attacked because you are carrying money in cash that you need to send to someone far away or having to pay for something. This has all been done with the help of research and technology implementations to help make day-to-day transactions much more efficient, secure, and easy to make.

However, this was not always the case. Different financial service providers all owned their own payment systems to cater to their customer base or they were connected to another payment switching arrangement that allowed them to cater to customers that belonged to other banks belonging to that particular payment switch. All this worked great if the customers all belonged to that institution and had such an arrangement. The issue came in when catering to some customers of some financial institutions that did not belong to a particular payment switch, these customers were excluded from enjoying such facilities. Additionally, similar limitations would also force some customers to open several accounts in order to meet these financial obligations or travel distances to transact where particular devices were deployed whenever they needed to pay for goods or services using electronic payment channels such as debit or credit cards. This state of affairs forced many customers to have several electronic cards in order to make each financial settlement they needed to make, which is truly inconveniencing, for instance, what happens if you need to make an urgent transaction, you have traveled a great distance to find an institution to service you, and then you realize that you carried the wrong card with you?

While all these services were great individually and helped improve the retail payment system arena by the provision of electronic financial services through ATMs, mobile banking, internet banking services by individual banks as well as other non-bank financial institutions, etc., these efforts, had a minimal impact on increasing financial inclusion in Zambia. Hence, cash remained the predominant medium of exchange among transacting parties, irrespective of the associated risks and the cost to the country’s economy.

This led to the birth of the National Financial Switch Project in 2013 by the Zambia Electronic Clearing House (ZECHL) in conjunction with the Bank of Zambia (BoZ) and the Bankers Association of Zambia (BAZ). The Bank of Zambia is mandated under the National Payment Systems Act (NPSA) No. 1 of 2007 to regulate and oversee the National Payment Systems in Zambia. This aims to ensure the safety and efficiency of payment systems in the country.

What Is The National Financial Switch?

The National Financial Switch is a shared payment systems infrastructure that interconnects various payment streams ranging from Auto Teller Machines (ATMs for short) to Point of Sale Systems (PoS) to mobile money payments. It is a payment gateway that facilitates efficient payment processing and interoperability between the service offering of commercial banks, non-bank financial organizations, and various other payment institutions within Zambia.

The switch went live on 23 September 2018 processing ATM transactions and about a year later, on 30 September 2019 went live on PoS processing.
The goal of the National Switch is to open up and integrate regional payment systems within SADC, COMESA, and beyond, to support cross-border trading systems.

How has its adoption and usage been so far?

According to the World Payments Report for 2017, there is an emergence of a new payments ecosystem driven by a number of factors arising from both the supply and demand side. These factors include the dynamic regulatory landscape, changing corporate and customer expectations for value-added products and services, and an increase in payments-enabling technologies (Fintechs) as some of the forces responsible for the noted changes. The report predicted that global digital payments volumes would increase by an average of 10.9% through to 2020, reaching nearly 726 billion transactions while the growth rate in emerging economies was projected to grow at 19.6%.

With these statistics, it is evident that the implementation of the National Payment Switch was imperative as it aligns with the mandate of the Bank of Zambia to regulate and oversee the National Payment Systems that are used in the country, with the aim of ensuring safety and efficiency of payment systems in the country.

This has seen the provision and accessibility of financial transactions with many conveniences and financial inclusion. This can be seen by the number of users who have adopted some of the convenient electronic payment systems such as mobile money payments, as well as internet banking services.

According to the National Payment Systems in Zambia 2021 report by the Bank of Zambia, there has been notable growth in the Payments Systems industry in Zambia, this was attributed mainly to the increase in the uptake of digital financial services and integrations to the National Financial Switch (NFS) and initiatives that contributed to the financial inclusion during the year. Some of the initiatives launched included new products by service providers which aimed at addressing emerging customer needs.

What are the challenges?

Despite the tremendous headway made in the adoption and improvement of the National Payment Switch as well as the launch of payment systems by various service providers, this technological and economical benefit has been met with advancing new fraud threats and attacks which have increasing sophistication based on social engineering techniques targeting not only electronic-wallet (e-wallet) holders, but also the service providers. The Bank of Zambia closely monitored these cyber threats and put in place strategies to address the various attacks as well as oversee several interventions to directly engage, support, and guide the relevant providers and market participants.

In accordance with its mandate of ensuring a safe and efficient national payment system, the Bank of Zambia continued to review various regulations, laws, and policies to facilitate other developments relating to payment systems. Some of the developments undertaken included:

• • Increase in the use of Digital Financial Services and Financial Inclusion, which saw an increase in the number of mobile money users and transactions.
  • Increase in the adoption of the National Financial Switch (NFS), which saw an increase in the volume of transactions processed through the NFS by 110.5% to 25 million transactions from 12 million in 2020.
  • COVID-19 Policy response, which advocated for the usage of Digital Financial Services to reduce person-to-person contact as was instructed to reduce the spread of COVID-19, to decongest banks as well as to reduce the usage of cash in the economy.

What then Can be Done to Help Alleviate The Challenges Faced?

The challenges may be numerous, but solving them begins with a single and eventually incrementing the steps.

Some of the ways to help solve the challenges, especially on the issue of cyber threats and attacks of fraud include:

• • Each user of some of the payment systems’ services must take a keen interest in how best they can safeguard their information while they use some of these services.
  • Learning how to best identify possible fraudulent financial schemes and reporting them to the relevant authorities.
  • Being open to change and participating in the Go Cashless campaign by the Bank of Zambia in order to move to the usage of the National Financial Switch and hence benefit highly from it in the long run.

To read more on the National Financial Switch see the links below:
https://www.boz.zm/payment-systems-rules.htm
https://www.zechl.co.zm/national-financial-switch/
https://www.boz.zm/2021NPSAnnualReport.pdf
https://boz.zm/NPS_Annual_Report_2017.pdf