Nigerian Banks, E-Commerce, and Useless Credit Cards

Introduction

The general exchange of goods and services on the internet is referred to as electronic commerce, or E-commerce. The medium of trade exchange between two or more trading parties on the internet involved in E-commerce is usually called electronic payment systems. 

Electronic payment systems are generally, online transactional cash substitutes used to facilitate the exchange of goods and services between buyer and seller.  The characteristics of this new form of payment substitutes systems are best captured in “Nest of Vipers” a banking thriller by Linda Davis. She says, "The money screamed across the wires, its provenance fading in a maze of electronic transfers, which shifted it, hid it, broke it up into manageable wads which would be withdrawn and redeposited elsewhere, obliterating the trail” [1][1]    Payment systems have evolved from cowry shells, to paper cash, and now to discrete algorithms of 0’s and 1’s .

Money On the Internet

In recent times, money truly has screamed across the wires.  The scale of business transactions resulting from online trading is unprecedented.  According to one article from the Associated Press, “Overall in 2005, U.K. shoppers spent 19.2 billion pounds ($33.79 billion) at online stores, 32 percent more than the previous year. On average, each of the 24 million people who shopped on the Internet in 2005 spent 816 pounds ($1,436) over the course of the year and 208 pounds ($366) in the run-up to Christmas” [2][2] In the USA, in 2005 “Online holiday shoppers forked over $30.1 billion in the weeks leading up to Christmas” according to an internetnews.com article by Erin Joyce. [3][3]  Along with the developed nations of the world, Nigeria stands to benefit from increased business activities from online transactions.

Nigeria Credit Cards and Cross-Border Trust Issues.

However, Nigeria faces serious obstacles to joining in the emerging E-commerce experience.   While most of the problems are related to technical and policy limitations, Nigeria also faces a peculiar set of online business trust issues. A high volume of fraud, in the form of “cyber-crimes” originates in Nigeria.

   The problems with establishing effective E-commerce systems in Nigeria include not only erratic power supplies, postal delivery services, and those general digital divide issues that we are most accustomed to. But, in the case of Nigeria, the following factors also contribute to the under development of meaningful E-Commerce:

A)     Nigerian internet traffic had become an ethical nuisance. A high percentage of the payload is e-mail solicitation fraud.  This has lead to countries around the world blacklisting Nigerian e-mail systems, and in some cases, blocking Nigerian IP traffic.

B) Online payment systems issued by Nigerian banks have a   reputation for questionable business ethics and are often rejected solely because of a perceived “potentiality” for fraud. According to an e-nigeria.net article, “Visa International, the world's leading electronic payment company has given Nigeria a clean bill of health, saying no incident of fraud has been recorded since it commenced issuance of cards in the country” [4][4]  Why then are Nigerian Credit Cards being rejected by the International community? 

In an inquiry to Godaddy.com, to know the reasons why Nigerian Credit Cards were being rejected, (business trust considerations) were sited as a primary factor.  Godaddy.com specifically stated that Nigerian credit cards were rejected due to a high rate of fraud.

 The letter from Godaddy.com is as follows:

Dear Sir/Madam,

Thank you for contacting Customer Support. I apologize for any confusion or inconvenience. Not all of the countries listed below are blocked because the US government has requested that we do not do business with them. Those are only the countries in the second half of the list. Countries in the top half of the list are typically blocked because of a high rate of fraud received from these countries.

We are currently unable to process transactions originating from the following countries:

Bulgaria

China (including Hong Kong)

Ghana

Indonesia

Macedonia

Malaysia

Nigeria

Pakistan

Singapore

Romania

Vietnam

In addition, the United States Government asks that we do not conduct business with these nations:

Cuba
Iran

Iraq

Libya

North Korea

Sudan

Syria

If your credit card is issued from an establishment located within one of these countries, or if you reside in one of these countries, you will not be able to complete a purchase from our website or access our network. We apologize for any inconvenience that this may cause.

Please let us know if you have any other questions.

Missing the Internet Gold Rush

Nigeria’s entry into E-Commerce was late, with the most significant development occurring in late 2004, when Visa International acquired a 13% stake in Value-card Nigeria. [5][5]  Along with other reforms in Nigeria, such as Banking consolidation, and growths in the telecommunication sector, the advent of electronic payment systems was a significant development. 

Effective electronic payments systems are critical to Nigeria’s overall development for a number of reasons;

A)     A high percentage of overall currency flow in the Nigerian economy consists of transactional flows that exist outside of the national banking system.  Nigerian small business and illiterate traders often do not use the banking system, but trade in an underground economy where most cash transactions are from person to person. Money is kept at home, “under the mattress”.  The introduction of a paperless form of cash, stands to benefit the banking industry by increasing the currency inflow into the capital base of Nigeria’s financial institutions.

B)     Many Nigerian cities have a high rate of violent crime.  Electronic payment systems alleviate the risks of carrying cash on the person.  

 C) Nigeria lags behind in E-Commerce.   The

   Introduction of credit card payments is a potential

   boost to bridging the “digital divide”.  Nigerians

now, have the potential to buy and sell online.

D) E-Commerce can provide an opportunity for Nigeria to

invest in non-oil related industries. It offers an

   avenue for sharing distinctly Nigerian goods and

  services, not related to oil, with the rest of the world.

Nigerian online payments systems despite a short history and no recorded case of fraud, are now being blacklisted on the Internet. Online businesses not only do not trust the integrity of Nigerian bank issued credit cards, they do not trust goods sold will be delivered. They do not trust that the Nigerian Customers will honestly acknowledge delivery of goods and services. 

Businesses such as Godaddy.com are not discriminatory they have simply decided to reduce operational risks by implementing internal control schemes that rejects credit cards from Nigeria. In some cases these controls also block Nigerian Internet traffic completely. These businesses feel it is more sensible to mitigate risk by not doing business with Nigeria. Unfortunately this decreases opportunities for Nigerian citizens to participate in global commerce.

What Nigeria Needs to Do

Unfortunately, the agency responsible for Nigerian cyber crime issues, the Nigerian Cybercrime Working Group (NCWG), does not have the resources to develop policies which will address these issues.  Although there are no reliable data sources to quantify the amount of lost business transactions resulting from Nigerian Payment Systems rejection, it appears that from the number of Nigerians complaining on the Internet at various online forums, the numbers might be considerable. 

The solution?  Nigeria needs to develop a system that offers payment system guarantees, one that insures the delivery of goods and services sold to a Nigerian credit card holder on the internet.  Nigerian financial institutions might find a solution to this dilemma in a system similar to “PayPal.”  A system like this has fraud prevention controls that enable Nigerians to buy and sell securely on the internet, and provides insured guarantees to online merchants that who have become skeptical of Nigerian issued plastics. 

[1][1] See, Nest of Vipers, a banking thriller  by Linda Davies

[2][2] See, http://news.yahoo.com/s/ap/20060120/ap_on_hi_te/britain_online_shopping

[3][3] See, http://www.internetnews.com/ec-news/article.php/3574226

[4][4] See, http://e-nigeria.net/page.php?hash=9bf9c7b89bc87532ed69fbbd5e8035c1&id=377

[5][5] See, http://www.ftpartners.com/pdf/M&A%2011.17.04%20VISA%20ValuCard%20Nigeria.pdf