All You Need to Know About NIBSS Instant Payment (NIP)

Instant digital payment networks are a bedrock of survival and economic activities worldwide. In Nigeria, a majority of these networks are powered by NIBSS Instant Payments (NIP), a payment service used by banks and other financial institutions to power real-time bank transfers for users.

In 1993, the Nigerian Bankers Committee incorporated NIBSS, and the agency was charged with centralizing payment and settlement activities among banks and other financial institutions. This involved a manual and time-consuming process of clearing cheque payments and the settlement of positions between banks. Banking transactions have become more efficient, secure, and straightforward thanks to the structure of payment processing services like the Nigerian Interbank Settlement System (NIBSS).

NIP processed N387 trillion naira in 2022 - being the largest instant payment service in Africa. There’s a very high chance that when you transfer money from your bank to another bank, NIP is responsible for processing that transaction. Beyond the sheer volumes that NIP processes, it has also been critical to the growth of financial innovation in Nigeria.

How does NIP work?

Digital payment involves a sequence of messages sent securely and electronically via trusted agents, and execute a change in the financial records of two or more parties. A bank transfer is more like a simple text message between banks and less about the movement of actual cash.

If payments are messages, NIP is a central messaging platform that banks and other financial institutions use to send payments and execute instructions to each other for a fee. Once a bank transfer is initiated by a user, it has to be cleared and then settled irrespective of the payment system. Clearing is the process of sending, reconciling, and confirming payment requests, while settlement is the process of making the funds available to the recipient.

In a typical non-instant payment system, the clearing process does not happen in real-time. Rather, payment instructions are accumulated in batches and cleared at set periods before settlement. The system also requires the interbank settlement to occur before funds are made available to the recipient. This means that the bank waits to receive the money before it is made available to the recipient. As a result of this, bank transfers through these systems take hours or even days to be processed and made available to the recipient.

Impact of NIBSS on Nigeria’s online payment space

Before NIP, Nigeria relied on various methods like cash, checks, and wire transfers for payments, making tracking and security difficult. It’s way less secure for people to move with large amounts of cash than it is for them to have the amount in their accounts. However, in spite of this insecurity, people buying and selling in the country preferred cash as transactions were settled immediately, and they didn’t have to wait for the other party to receive a transfer. This is where the NIP came in.

With the NIP, we got the security of not having to walk around with cash, alongside increased transaction speed as it took settlement time to almost zero. The ability of NIP to reliably send and receive money instantly from any bank account at any time has had a significant impact on consumers, businesses, and the Nigerian financial system.

For the bulk of Nigerians with low and irregular sources of income, having quick access to funds after providing a service or selling products is critical, as they depend on those funds to survive and can't wait for days. In terms of health emergencies also, the instant nature of NIP payments can be the difference between life and death.

The instant nature of NIP payments also reduces the amount of capital needed for business operations. Businesses no longer have to rely on or use up their cash reserves or take debts to facilitate operations as they can receive revenue instantaneously from customers. This instant availability of funds flows into existing supply chains, increasing the speed and expanding the reach of commercial activities in the economy.

Guaranteed instant payments help more users trust digital financial services, which leads to greater adoption and a drastic reduction in cash reliance, further saving the government money spent on printing and transporting more cash. The NIP trends in the last five years show a steady decrease in the average value of an NIP bank transfer, even as volume and value are increasing significantly. In July, it was announced that transaction fees for NIP processing would be slashed by about 30% as banks in the country complained about the fees.

A system of instant payment also enables banks and fintechs to build more innovative financial products for their customers as most financial services available today are hinged on speed. Fintechs in the country, regardless of niche, incorporate disbursements into their core offerings, and the promise of instant payouts makes the value proposition of said offerings a lot more attractive to prospective customers.

When compared to traditional banks, digital-only banks charge lower fees, have fewer limitations, and offer more features. All of this is possible when banks are connected to a payment processing service like NIBSS to help facilitate banking transactions.

Woodcore can help you integrate your business into NIBSS within 1-3 Weeks to gain access to banking services, including initiating transfers, receiving money, appearing on bank lists, and experiencing faster transaction settlements.