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‘Local content policy needed to save $300m spent yearly on importing smart cards’

By Femi Adekoya
23 May 2021   |   4:12 am
Electronic Payplus is a smart card and payment solution provider. The company was incorporated in December, 2004, but we actually started operations in May 2005 as a payment service provider.


Bayo Adeokun is the Chief Executive Officer of Electronic Payplus Limited, an electronic payment and card-based solutions provider that has backwardly integrated its operations to address importation of such solutions in the country. In this interview with FEMI ADEKOYA, he talks about the need for a government policy with focus on local content, especially in the production of smart cards, sim cards and even the international passport.

How did Electronic Payplus move from point-of-sales supplier to local manufacturer of payment and smart cards?
Electronic Payplus is a smart card and payment solution provider. The company was incorporated in December, 2004, but we actually started operations in May 2005 as a payment service provider. We got licensed by Interswitch to supply and maintain POS machines, deploy POS to merchant locations on behalf of the banks and we did that for about three years. We were the first company to deploy ATMs all over the malls, but we were not seeing enough transactions to meet our overheads. We decided to change our business focus and that was why we went into card manufacturing.

The thinking then was that these were the same set of customers that we are deploying POS machines on their behalf to merchant locations; so, selling cards to them should not be difficult. When the Central Bank of Nigeria (CBN) came up with a pronouncement that we should migrate to chip and pin, we felt that this was a good opportunity for us to invest in the business because it requires a high level of technology and financial investment prior to the magnetic stripe. We actually invested in the card production business in 2008 and we were the first to be certified by Verve in Nigeria, so we got Verve certification and then we started supplying the cards. We got other payment certifications that aided growth.

With the recession in 2015 and forex scarcity, it became difficult to import our materials, so we sat back together with our consultants to find out how we can navigate around this CBN policy and how we can ensure sustainability of the company. This led to the partial backward integration exercise and like I keep saying, it involves a huge financial investment which we did not have then, so we decided to take it step by step. We started with what we call milling and embedding which means that we will bring in knock down parts of the cards, the chip and plastic because what the Federal Government did was that they increased tariff on smart cards from 5 per cent to 65 per cent, so no Forex and tariff as well and by the time we brought in our products, we could not compete. If you bring in plastic only, which is about 20 percent of the value of a card, you will pay 65 per cent, but if you bring in the chip, you pay only 10 per cent duty meanwhile, that is about 80 per cent of the value of the card, but if you bring in complete, you will pay 65 per cent, so we did the arithmetic together with our consultants so we felt it made sense to invest this amount, so we invested in our first set of machine for milling and embedding and each of these machines were about N200 million each.

With the economic challenges and inability to compete, we started planning to go into full local production and by 2018, we started the process. By 2019, four years after we started milling and embedding, we made all the investment and ordered all the necessary equipment with a view to go live in June 2020 when we would have been 15 years, but because of the pandemic, alongside its challenges, manufacturers could not complete the machines, no international trade, so the machines that were supposed to arrive first quarter of 2020 could not come. There were a lot of issues until finally, they arrived in November 2020. Having installed all the machines, we obtained necessary certifications to commence full local manufacturing.

Our capacity includes the production of all kinds of smart cards. We can do the bank cards, sim cards, identity cards and even residency cards. We can produce any security item because we can put security features on all the cards and that is the advantage of the digital printer that we procured. There is an immigration card for the diplomatic corps that they still do today from a company in Belgium. We can easily take over that kind of service because we have the capacity to do them. Any smart card whatsoever you can think of we can produce from this facility today. We invested over $2 million and so that has been the story of electronic pay plus and like I said at this juncture, we now need to showcase ourselves because we will be 16 years by the end of May and so this is just a prelude to the celebration of the 16 years of Electronic Pay Plus in Nigeria

What is the annual cost of imports?
If you look at Nigeria today, our budget estimate for banking cards only in Nigeria is about 35 million units per annum and on average, each of that would typically cost about $36 million if produced abroad at the present exchange rate. With our investment, we can save at the least 50 per cent of this for the government and the industry, because we still have to import the sheets since they are not available locally as well as the module.

The savings of $18 million is on banking cards only and I have not done the cost of other cards that we have the competitive advantage of producing. By the time we put everything together, we will be talking about saving $300 million for the country yearly at a time when remittances from abroad are going down and crude oil prices are unstable. The federal government needs to make lots of savings in terms of foreign reserves and this is a way to do this apart from employment that we are also going to be generating. Before now, we had about a 100 staff, but we are presently up to 150, so we are also generating employment and if you look at the nature of Nigeria, those additional 50 staff, each of them probably has a dependent of maybe 10 persons at the minimum, so we are talking about an additional 500 or so that we are catering for.

How can the issue of imports be addressed?
The Federal Government needs to begin to look inwards. They need to unveil a local content policy around the smart cards business and digital payment and products. There is no reason why Telcos import sim cards into the country. This is the same as the importation of banking cards, even though they pay the duty on such. There is a lot of smuggling of such products into the country. The country has the local capacity for such production. The ECOWAS card can equally be produced locally, same as the voter’s card. It is key to enforce local content laws in the industry in order to save scarce foreign exchange and protect sensitive data from foreign countries.

How much raw material sourcing do you do locally?
Most of the raw materials are still being imported; majority of them and that is another area the government needs to look at. The major materials such as the Polyvinyl Chloride plastics are imported even though they are by-products of the petrochemical industry. We do not want to be jack of all trades and we cannot begin to produce all of that as well. If we have people producing this locally, we will buy from them and maybe in the future we can decide to go into it and we will be able to serve both ourselves and other people using this raw material.

Are you also looking at card businesses from the government beyond the banking industry?
Definitely like I said, the country can produce its own smart card. The purpose is to extend this solution to every sector of the economy. We have done it before with the National Identity cards. We are presently working with the Lagos State government because they want to roll out what is called the residency card that is also going to be a payment card. We are currently talking to the Telcos on the possibility of supplying their sim cards as well. We are also looking at beyond Nigeria because we have customers all over Africa.

What will you say is your capacity utilisation and what are the limitations from attaining full capacity?
Today, our facility is designed to produce 60 million units of smart and payment cards. With a yearly demand of 35 million cards in Nigeria, we were doing an average of 10 million cards per annum due to challenges in the supply chain. With the new installation, we think that we would be able to take a minimum of 50 per cent of the banking cards in Nigeria within the next one year which is about 17.5 million and we will then extend beyond the present customers that we have abroad. In other African countries prior to this year, we are doing about an average of 2 million cards so if you add that to our 10 million here locally, that is about 12 million and if we maintain that, that will be less than 25 per cent capacity of what we have installed. But like I said, the idea is to improve turnaround that we can offer today, because today, if you give me an order of 1 million, we can deliver it to you within a week. I can even deliver 250,000 per day to you, so we believe that will be a game changer for us and therefore, we would be able to scale up our capacity utilization as well as market share as quickly as possible. Our target is to ensure that by 2023, we should be doing 90 per cent of our capacity.

What are your projections for market expansion in the coming years?
Again, like I said we are also a digital payment solution provider, we do electronic ticketing as well. We do transport and all of that. There is a view that the rate of increase in smart cards will probably be going down because a lot of digital solutions are coming into the market. However, we strongly believe that the impact is not going to be much over the next couple of years because when you look at our environment, the number of people with access to smartphones remains low. It was difficult selling cards to Nigerians not to talk of telling them to leave their cards to go to phones to access their money, so we believe that cards will still be here and the value in the market will still continue to grow albeit in a smaller dimension and that is why we limited our capacity to 60 million for now, but the beauty of it is that we can easily quickly scale if necessary because all we need to do is bring additional machines and slot it in and you have an increased capacity, so it is very easy for us to increase capacity if necessary.

Access to electricity is a challenge for many businesses. What is the cost of powering this plant on a yearlyl basis?
Every Nigerian is a government of his own because we all generate our electricity, water, and we even construct our roads. Unfortunately, that is the environment where we operate. We spend a lot on power generation and on average last financial year, we spent about N50 million on diesel and that could have been a profit for the company and our estimate for this year shows that the cost would increase this year to about N75 million because of the additional equipment that we have brought in.

There are so many intervention funds from the government establishment. How much of these funds have you been able to access to fund your operations?
We have actually accessed a lot of funds from the Bank of Industry (BOI) and they have been very supportive and they have supported us over the last 10 to 15 years. There is no time we require funding that the bank is not there for us.

What is your projection for the company in the next five years? Are you exploring any form of business combination or listing on the Nigerian Exchange?
This is a decision by my board and shareholders. However, every five years we do a review of our activity and we come up with a new set of sustainable plans for development and for instance, the current one we are running is in two parts. One part is to complete what we have just finished while the other is to diversify our revenue base. Presently, today, 95 per cent of our revenue comes from smart cards and by the way that plan will end next year and the plan is that by 2022, 50 per cent of our revenue should be coming from smart cards and 50 per cent from digital products and that was why we changed our vision to say that we are a smart card and payment solution provider. We have not done very well in that regard; however, we believe that we might not meet the 2020 target but before 2023, we will be 50 per cent digital and 50 per cent smart card. It depends on what the future holds.

We might at some point if we are not able to sustain this, we might go to the stock exchange to enlist the company. Already, we are being approached by foreign investors who want to buy into the company so we might decide to sell off to them at some point or the other, but that is a decision that has to be taken by my shareholders not myself.