From 3-day wait to per second transaction: How bank transfers work?

In early 1995, Bisi Abidoye attended the Sunday service of a church in Abuja for the first time. The officiating minister asked the first-timers to stand up for recognition and then ushered them to new seats at the front. Alas! When he returned to his original seat at the end of the service, he discovered that his bag was missing.

“I think the thief was attracted to the bag itself. It was a beautiful bag I bought during a trip to South Africa,” Mr Abidoye recounted the event more than 30 years later.

While members of the church were stunned by the audacity of the theft in the house of God, Mr Abidoye had something different to worry about. Inside the stolen bag was a ₦840,000 bank draft drawn in the name of an estate agent for a property his company had agreed to lease. Mr Abidoye, a senior journalist, had travelled to the company’s headquarters in Ibadan, Oyo State, to collect the bank draft and was scheduled to conclude the transaction with the agent the following Monday.

After all efforts at the church to trace the bag failed, Mr Abidoye rushed off to his office to call his headquarters so they could alert the issuing bank’s branch in Ibadan the next day to flag the draft and prevent it from being cashed at any of its branches.

The bank took three months to reissue the draft, during which it held on to the ₦840,000.

“When you compare the banking system now, you marvel at the progress that has been made. No one needs to travel to cash a cheque or a bank draft anymore. You can transfer millions on your phone from your bedroom, and the beneficiary receives it instantly. That would have sounded like fiction to anyone in 1995,” Mr Abidoye said during an interview in his office.

The journalist’s experience highlights what people endured in the past. Money transfers used to be a Herculean task, and there are countless stories similar to his.

The journey so far

Have you ever wondered how you can send money from one account to another in a separate bank within seconds?

In 2024 alone, over 12 billion instant money transfers were completed in Nigeria—the highest volume on the African continent.

To put this in context, banks, fintech companies, mobile money operators, and others process over 12 billion instant transfers, with most transactions completed in seconds.

But it was not always this way. Years ago in Nigeria, such transactions would have taken days for the recipient to receive the money.

How did Nigeria’s banking system move from a “two-to-three-day” transfer process to the current system of instant transfers within seconds? The answer lies in the NIBSS Instant Payment (NIP) system, a payment service used by banks and other financial institutions.

What is NIBSS?

The Nigeria Inter-Bank Settlement System Plc (NIBSS) was incorporated in 1993, and owned by all licensed banks, including the Central Bank of Nigeria (CBN). It commenced operations in June 1994. The Bankers’ Committee needed a settlement house to centralise payment and settlement activities among banks and other financial institutions.

When NIBSS started, it managed cheque payments and bank settlements manually.

In 2011, NIBSS launched the NIBSS Instant Payments (NIP), a digital clearing system that operates in real time. NIP is an account-based, online, real-time Electronic Funds Transfer (EFT) platform that enables financial institutions to provide instant fund transfer services to their customers through electronic channels.

Before then, several events in the banking sector facilitated the creation and adoption of NIP. After the 2005 bank recapitalisation, the CBN appointed NIBSS as the National Central Switch (NCS), with the mandate to link all CBN-licensed banks, switches, and mobile money operators in Nigeria.

A major event also occurred in the banking sector in 2010 when the CBN made it mandatory for banks to use a uniform account number system.

In August 2010, the CBN introduced the Nigeria Uniform Bank Account Number (NUBAN) scheme, a 10-digit account numbering system. Many of these reforms laid the foundation for introducing the NIP system.

To understand NIP, it is important to examine how money transfers worked before its introduction.

Money transfers before NIP

In the past, to transfer money from Bank A to Bank B, a customer had to physically visit a bank to fill out forms. When the transfer was executed, the money did not move automatically.

To reconcile the transaction, the sending and receiving banks had to physically go to the NIBSS, which served as the clearing house.

Clearing is the process of sending, reconciling, and confirming payment requests, while settlement is the process of making the funds available to the recipient.

Essentially, banks had to settle payments manually on their ledgers.

“That process used to take a day or two. When you initiated a transfer, the sender’s account would be debited, but the beneficiary wouldn’t get the money immediately. The transaction would only be completed once the banks had settled at the NIBSS,” said Hakeem Abdulkareem, a tech expert who spoke to PREMIUM TIMES.

“At a point, the NIBSS had to create two settlement sessions—morning and afternoon. So customers had to time their transfers carefully to ensure they were processed within the designated session.”

Over time, efforts were made to digitise the process. The CBN introduced the Central Inter-Bank Funds Transfer Service (CIFTS) and the Real-Time Gross Settlement System (RTGS). However, these platforms were expensive and catered to only a select few.

The NIBSS Electronic Fund Transfer (NEFT) was introduced in 2004, but a transaction took about 24 hours to complete.

Everything changed with the introduction of NIP in 2011. This platform serves as a digital clearinghouse that enables banks to transfer money across institutions in real time, completing transactions in less than a minute.

The platform is not just a digital clearing house but a technology platform on which most banks now build their mobile apps.

When a bank transfer is initiated through NIP, the request is sent instantly to the recipient’s bank, and funds become available almost immediately. It performs the traditional clearing and settlement functions within seconds.

Here’s how it works: When a transfer of ₦1,000 is initiated from Bank A, the bank sends a signal to the NIP platform, providing details such as the amount, the beneficiary’s account, and the receiving bank.

The NIP platform, which hosts a digital ledger for all banks, records the transaction as a debit for Bank A and a credit for Bank B. Once this is noted, Bank B receives the notification and instantly credits the beneficiary’s account. The process typically takes less than a minute, with clearing and settlement completed later. It is not as if money is physically transported between banks in bullion vans.

This transaction is similar to the old method, except that it is conducted in real-time at a much faster pace. It also serves as a trusted platform.

According to a report by AfricaNenda in 2022, NIBSS operates a central processing hub—the Nigerian Central Switch—which connects directly to all commercial banks, microfinance banks, and mobile money operators (MMOs) in Nigeria. Direct participants consist of banks, while indirect participants include microfinance banks (MFBs), mobile network operators (MNOs), and super agents.

Transactions are settled in batches on a deferred net basis four times per day via the NIBSS platform.

Here comes the Moniepoint, OPay, and Others

While commercial banks have significantly improved the instant payment system, fintech companies have also developed solutions that have made transfers even faster.

On many fintech platforms, beneficiaries receive transfers within seconds, even when transactions involve multiple parties.

Across Nigeria, even market traders now accept transfers, a trend that gained momentum during the Naira scarcity of 2022/2023, when businesses needed instant payment solutions without delays. Several fintech firms provided alternatives faster than most commercial banks.

As stated earlier, fintech companies operating as Payment Service Banks (PSBs) also have access to NIP but often prefer to use Application Programming Interfaces (APIs)—software that enables seamless real-time transactions between financial institutions.

The API used by PSB also belongs to the NIBSS. Here is how it works: most PSBs have accounts in all commercial banks and other PSBs.

When a customer transfers money from Bank A to Bank B, the funds do not physically move between banks. Instead, Payment Service Banks (PSBs) are crucial in the process.

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Since PSBs already hold accounts in all commercial banks, the transaction is handled internally through an API. When the transfer is initiated, the sender’s account in Bank A is debited, and the corresponding amount is credited to the PSB’s account within the same bank. The API then instructs Bank B to credit the beneficiary from the PSB’s account in that bank.

This process occurs within seconds. Because the funds remain within the same banking system rather than moving between banks, there is no need for traditional clearing and settlement.

The PSBs are registered with the CBN, and section 6.6 of the PSB guidelines mandates a ₦5 billion minimum deposit to guarantee operations.

With these innovations, money transfers in Nigeria have been transformed. Had Mr Abidoye’s incident occurred in 2025, multiple trips to the bank would have been unnecessary—one instant transfer would have solved the problem.