“Card or transfer?” is a question most Nigerians are now familiar with when making payments, however, that question would have been odd five years ago, when cash was the dominant means of payment.
To be fair, cash is still dominant, but the “cash is king” narrative is gradually fading as digital payments are growing fast.
In just one year, from 2022 to 2023 electronic payments went from ₦387 trillion to ₦600 trillion, a 55% increase in 12 months. There are already indications that the figures for 2024 could even be greater as digital transactions in Q1 are already at ₦234 trillion, 89% greater than the ₦123.9 trillion from Q1 2023.
This massive growth in digital payments indicates that Nigeria needs a robust, safe, scalable, and interoperable payment infrastructure.
The state of digital payments infrastructure in Nigeria
Given that Nigeria’s digital payment infrastructure has enabled the growth of digital payments in the country it will not be out of place to say it has been relatively reliable.
Some of the major milestones for digital payments are
- The installation of the Automated Teller Machine (ATM) by the Societe Generale Bank of Nigeria in 1989, known as Heritage Bank today.
- The formation and registration of Nigeria Inter-Bank Settlement System (NIBSS) in 1993.
- The emergence of fintechs like Interswitch (2002) Paga (2009) and Remita by SystemSpecs (2005).
These milestones are imperative to where digital payments are right now in Nigeria.
For example, when NIBSS Instant Payments (NIP) was launched in 2011 to allow for real-time interbank transfers, developed countries like the US did not have a broadly adopted real-time payment system.
Some semblance of real-time payment came to the US with the launch of the RTP network by The Clearing House in 2017 and the subsequent development of the FedNow Service by the Federal Reserve, which is expected to be fully operational in 2023-2024.
It is also important to note the role of policies such as the Cashless Policy of 2012 by the Central Bank of Nigeria (CBN) which aimed to reduce the use of cash, and the National Financial Inclusion Strategy (NFIS).
The CBN also mandated mobile money operators and Payment Service Banks (PSBs) to operate in rural areas to increase financial inclusion. This was particularly important for card payments in Nigeria as it saw the penetration of some neobanks such as OPay in rural areas.
Digital payments still have their problems
While we’ve seen digital payments grow significantly, the payment infrastructure still needs improvement in four key areas.
- Scalability and capacity to handle increasing transaction volumes.
- Security measures and fraud prevention mechanisms
- Regulatory compliance and industry standards.
- Interoperability and integration of payment systems
For the most part, Nigeria’s payment infrastructure has proven to be up to the task when handling increasing payment volumes.
These volumes have not been a problem for fintechs like OPay, Moniepoint and PalmPay which push the boundaries regarding transaction speed, especially with PoS payments. This feat has granted these institutions market share when it comes to PoS payments.
Their influx into the market also coincided with a remarkable growth in card payments. In 2023 card payments was ₦10.73 trillion compared to ₦8.39 trillion recorded in 2022.
However, payment volumes are bound to increase, because while the narrative is changing, “cash is still king.” And when digital payments dethrone cash, our payment infrastructure might face scalability issues.
In April 2023 some of these issues surfaced in the form of 40% unresolved chargebacks from electronic payments. These problems also manifest in the form of fraud which hasbeen a thorn in the flesh of major financial players in Nigeria.
Fraud attacks are all too common
Flutterwave, one of Nigeria’s biggest payment companies suffered a ₦2.9 billion hack in 2023, and ₦11 billion in 2024. Similarly, Interswitch also lost ₦30 billion to chargeback fraud in 2023.
These fraud and hack cases stem from the fourth component of a robust payment infrastructure which is; interoperability and integration.
This simply means financial institutions can’t work with each other seamlessly, it is important to remove the bottlenecks that hinder communication which will (in turn) strengthen fraud prevention mechanisms.
Zone, a payment infrastructure provider is working to aid this seamless connection between institutions with its blockchain solution that eliminates middlemen and helps banks and other financial institutions interact directly on its network.
This network has already signed up the majority of commercial banks including four of the FIve big ones and it also launched a PoS payment gateway that will eliminate chargeback fraud thanks to the fact that all the parties within a transaction are aware of the state of the transactions on both ends.
Interestingly, Zone’s innovative infrastructure is just as compliant as existing solutions, making it possible for institutions to implement the new payment technology without needing regulatory approvals.
Although Zone’s payment infrastructure is innovative, it is too early to tell if it’ll be the next powerhouse for payment in Nigeria.
But with the rate at which digital payment is growing in Nigeria, one thing is undebatable — the need for robust and scalable payment infrastructure.