Bridging The Payment System Gap

By Kelvin Gilbert

The cashless policy of the Central Bank of Nigeria (CBN), when introduced, was heralded as capable of giving a boost to the desire to ease business activities in the country especially with relation to payment for goods and services.

The policy, a novelty when it was introduced, was designed as a means of encouraging the use of electronic modules in banking and other financial transactions as well as services with particular reference to the informal sector, some component of which is, even now, underbanked. Without doubt, the policy was seen as a welcome development that has helped enhance payment for transactions that otherwise would have required the deployment of huge cash with all the attendant inconveniences and risks.

With all the inherent positives, still there existed room for expansion in the system to ensure a thriving and competitive payments landscape in Nigeria. It is to fill this gap that, in addition to already existing payment systems, the Governor of Central Bank of Nigeria (CBN), Mr Godwin Emefiele, acting in collaboration with Nigeria Inter Bank Settlement Systems (NIBSS) Plc, introduced National Domestic Card scheme, Afrigopay. Experts rightly posit that the aim of this scheme is to conserve the nation’s foreign reserves.  With it, the nation’s financial system will only pay dollars for charges on transactions that are done with domestic or foreign cards outside Nigeria.

Without doubt, the national domestic card scheme is a momentous development for a number of reasons, not in the least, the data sovereignty it confers as well as cost savings for the industry. Primarily, the promoters of the payment system and, in particular, the CBN stress that its introduction and effective implementation will herald new vistas of opportunities for the card business that several countries continue to recognize and leverage as they create their own domestic card schemes to augment existing foreign payment card instruments.

The CBN chief is certain that the payment system has the potentials to be an important platform for further innovation to solve some of the most pressing issues around financial inclusion, Small and Medium Enterprises (SMEs) payments and trade facilitation. From this perspective, the system will also support the drive for a robust digital economy for the Nigerian market, the African continent and the world.

Attained through a robust industry engagement and collaboration, the Nigerian Banking Community has, through it, risen to the challenge of further strengthening the national payments system through the implementation of a Domestic Card Scheme.

It is important to point out that while the penetration of card payments in Nigeria has grown tremendously over the years, many Nigerians are still excluded based on some challenges that have limited their inclusion in the financial system. These inhibitions have remained for a long time and they include the high cost of card services as a result of foreign exchange requirements of international card schemes and the fact that existing card products do not address local peculiarities of the Nigerian market.

Similarly, given the limited usage of cards by Nigerians and in a bid to deepen penetration, the CBN  in the pursuit of its monetary policy role in the economy is audaciously promoting the National domestic card scheme which will be accessible to all Nigerians and also address other local peculiarities. This particular scheme, Emefiele stressed is, therefore, expected to be an important plug in the gap that has remained yawning since the cash-less policy was introduced.

It is important to recognize and commend the forward-looking propensities of the CBN governor especially his commitment to designing policies that accord with international best practices. The establishment of national domestic card schemes, without doubt, is in line with global trends for which posterity will owe him some gratitude.

The CBN, on his watch, through this policy initiative has registered Nigeria in the international club of card schemes. Nigeria is, therefore, joining countries like China, Russia, Turkey and India that have launched domestic card schemes and harnessed the transformative benefits for their respective payments and financial systems, particularly for the underbanked.

This effort, it is pertinent to emphasise, is not a quest to prevent international service providers from continuing to provide services in Nigeria. Rather, it is aimed at providing more options for domestic consumers while at the same time promoting the delivery of services in a more innovative, cost effective and competitive manner.

It is an established fact that the Nigerian market is vast, and the current participants have done so much in the last 12 years to transform the ecosystem. Yet, there is much ground to be covered as millions of Nigerians are without payment cards to consummate transactions.

In the thinking of the CBN and the other promoters of this scheme, it will be unfair to continue to neglect the vast majority of Nigerians whose daily payments needs are micro in nature. To that extent, there is an imperative need to capture them in national statistics to further understand their transaction dynamics and properly target interventions in that sector of the economy.

The National Domestic Card Scheme is an idea which time has come. Analysts are hopeful that it will provide opportunities for the economy to integrate the informal segment of the economy, reduce shadow banking, bring more Nigerians into the formal financial services net with attendant diversification of deposit portfolio which will further strengthen the stability of the banking industry.

Like every Emefiele policy, this, too, will prove to be a game-changer that will touch on all the sectors of the economy in a positive way.

Gilbert, an economist, wrote from Lagos