Dynamics of Nigeria’s Payment Ecosystem

The report on Nigeria’s Payment Outlook 2024, which projected a steady rise in Mobile Apps, PoS and Online financial transactions in the Nigerian payment ecosystem, is an indication of a positive trend in the growth of financial inclusion in Nigeria, just as the report highlights the intrinsic dynamics of the Nigerian payment system, writes Emma Okonji

As the trajectory of the mobile-first generation unfolds, it is anticipated that the utilisation of physical cash will naturally decline. But the focal point of the Central Bank of Nigeria (CBN) cashless policy is to align with the evolving financial landscape. The over-arching goal is for Nigeria to achieve a comprehensive and efficient electronic payment system infrastructure by 2025.

The envisioned infrastructure is designed to seamlessly facilitate financial services across all sectors of the economy, providing a secure, reliable, and user-centric framework for diverse financial solutions.

A recent report on Nigeria’s Payments Outlook 2024 that was jointly released by Zone, a regulated blockchain network for payments and Techcabal, a platform that provides insight into startups, innovation and technology, showcased the growth of financial transactions through various channels like Point of Sales (PoS), Online transaction platform, Mobile Apps among others, even though some channels like the Automated Teller machine (ATM), the Unstructured Supplementary Service Data (USSD), and Cheques, experienced decline in financial transactions.

 Performance Metrics

According to the report, the volume and value of financial transactions in Nigeria have changed between 2021 and 2022, as financial transactions continue to decrease on some channels, while other financial transaction channels continue to witness increase in the volume and value of financial transactions.

The report, which THISDAY sighted, showed that Online, Mobile Apps, Point of Sales (PoS) and Mobile Money Operators transaction channels continued to increase in volume and value of financial transactions between 2021 and 2022, while the volume and value of financial transactions on other channels like Automated Teller Machine (ATM), Cheques, Unstructured Supplementary Service Data (USSD), e-Bills and National Electronic Funds Transfer (NEFT), continued to decline.

The report however explained that GTBank remained the biggest Nigerian bank listed in the stock market with a market cap of N1.2 trillion, while Zenith Bank has a market cap of N1.1 trillion and First Bank with a market cap of N1 trillion. 

Looking at total assets, which provide insights into a bank’s scale and growth, Access Bank still remains ahead with total assets accumulating to N14.9 trillion. They are followed by Zenith and then UBA. These three were equally the ones who saw the greatest y-o-y change in their asset size.

For loans given out in 2022, Access Bank and First Bank lead with gross loans both in terms of value and y-o-y percentage change. The loan size of both banks amounted to N5.5 trillion and N5 trillion respectively.

The report revealed that mobile app transfers, with a total volume of 831.54 billion in 2021, increased to 1.86 trillion in 2022, reflecting an impressive 123.85 per cent change in transaction volume.

Similarly, the total transaction value for mobile app transfers increased from N53.20 trillion in 2021 to N111.12 trillion in 2022, marking a noteworthy 108.84 per cent year-on-year growth.

Online transfers, with a total volume of 10.32 trillion in 2021, increased by

36.26 per cent to 14.06 trillion in 2022. The total transaction value for online transfers grew from N545.03 trillion in 2021 to N783.66 trillion in 2022, marking a substantial 43.78 per cent year-on-year.

Point of Sale (POS) transfers in Nigeria saw a significant 17.00 per cent change in total volume, increasing from 982.83 million in 2021 to 1.14 billion in 2022. Concurrently, the total transaction value rose from N6.43 trillion in 2021 to N8.39 trillion in 2022, representing a notable 30.42 per cent year-on-year increase.

Mobile Money Operators (MMOs) transfers in Nigeria witnessed a remarkable 151.18 per cent change in total volume, surging from 248.5 million in 2021 to 714.5 million in 2022.

Concurrently, the total transaction value increased from N8.06 trillion in 2021 to N19.4 trillion in 2022, marking a significant 140.73 per cent year-on-year increase.

The report however quoted the Central Bank of Nigeria (CBN) to have reported a total volume of 1.59 billion ATM transactions in 2021, which decreased to 1.51 billion in 2022, indicating a -5.77 per cent change in transaction volume.

Conversely, the total transaction value saw a significant increase, growing from N21.23 trillion in 2021 to N32.64 trillion in 2022, reflecting a substantial 53.78 per cent year-on-year growth.

The report said cheque transfers in Nigeria decreased by -8.55 per cent in volume, from 4.45 billion in 2021 to 4.07 billion in 2022. The total transaction value declined by -0.48 per cent year-on-year from N3.22 trillion in 2021 to N3.20 trillion in 2022.

Also, eBills Pay transfers in Nigeria decreased by -25.94 per cent in volume, from 1.19 billion in 2021 to 885.89 million in 2022. However, the total transaction value increased by 22.94 per cent year-on-year, from N2.27 trillion in 2021 to N2.80 trillion in 2022.

Unstructured Supplementary Service Data (USSD) transfers, with a total

volume of 552.91 billion in 2021, decreased to 516.08 billion in 2022, reflecting a -6.66 per cent change in transaction volume. The total transaction value for USSD transfers also decreased from N5.17 trillion in 2021 to N4.49 trillion in 2022, marking a -13.23 per cent year-on-year decrease.

National Electronic Funds Transfer (NEFT) transfers, with a total volume of 172.79 billion in 2021, decreased to 88.46 billion in 2022, reflecting a significant -48.80 per cent change in transaction volume. Despite the decline in volume, the total transaction value witnessed growth, reaching N410.17 trillion in 2021 and N477.36 trillion in 2022, marking a 16.38 per cent year-on-year increase.

Evolution of Payment Landscape

The evolution of Nigeria’s payment landscape is divided into three phases as released by the report. The division makes it easier to understand since most of the achievements in both phase two and three were largely driven by the visions set forth by the Central Bank of Nigeria (CBN).

Phase one, which is pre-2005, marked a pivotal period that laid the foundation for subsequent advancements in Nigeria’s financial sector. As far back as 1892, the idea of banking in Nigeria was entertained by the then colonial administration. This process of enquiry by the colonial administration to commence banking in Nigeria, took 66 long years before a decision was finally made which culminated in the Central Bank Act of 1958.

This was the first Act that catered to the banking practice of the then colonial country despite the fact that regions like Lagos had an operational bank since 1894, Bank of British West Africa. Besides the Bank of British West Africa, about 26 banks were formed in the nation including Barclays Bank, United Bank for Africa, the Industrial and Commercial Bank, the Mercantile Bank, African Continental Bank, and the Nigerian Farmers and Commercial Bank.

Phase two spans from 2006 to 2019 and saw transformative initiatives that propelled Nigeria’s payments system towards modernisation and efficiency. A pivotal moment during this period was the deployment of the Payments System

Vision 2020 (PSV2020) in 2006. This vision roadmap outlined strategic objectives aimed at enhancing the overall efficiency and effectiveness of the payment landscape. The PSV2020, spearheaded by the Central Bank of Nigeria (CBN), stood as a catalyst in the transformative journey of the country’s payment system landscape.

The transition into the third phase, which is post-2020, reflects the nation’s commitment to continuously advancing its financial infrastructure. A central theme of this phase is the realisation of the Nigerian Payments System Vision 2025 (PSV2025).

This ambitious vision signals the country’s dedication to embracing cutting-edge technologies and fostering a more inclusive and competitive financial landscape that tries to solve the problems of both consumer rights and the painful transition towards a cashless society. PSV2025 is the culmination of years of planning and thinking by the CBN.

Since 2013, which began the second version of PSV2020, the CBN began assessments using the Principles for Financial Market Infrastructure (PFMI) which was defined by the Bank for International Settlements (BIS).17 The Central Bank of Nigeria (CBN) adheres to the Principles for Financial Market Infrastructures (PFMI), which have been established by the Committee on Payment and Settlement Systems (CPSS) and the International Organisation of Securities Commissions (IOSCO). These international standards are designed to bolster stability and minimise risks in financial transactions.

Private Sector Involvement

Outside the CBN, other important stakeholders that ensure the stability of Nigeria’s payment system include the Nigerian Inter-Bank Settlement System (NIBSS), the Nigerian Stock Exchange, banks, discount houses, payment service providers and switching companies. Payment service providers are divided into five main categories by the CBN. They include the card payment schemes,

the mobile money operators, switching and processing companies, payment solution services (PSS) and payments service holding companies.

Disruptors in Payment System

Identifying disruptors in the payments market is key.

From the performance metrics, we know that the shift towards digital payments is evident in the year-on-year analysis of transaction volumes and values.

The decline in ATM transaction volume by 5.77 per cent from 2021 to 2022, coupled with a significant increase in total transaction value by 53.78 per cent, indicates a movement towards digital payment methods. The growth in mobile app transfers by 123.85 per cent signifies a substantial shift in user behaviuor. Online transfers, including web and mobile app transfers, have seen remarkable growth, reflecting improvements in digital payment infrastructure and increased consumer trust. This trend aligns with a broader societal shift towards digital literacy and preference for online transactions, fostering flourishing landscape for e-commerce, bill payments, and peer-to-peer transactions in Nigeria.

According to the report, despite a decrease in volume, USSD transfers remain foundational in Nigeria’s digital payment landscape. The decline is attributed to the increasing prevalence of mobile apps and smartphone penetration, highlighting the on-going significance of USSD for users without access to advanced digital options. The decline in traditional methods like Cheque Transfers, Central Pay (CPay) Transfers, and Automatic Direct Debit (ADD) Transfers indicates a continued shift away from paper-based transactions. The growth of Mobile Money Operators (MMOs) Transfers by 151.18 per cent suggests a profound impact of rising smartphone penetration in facilitating financial transactions, particularly in remote or unbanked areas.

Regulatory Framework

The examination of Nigeria’s payment system regulatory landscape reveals significant gaps and opportunities for improvement, according to the report.

Exemplified by instances like the coexistence of “Guidelines on Operations of Electronic Payment Channels in Nigeria” and “Standards and Guidelines on Electronic Channels Operations in Nigeria,” as well as the pairing of “Regulation for the Operation of Indirect Participants in the Payments System” and “Regulatory Framework for Agent Banking in Nigeria,” this redundancy introduces confusion among stakeholders, potentially resulting in inconsistencies during implementation.

Addressing this challenge through the consolidation or merging of overlapping regulations could enhance clarity and streamline compliance efforts.

Furthermore, a critical assessment of the regulatory framework identifies potential gaps in coverage. Despite the existence of “Operational Guidelines for Open Banking in Nigeria,” additional regulatory frameworks, particularly those related to data protection and privacy, may necessitate further development to instill user trust and confidence in data sharing practices.

Additionally, the regulatory landscape may not fully encompass the dynamism of the financial sector, potentially lagging behind emerging technologies such as cryptocurrency, blockchain, and innovative payment methods, should be addressed, the report said.

Regulated Blockchain Network

Zone is a regulated blockchain network that aims to connect every monetary store of value and (by doing so) establish a decentralised global payment infrastructure. With an initial focus on Africa, Zone enables banks and fintech startups

to bypass intermediaries and connect directly with each other to enable real-time processing and settlement of digital payments in fiat currencies. Additionally, Zone serves as a layer-1 protocol for issuing digital currencies and deploying DeFi services in a regulated and inter- operable way. With a strategic focus on creating a reliable, frictionless and universally interoperable global network, Zone is at the forefront of driving the transition from fiat to regulated digital currencies.

Since its inception in 2022, Zone has signed up over 15 of Africa’s biggest com-

mercial banks and most of the leading fintechs to its network. Zone piloted its ATM product use case and is now processing ATM-based transactions through its blockchain-powered payment infrastructure for some of the biggest banks.

Backed by a significant $8.5 million seed funding from leading global venture capitalists, Flourish Ventures and TLcom Capital – Zone’s growth trajectory is further acknowledged by its inclusion in the Financial Times’ list of Africa’s Fastest Growing Companies in 2023.