In recent years, the exponential growth in digital payments worldwide has meant that central banks, especially in developing countries like Nigeria, have had to step up regulation of their payment systems in order to protect consumers, writes TONY CHUKWUNYEM
Clearly, the COVID-19 crisis is accelerating the shift towards digital payments in Nigeria and other parts of the continent. For instance, data obtained from the National Bureau of Statistics (NBS) show that the value of electronic payment (e-payment) transitions rose year-on-year by 325 per cent to N704.04 trillion in 2020 from N165.8 trillion in 2019. The NBS’ numbers also indicate that the volume of e-payment transactions rose YoY by 142 per cent to 7.16 billion in 2020 from 2.96 billion in 2019.
According to a report on Nigeria’s fintech sector released in September last year, a global management consulting firm, Mckinsey & Company, stated: “A youthful population, increasing smartphone penetration, and a focused regulatory drive to increase financial inclusion and cashless payments, are combining to create the perfect recipe for a thriving fintech sector. “Nigeria is now home to over 200 fintech standalone companies, plus a number of fintech solutions offered by banks and mobile network operators as part of their product portfolio. Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 per cent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone — second only to Kenya, which attracted $149 million.” Analysts note that Nigeria’s fintech sector continues to thrive despite concerns in some quarters that it is overregulated. In fact, stakeholders believe that the Central Bank of Nigeria (CBN)’s effective regulation of the sector is primarily responsible for the substantial amount of foreign capital it has attracted in recent years.
For instance, in his address at the 31st CBN-organised seminar for finance correspondents and business editors held in Enugu last week, the apex bank Governor, Mr. Godwin Emefiele, disclosed that the high level of confidence in the country ‘s payment system led to firms run by Nigerian founders attracting investment of about $500 million between 2015 and 2020. Emefiele, who was represented by the Deputy Governor, Corporate Services, Edward Adamu, stated that improving access to finance for individuals and businesses through digital channels will help improve financial inclusion, lower the cost of transactions and increase the flow of credit to businesses.
He described the choice of the seminar’s theme: “Trends in Nigerian payments system: Regulating the Fintech digital playing field,” as apt given the increasingly evolving banking landscape characterised by acceleration in the digitalisation of financial services, which is facilitated by Fintechs and emerging new technologies.
The apex bank governor, who recounted measures introduced by the bank to facilitate the growth of the country’s payment system, noted that it was in order to ensure that the benefits of latest technology do not elude Nigerians that the regulator would in the coming days, launch its own Central Bank Digital Currency (CBDC), the eNaira.
He said: “In a couple of days from now, the Central Bank of Nigeria will be unveiling its Central Bank Digital Currency (CBDC), the eNaira, making Nigeria one of the first countries in Africa, and indeed the globe, to adopt the digitisation of its national currency. However, to appreciate the latest technology, it is proper to cast our minds back to how we got to this point. “As you are aware, the payments system of any country plays a pivotal role in its economy, being the channel through which financial resources flow from one segment of the economy to the other. This represents the major foundation of the modern market economy.
“In line with our mandate, as encapsulated in the Central Bank of Nigeria Act, 2007, CBN regulates the Payments System, while banks, the Nigeria Inter-Bank Settlement System (NIBSS), the Nigerian Exchange Group, payment service providers and switching companies are the other major players in the system.
“The CBN, complemented by the Nigeria Deposit Insurance Corporation (NDIC), provides the necessary oversight function to ensure the efficiency and effectiveness of the payments system.” He pointed out that the year 2007 marked a turning point in the country’s payments system terrain with the launch of the CBN’s Payment Systems Vision 2020 (PSV 2020), which, he said, identified series of recommendations to increase the resilience of the payment system infrastructure and workstreams to encourage the usage of electronic payment methods. He stated that over the past 14 years, the Nigerian payment system had evolved significantly with extensive technological development backed by deliberate enabling regulation by the regulator.
“Due to the lockdowns associated with the management of the coronavirus (COVID-19) pandemic, financial traffic to digital platforms increased significantly in 2020. Indeed, the spread of the virus at the time accelerated the speed of digitalisation of many sectors of the economy. “Expectedly, discussions have increased around the issue of the digital economy, just as more opportunities have come up for financial institutions and other players within the payment ecosystem to innovate and provide more efficient options for payments and settlements,” Emefiele said. He emphasised that there was a need for increased and intensive regulatory scrutiny on the part of regulators to proactively monitor developments and ensure the continuous safety and soundness of the financial ecosystem.
“It is, therefore, imperative that regulators must keep pace with these exponential developments and leverage new knowledge and technology tools such as regtech and suptech to enhance the efficiency and effectiveness of their mandate. “From all indications, digital revolution will be a focus for financial institutions in the months ahead, thereby making fintechs a major driver of the industry,” the CBN governor said. Emefiele further stressed that the eNaira would help CBN in attaining its goals of boosting financial inclusion through the use of digital channels, supporting cross border payments for businesses as well as providing a reliable channel for remittances inflows into the country.
He said with the deployment of eNaira, Nigerians in remote areas would conduct financial activities using their digital as well as features on phone devices. Also, in his presentation titled: “Implications and Trends in the Digital Financial Ecosystem for Monetary Policy Implementation,” the Director, Monetary Policy Department, CBN, Hassan Mahmud, noted that digital financial innovation increases the range of intangible financial assets which may in future influence the ability of Central Banks to effectively conduct monetary policy.
Mahmud, who was represented by the Assistant Director, Payment Management System, CBN, Rekiya Yusuf, said the apex bank was currently not projecting that the eNaira would have an impact on inflation. He maintained that the CBN’s digital currency will offer parity of value and will operate as a non-interest-bearing asset. In a recent note, analysts at United Capital Research predicted that the adoption of the digital currency by members of the public would enable the apex bank to better regulate the country’s fast growing digital payments industry.
The analysts stated that “zero- cost nature of the CBDC and the potential improvement in transaction efficiency could encourage adoption and spur usage,” thus boosting the digital payments industry. They added: “The e-Naira can also augment the fast-growing digital payments industry and enable the CBN to better regulate the industry, as the apex bank will be looking to position itself at the forefront of digital payments amid rising adoption of decentralised cryptocurrencies.”
However, panelists at the FICAN workshop, during a roundtable discussion on “Creating a Secure Cyber Environment for Financial Transaction,” harped on the need for consumers to be adequately sensitised to the surge in fraud especially in the wake of the massive shift towards digital payments in Nigeria. For instance, Yusuf said that all stakeholders, including consumers, have a responsibility to safeguard electronic payment systems from any form of compromise.
According to analysts, the fact that official data shows that more Nigerians are adopting e-payments, despite the risks of falling victim to fraud, is an indication that they believe that CBN’s regulation of the payment system has been effective.