September 10, 2018

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- Rotimi Adeniyi-Akintola, Junior Associate [ Perchstone & Graeys LP ]


Nigeria, too, has witnessed a sizeable increase in the volume of e-payments in recent years...

Countries the world over are witnessing a rapid evolution of payment systems. These changes follow the technological shift from traditional modes of payment such as cash, cheques, and cards to the digital frontier of virtual currency and mobile platforms. According to Capgemini and BNP Paribas World Payments Report, global non-cash transactions broke a decade-long record for growth in 2014-2015, with growth volumes in excess of 11%, to reach more than 433 billion transactions. Two regions fueled this increase: emerging Asia with a growth rate of 43.4% and CEMEA (Central Europe, Middle East, and Africa) with 16.4% growth. Nowhere has the growth of e-payment been more evident than in Africa.

The swell of different means of electronic payments (e-payment) and mobile payments continues to have a direct impact on local economies in Africa. Whilst Kenya remains the continent leader in this regard, thanks to the emergence of the likes of M-Pesa, Nigeria has also witnessed a sizeable increase in the volume of e-payments in recent years. However, without significantly increasing the rate of financial inclusion in the country through innovative methods, some of which are discussed below, Nigeria runs the risk of never fully actualizing the expansive potential of e-payments on her economy.

Electronic or “E”-payments have significant economic benefits for individuals and businesses alike. Electronic payment lowers costs for businesses, as the more payments they can process electronically, the less they spend on paper and postage. The convenience of e-payments can also help businesses improve customer retention, in comparison with those offering only traditional means of payments. The direct impacts of e-payments on a country’s GDP are well known and documented. In 2016, a report by Moody’s Analytics on “The Impact of Electronic Payments on Economic Growth” stated that the explosion of e-payments resulted in an added US$460 million to Nigeria’s GDP from 2011 to 2015. According to Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Nigeria could save as much as US$9 billion - N3.24 trillion by shifting government payments alone from cash to digital systems. She was further quoted as saying that such a shift creates the potential to help reduce corruption, increase revenues, and generate investments in health and education.

What this means is that digital tools could be a decisive factor for Nigeria in meeting the 2030 Sustainable Development Goals. If the expected effect of the shift of government payments alone to e-payment would result in such huge gains, the impact of a similar shift in the private sector would certainly drive economic growth to seismic proportions.

However, despite the adoption of digital payments, cash continues to be utilized as the mainstream mode of payment in Nigeria, especially for low-value transactions. Cash remains hugely popular in Nigeria, due to the anonymity it affords, the lack of adequate modernized payment infrastructure, and challenges with access to banking systems for the majority of Nigerians (financial inclusion). Other systemic challenges include the poor state of basic infrastructure, particularly electricity/power and telecommunications infrastructure. Low literacy levels, infrastructure vandalism, and security issues mount further pressures on the shift to more advanced payment systems. Nonetheless, efforts to surmount these obstacles abound and the opportunity to develop secure and efficient e-payment instruments to drive further economic growth exist for Nigeria.

What is financial inclusion, and why is it important?

Financial inclusion is one of the major challenges to the growth of e-payments in Nigeria. Despite the Central Bank of Nigeria’s (CBN) target of 80% financial inclusion by the year 2020, the nation continues to struggle to provide financial products and services to its adult population, particularly the low-income demographic.

The direct impacts of e-payments on a country’s GDP are well known and documented. In 2016, a report by Moody’s Analytics on “The Impact of Electronic Payments on Economic Growth” stated that the explosion of e-payments resulted in an added US$460 million to Nigeria’s GDP from 2011 to 2015

Financial inclusion matters, as it is one of the most important drivers of economic development. The benefits of financial inclusion for the poor are extremely significant. Money which sits outside the banking system, in drawers, mattresses, and the like, is unable to appreciate in value by earning interest and hence has a lower worth or net present value when used in the future. Financial inclusion would provide low-income individuals and families with the means to safely make day-to-day transactions, safeguard their meagre savings, manage cash flow spikes, and build working capital. This capital can finance small businesses or micro-enterprises, mitigate shocks and expenses related to unexpected events such as medical emergencies, and improve overall welfare.

According to a 2016 report by Enhancing Financial Innovation & Access (EFInA), a financial sector development organization, 40.1 million Nigerian adults representing 41.6% of the adult population are financially excluded – do not have access to bank accounts or financial services. This is a huge setback to the drive towards more advanced e-payment solutions.

Radical measures are required to effectively provide a population of over 170 million citizens with access to financial services. To this end, the Nigerian government has introduced key regulatory initiatives to drive financial inclusion and electronic payments. In 2012, the Cashless Society Project - to make Nigeria a top-20 economy by 2020 - was introduced, as part of a larger Financial System Strategy 2020 vision to boost Nigeria’s financial system. Further, in 2017, the CBN reintroduced charges for cash handling, starting with 1.5% for cash deposits and 2% for cash withdrawals between 500,000 to 1,000,000 naira. These measures have not been enough to catalyze Nigeria’s financial inclusion goals.

Boosting financial inclusion and e-payments

A major untapped resource for advancing financial inclusion would be to leverage existing telecommunication networks. Current mobile penetration stands at over 238,116,977 active lines according to the Nigerian Communications Commission, with 21 million smartphones in circulation according to Jumia Mobile Report 2018. Compared to the 97.57 million bank accounts reported by the Nigeria Inter- Bank Settlement System (NIBSS) as being in existence in February 2017, it is evident that the number of Nigerians who own mobile phones is more than those who operate bank accounts, even accounting for double or multiple mobile line registrations. A report by KPMG Africa estimated that only 30 million Nigerians have access to bank accounts. There is, therefore, a clear incentive to harness mobile penetration as a means of driving e-payments and in turn driving economic growth. The example of Kenya could provide some guidance here. Kenyans transacted a record US$33 billion on mobile money transactions in 2016, up from US$27.8 billion from the previous year, according to data from the Central Bank of Kenya.

In recognizing this potential and in an effort to bolster the use of mobile money, the CBN has repealed its decision to exclude telecommunication companies in Nigeria entirely from operating as purveyors of mobile money. Approval was given to Globacom, Nigeria’s second national operator, to create 500,000 mobile money agent outlets in the country through Glo Xchange, a mobile money agent network in partnership with 3 commercial banks. Whilst this is a positive development, much more is required by the CBN in opening mobile payments to telecommunication companies without restricting them to commercial banks. This will further harness their rich subscriber base. The CBN is advised to identify opportunities to engage stakeholders and experts in dialog, identify avenues for collaboration on mobile payments, and mitigate potential problem areas.

The role of e-payments and financial inclusion in Nigeria’s economy will be further discussed at the “Technology as a Catalyst for the Ease of Doing Business” Conference 2018, due to be held on October 5, 2018, organized by Perchstone & Graeys and Knowledge Resources Limited, in conjunction with The Presidential Enabling Business Environment Council (PEBEC). If interested, kindly send an email to to express your interest in attending this conference.

Disclaimer – This article is provided for your convenience and does not constitute legal advice. It is prepared for general information to interested persons. For further information, comments/advice/permission to use, please contact the writer, Rotimi Adeniyi-Akintola at
This article is protected by copyright. Material appearing herein may be reproduced or translated with appropriate credit and on the permission of the writer.

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