Cashless Nigeria: Facilitating the Transition to Digital Payments

The emergence of Nigeria as a regional economic powerhouse has presented a challenge for Nigerian policymakers: how to convert Nigeria’s growth at the macro level into greater financial inclusion, so that the rising economic tide can benefit more people.

According to a 2014 survey by EFInA on Access to Financial Services in Nigeria, there are 93.5 million Nigerian adults, of which 59.8 million live in rural areas while 33.7 million live in urban areas. Of the rural population, about half are financially excluded, (28.6 million adults); while about a quarter of those who live in in urban areas (8.4 million adults) are financially excluded. To their credit, Nigerian policymakers have shown a determination to rise to this challenge with ambitious policy prescriptions aimed at providing more opportunities for more Nigerians to participate in the country’s burgeoning economic life.

Crucially, the Nigerian Central Bank has been taking determined steps to harness the potential of digital payments, which evidence shows are key to expanding financial access at scale. Specifically the Central Bank has delivered Cashless Nigeria –an ambitious policy platform.

Cashless Nigeria entails a wide range of policy initiatives ranging from public information campaigns, point-of-sale guidelines, restrictions on cash-in-transit services, and substantial fees to dis-incentivize cash withdrawals and deposits (although high kick-in thresholds mean these fees generally only impact on medium to large businesses). Nigeria has also introduced a National Electronic (e-ID) Card with payment capabilities.

Recognizing both the scope of Cashless Nigeria, as well as the clear need to boost financial inclusion in Nigeria, the Better Than Cash Alliance has just released two studies of Nigeria’s journey from cash to digital payments.

The good news emerging from these studies is that Cashless Nigeria is starting to show some real results – particularly with larger companies. Indeed, one key finding from these studies is that digital payments now appear to have passed a tipping point in Nigeria’s corporate sector. The question for large businesses in the study is now how to make the transition, rather than if or when. As an indication of solid progress, the large businesses studied now pay on average 61% of salaries by volume electronically (compared to 31% in medium businesses, and 15% in small businesses).

BTCA’s case study work examined four companies in depth, and hence is not a representative sample of all large businesses, a key insight is that firms that invest in new technology, and form partnerships with other players in the digital ecosystem, can reap substantial benefits.

For example, the Nigerian Bottling Company (NBC, the contracted bottler of Coca-Cola in Nigeria) negotiated with several banks to offer no-fee accounts to many of its wholesalers, and supported them with administrative help through the account registration process. By 2014, NBC was collecting 35% of its sales to wholesalers digitally, and expected that share to rise to 60% within a year. This provides a clear example of the power of partnerships, particularly in fast moving consumer goods markets where vast distribution networks are often the norm, but digital payments remain generally at low levels.

Successes like this are not to say that Cashless Nigeria has been an unqualified success across the entire business ecosystem; among small businesses and individuals in particular the news from Nigeria is less encouraging. Based on a 2014 survey conducted for this study, small business operators have concerns about converting to digital payments, particularly about paying taxes. They also lack awareness about the benefits of digital payment acceptance. Payments by individuals make up the overwhelming majority of total payments by volume, but only 1% of these are made electronically.

No one expects Cashless Nigeria to turn the economy digital overnight. And critics question whether the policy platform perhaps goes too far into the details - especially around devices and pricing. Still, the scope of Cashless Nigeria’s ambition is a clear sign that Nigerian policy-makers are intensely focused on bringing their economy into the digital age.

Indeed, another central lesson of these studies is that governments are a key driver of progress in the transition from cash to digital payments. Governments need to set clear policy frameworks, and then accelerate progress, leading by their example. For example, the Nigerian Government now makes all of its payments to businesses and 62% of its payments to individuals (by volume) electronically.

The challenge now is to convert the success in the corporate sector into advances in the small business sector and in P2P transactions. Harnessing the momentum created by the Central Bank and Government’s own leadership and corporate Nigeria’s progress through a new round of ambitious and astute policies, will be vital to including more Nigerians in their country’s impressive growth story.