The rising fortune of digital payment platforms

The cashless policy introduced by the Central Bank of Nigeria (CBN) in 2012 which required a daily total limit of N500,000 and N3,000,000 on free cash withdrawals across all accounts owned by individual and corporate customers respectively propelled the growth trajectory recorded in the digital payment platform in the recent past.

Although, a significant share of the Nigerian population remains either unbanked or underbanked, most citizens, especially, of the rural settlements still prefer storing up cash or use local channels such as community banking such as Ajo, Esusu among others as means of making transactions and other financial obligations.

The financial exclusivity that characterized the said individuals (unbanked and underbanked) can be attributed to a limited public awareness of other instruments, low rate of literacy level, and limited access to banking infrastructures.

In addressing these challenges, the CBN has taken some steps to improve this situation, although, much has not been recorded and as such the directives have not met its full objectives, part of such directives are the rules for establishing Payment Service Banks, as part of its efforts to creating a nation that is financially inclusive as a way of promoting electronic payments in the country.

Upon the Implementation of this strategy, it impacted positively on the rate of access to financial services. Despite not at its full scale, the adult exclusion rate reduced from 46.3 per cent in 2010 to 39.7 per cent in 2012.

All the geopolitical zones in Nigeria equally recorded improvements with exclusion rate declining between 2010 and 2012 as follows: North East, from 68.3 per cent to 59.5 per cent; North West, from 68.1 per cent to 63.8 per cent; North Central, from 44.2 per cent to 32.4 per cent; South East, from 31.9 per cent to 25.6 per cent; South West, from 33.1 per cent to 24.8 per cent, and South-south, from 36.4 per cent to 30.1 per cent, the CBN data shows.

Nigerian digital payments market, so far, what has changed?

A recent study carried out by Businessday Research and Intelligence Unit (BRIU) shows that so far, the digital payment markets has witnessed tremendous growth since the introduction of the cashless policy by the CBN. Since the launch of this initiative; the digital space has seen many unique and state of the art product innovations in the digital payment industry. Besides, the growing young population who are tech-savvy has enabled faster technological advancements in the digital payment space. This can be evident in the increasing volume of mobile inter-scheme transactions and other payments channels. A brief analysis for a five-year period shows an impressive growth across all digital payments’ platforms.

In FY 2019, the volume of mobile inter-scheme transactions stood at 41.2 million and valued at N828.1 billion. Similarly, the banking public grew although slightly, as of FY 2019, the total number of active bank customers (Individuals) stood at 72.3 million. This represents 3 per cent growth against 69.9 million recorded in FY 2018. Put differently, the total number of bank accounts grew slightly by some 6 per cent from 118.1 million accounts in the previous period, as this moved to 124.78 million in FY 2019. Note, only 71.2 and 79.3 million accounts were active in 2018 and 2019 respectively. Data from Nigeria Inter-bank Settlement System Plc (NIBSS) reveals.

The scheme continues to demonstrate significant growth across all payment channels in the first 8 months of 2020 ( January – September 2020). Among other categories – NIP transaction, Point of Sale (POS) among others, the mobile transaction recorded the most growth transaction volume and value increase significantly by 84 per cent and 97 per cent when compared to FY 2019, data from Nigeria Inter-bank Settlement System Plc (NIBSS) shows.

The healthy transactions growth recoded in the digital payment space during the reference period can be attributed to the restriction of movement caused by the lockdown induced by Covid 19, as many Nigerians who are financially inclusive opted to the use of mobile apps for transactions and settlements of other business commitments.

Digital payments competitive landscape

Nigeria remains a largely cash-dominated society, primarily due to limited financial literacy and a lack of financial infrastructure, aside the fact that the market is moderately concentrated. The competitive rivalry in the market is moderate as a good number of players in the industry prevail despite the existence of several companies.

The global perspective

On the global scene, the digital payments market is expected to hit $6.7 trillion worth of transactions by 2023, according to the data extracted from Statista and Learnbonds.com.

In 2019, digital payment transactions totalled more than $4.1 trillion, with point of sale spearheading or rather making up 18 per cent of this figure, or $745 billion. This is projected to grow or account for 30 per cent of the digital transactions by 2023.

The US digital payments market accounted for 24 per cent or $979 billion of the total digital payments and it is expected to grow by 33 per cent to $1.3 trillion by 2023.

China on the other hand dominates the digital payments sector with $1.6 trillion worth of transactions in 2019 and this is expected to grow more than $3 trillion by 2023, available data shows.

Companies such as Alibaba and Tencent have grown quickly in the past few years, exploiting the corresponding growth in the use of smartphones to improve the availability and use of digital payment methods.

India, according to the data, is also another fastgrowing digital market. The country’s peer-to-peer sector was projected to grow from $10.5 billion in 2017 to $159.2 billion in 2022. This feat will be specifically driven by radical reforms such as the “demonetization” in 2016, which saw the withdrawal of smaller currency notes, among others.