Although there are a total of 18 candidates running, the three top contenders are governing party APC’s Bola Tinubu, the opposing People’s Democratic Party’s Atiku Abubakar and the wildcard from the Labour Party, Peter Obi.
The election in Nigeria, will be held on Saturday 25 February 2023, against a backdrop of increasing extremist attacks on civilians, fuel scarcity, high inflation, worsening insecurity and claims – nowrebuked – that there may be a military coup. On top of this, a banknote shortage after a redesign of the Naira currency has added to the continuing economic crisis across Africa’s most populated country.
Nigeria, where cash is king?
As reported by Premium Times this week, APC candidate Tinubu backed the Central Bank of Nigeria’s cashless agenda and Naira redesign, although he is disappointed with “the policies’ shoddy implementation which has led to a serious cash crunch in the country with no end in sight even as the general elections are a few weeks from now.”
This news comes after Tinubu had publicly said that the Naira redesign and fuel scarcity were “tools by saboteurs to prevent him and the APC from winning the 25 February presidential election.” A week earlier, PDP candidate Abubakar accused Tinubu of “mopping-up cash for vote-buying,” as reported in Business Day.
“[Abubakar] decried the excruciating pain and distress being faced by Nigerians arising from their inability to access the new Naira notes occasioned by the reported nefarious activities of corrupt APC leaders who are compromising the system to intercept and hoard the new bank notes for their selfish vote-buying plans ahead of the February 25, 2023 Presidential election. He also urged that Central Bank of Nigeria to provide more Mobile Banks in Rural Areas, to reduce the excruciating difficulties Nigerians are facing to access cash,” the story reads.
Earlier this month, Labour Party candidate Obi, former chairman of Fidelity Bank, took to Twitter to urge Nigerians to be patient with CBN over the redesign because it has “some significant long-term economic and social benefits.” He also asked the central bank to “expedite efforts to make the new currency available to small depositors and the unbanked in order to reduce the pains of my fellow Nigerians, especially the underprivileged and those living far away from banks in the rural areas”.
The CBN’s ‘Cash-less’ policy project, that aims to reduce cash transactions and ATM withdrawals, was reignited this year after the nationwide launch was suspended in 2017 – five years after the Lagos pilot in 2012. The policy could be considered as quite restrictive: individuals can only withdraw a maximum of N500,000 (£894), while corporate organisations are limited to N3 million (£5,365) daily.
In an interview with The Cable, Aishah Ahmad, deputy governor, financial system stability directorate, at the central bank, highlighted that “the suspension was to allow more citizens to fully embrace alternative electronic payment platforms, and ensure further development and expansion of financial access points.”
Further to this, the cashless policy was introduced in phases “to reduce the use of cash in the economy, encourage electronic transactions and enhance the efficiency of the Nigerian payments system.” Ahmad added that the there are no processing fees associated with cash deposits, meaning that there would be no more issues with the Nigerian currency redesign.
Alongside this, benefits include the “reduction of cost of cash management (processing, movement, security, destruction of old notes) which is often passed on indirectly to Nigerians, including eliminating the physical risk of cash – robbery, kidnapping, terrorism.”
Mastercard and Visa, who? AfriGo expected to shake cards up in Nigeria
In a bid to ensure options are available to citizens and enhance financial inclusion, Nigeria’s central bank has also launched a national domestic card scheme called AfriGo in partnership with the Nigeria Inter-Bank Settlement System (NIBSS).
This initiative breaks up the card triopoly (Mastercard, Visa and Verve by Interswitch), concentrates card financial data within Nigeria and reduces operating costs for foreign exchange. CBN governor Godwin Emefiele said: “At this time when foreign exchange challenges persist globally, it is important for me to say that we have come up with this card to ensure that all online card transactions will now, effective immediately, begin to go on the Nigerian national domestic system.
“NIBSS and CBN will work together to make sure foreign exchange is charged for only international transactions made on Visa and Mastercards as we have it now. This is so because many of the cards we use currently charge in foreign currency. However, with the launch of the national domestic card, all domestic transactions are to be carried out on the national domestic card scheme.”
In conversation with Finextra, Dickson Nsofor, CEO of Korapay, agrees that while Mastercard and Visa have dominated the Nigerian market, AfriGo has a chance of widespread adoption. “Naturally, any new card scheme will take a while for people to adapt to it and will require the government’s brute force to win back the cards market from payment schemes that are not indigenous, especially in terms of national security and risk.
“So, AfriGo will take off over time, especially when banks are mandated to stop issuing Mastercard and Visa cards. Nigerians will eventually use AfriGo, and there could be a bilateral relationship between AfriGo, Mastercard, Visa and China Union Pay. When that happens, AfriGo will become one of the most used cards because of our population. In the short term, adoption might be low, but in the long run, it will be one of the best tools every Nigerian will have.”
Damilola Robert, growth marketing lead at Bitnob, agrees that the appetite for cashless methods of payments is growing – “driven by several factors such as increased financial inclusion, convenience, security, and the desire to keep up with technology.
“However, the adoption of digital payments is not limited to tech-savvy groups or SME owners. While these groups may be early adopters of digital payments, the use of digital payments is becoming more widespread across different segments of the population, including individuals, small businesses, and large corporations. The growth of mobile banking and the increasing availability of digital financial services are making digital payments more accessible and user-friendly for a wider range of consumers.”
Robert continues: “That being said, there are still some challenges to the widespread adoption of digital payments in Nigeria, such as low levels of financial literacy and limited access to digital infrastructure in some rural areas. The government and financial institutions are working to address these challenges, and the launch of the AfriGo domestic card scheme is expected to further boost the uptake of digital payments in the country.”
This card scheme, the first of its kind in Africa, could arguably revolutionise how Nigerians transact. According to Titilayo Adewumi, director of SAP West Africa, “Nigerians have appetite for whatever will add value to their business experience. So far, except for occasional transaction completion failures without satisfactory resolution, consumers seem to have derived value from digital payments. This is because the barometer to gauge the success of digital payment adoption is from the level of acceptance from the informal sector – which accounts for over 65% of the transaction volume of the economy.
“For the roadside shop seller in the city to accept transfer as payment method speaks to the level of success in urban areas. So, we can submit that digital payment services in Nigeria is not reserved for the tech savvy or SMEs, even the microbusinesses are embracing it, though many in the rural areas still sing the song: ‘Cash is King’.”
The future of the Nigerian digital payments market – the statistics
In Olanrewaju Odunowo, head of TechCabal Insights’ view, “given Nigeria’s fast-growing population and the growth of the digital economy, digital payments will continue to grow. There remains so much opportunity to digitise transactions that are currently still cash based. The key thing is for founders and innovators to continue to leverage insights around user behaviour to design solutions. The major risks to the digital payment sector are economic, political, and regulatory.”
Statistics reveal that the number of electronic payment transactions in Nigeria grew from 66 million in 2008 to over two billion in 2018. It is evident that the digital payments market has matured faster in Africa than it has in Europe, but it remains to be seen this growth will continue or stagnate under the new President.
Olamide Afolabi, co-founder and CEO of Touch and Pay Technologies (TAP), references McKinsey data that reveals that Africa’s e-payments industry earned approximately $15 billion in domestic revenues in 2014, and this market is projected to reach $40 billion by 2025. “This is fantastic and demonstrates a genuine desire for increased financial inclusion. The adoption of mobile money payments, made possible by the proliferation of smartphones and the 5G network, has already begun to prepare consumers to contemplate utilizing non-cash payment methods.”
SAP’s Adewumi, also believes that the future is bright for digital payments in Nigeria, with total transaction value “expected to show an annual growth rate (CAGR 2023-2027) of 13.69%, resulting in a projected total amount of $23.81 billion by 2027. Once there is a considerable, addressable market, innovators will converge,” Adewumi continued.
Taking stock of the African financial technology landscape and expansion of fintech in Nigeria, Korapay’s Nsofor stated that there is more to digital payments in Africa than M-Pesa, but that payments company has provided a blueprint for innovation that leads to success.
“As the most populated Black nation on Earth with over 200 million people, advances in the financial service industry have been proliferating. Players in fintech payments are now moving to offline payments and building a bridge between offline and online payments. That is crucial because Nigeria is headed towards another kind of Kenya with another kind of M-Pesa, another critical mass digital payment solution that would bank the unbanked and bridge the gap between the local online financial services, the global financial services and the offline financial services.
“The future of payments in Nigeria is very bright, and we don’t even have enough players to cater to the entire market. Eventually, there will be more fintechs building infrastructure, layer-one solutions and layer-two solutions.”
Nigeria Startup Act – the next phase
For small to medium-sized businesses, digital payments are an integral part of day-to-day operations and allow business owners to transfer funds across different territories in the most secure and efficient way possible.
While the cost of import duties or freighting charges, for example, may be problematic for businesses seeking to leverage ecommerce platforms, advancements in cross-border payments make this less of an issue. Further, smartphone penetration has unlocked access to a broader customer base over time and allowed micro, small or small to medium businesses to thrive.
The Nigeria Startup Act, a collaboration between the tech startup ecosystem and current President Muhammadu Buhari implemented in October 2022, could further enable growth, attraction, and protection of investment across startups.
Speaking about the Act, President Buhari has stated that: “Our young people are our most valuable natural resource, at home and abroad. Their ingenuity, creativity, innovation and entrepreneurial spirit is evident to all. We will partner with the legislature to develop an enabling environment to turn their passions into ideas that can be supported, groomed and scaled.”
In Nsofor’s view, “this is the first time that the government has recognised that startups exist.”
He continues: “Whilst many might say that the Startup Bill is not the most effective, I think the first thing is to acknowledge that the government sees the importance of startups in the country and recognises startups as a significant source of employment, a primary source of FDI (Foreign-Direct Investment) into the country.
“The Startup Bill is a laudable initiative. Acts like this and more policies around startups will smoothen the relationship between the government and tech companies. If we look at developed nations, like the US, UK, Singapore and China, there is a smooth relationship between the government and startups. Especially startups building innovative and creative multi-billion-dollar ideas that influence people.
“For instance, we can see the relationship between Apple and the government, Facebook and the government, and Microsoft and the government. These companies were all startups. With more activities and actions coming from the government, there should be an increased relationship between the government and critical stakeholders in the startup world.”
On this subject, Afolabi explores how increased collaboration between the government and the private sector could change the landscape of fintech in Nigeria in the future. “Strategic collaborations between the government and an inventive private sector are the greatest method to ensure the financial sector’s continuing growth.
“With the Nigeria Startup Act, plugging some of the gaps facing startups, including access to finances, fiscal incentives, and collaboration, even more firms would be able to collaborate with policymakers to develop innovations that can tackle some of society’s most pressing issues.”
Robert’s perspective is that the Act “provides a framework for the support and development of startups in Nigeria, including fintech startups. Some of the key provisions of the act include tax incentives for startups, a simplified process for registering and incorporating startups, and the establishment of a startup fund to provide financial support to startups.
“Increased collaboration between the government and the private sector is crucial for the continued growth of the fintech industry in Nigeria. Such collaboration can help to address some of the challenges facing the industry, such as limited access to funding, lack of regulatory clarity, and insufficient infrastructure. The government can provide support to the fintech industry by investing in infrastructure, providing tax incentives, and creating a favourable regulatory environment that encourages innovation and growth.”
Robert continues: “At the same time, the private sector can play a key role in driving the development of the fintech industry by investing in new technologies and creating innovative financial products and services. Collaboration between the government and the private sector can also help to increase financial inclusion and promote digital literacy, which are essential for the widespread adoption of digital payments and other fintech services.”
Similarly, Adewumi specifies that the “Startup Act’s provision for the Startup Investment Seed Fund; training capacity building and development for startups; establishment of clusters, hubs, and innovation parks; tax and fiscal incentives; and data protection will go a long way to positively impact the growth of startups if implemented as documented.
“To execute on the intention, the government must be willing to digitise its processes across health, agriculture, education, defence, transportation, security, justice, and the like. This will provide opportunity for the startups to solve problems and grow.” However, as Odunowo opines, these are just some of the benefits and the opportunities that the Act will provide are far-reaching.
Odunowo says that “there’s so much to say here. But I think asides from funding which is the lifeblood of a startup ecosystem, the biggest component of the Startup Act is the Consultative Forum that allows startups to participate in shaping the regulations that get announced or formulated. What this means is that the industry will likely have a more stable regulatory environment.”
The future of Nigeria – what needs to be put in place for fintech firms to flourish?
Some Nigerian citizens believe that the lack of infrastructure, lack of security and lack of opportunity in the country has led to a number of individuals being forced to seek other means of income. It is due to this lack of opportunity that fintech giants such as Flutterwave, PayStack and Interswitch were born. In discussion with Finextra, our respondents had different views.
Korapay’s Nsofor agrees. “Ingenious ideas automatically become the day’s norm when there is a necessity. So, people are forced to think outside the box whenever there is a lack. We have always needed better infrastructure for payments, security, electricity, and many other infrastructural deficits. This has made us create unique ideas.
“There was a time in Nigeria when you couldn’t go to branch B to withdraw money from the same bank if your money was in branch A. This was because databases were in silos. That was one colossal interoperability issue within the same bank. So, you can imagine the problems between other banks or Nigeria and the global financial system.
“We’ve faced a lot of inefficiencies, and fintech started solving these problems, especially with the move of digital payments. Many super fintech, logistics companies, and solar and renewable energy companies are coming out of the enormous need for the people. Kora was also born due to the lack of interoperability and poor infrastructure in the financial service sector.”
SAP’s Adewumi fully agrees. “Affordable broadband infrastructure is the foundation for digital solutions to complete process transactions. Nothing thrives without security, so we see a cause and effect at work. Even, with skilled resources, executing innovative ideas becomes challenging with the inadequacy of these three variables.”
TAP’s Afolabi believes that this is “not absolutely true, but Nigeria’s tech ecosystem has seen significant growth due to the several problems—not limited to lack of infrastructure, lack of security, and lack of opportunity—that the majority of founders have seen and are trying to solve. The ecosystem is solving other major problems, just like in every other country in the world.”
Robert agrees, to an extent. “The lack of infrastructure, security, and opportunity in Nigeria has driven the development of fintech startups in the country. The difficulties faced by individuals and businesses in accessing financial services and conducting financial transactions have created a need for alternative solutions, which have been filled by fintech startups like Flutterwave and Interswitch.
“These fintech startups have leveraged technology to create innovative solutions that address the challenges faced by individuals and businesses in Nigeria. For example, Flutterwave and Interswitch have developed digital payment platforms that provide secure and convenient ways for individuals and businesses to send and receive money, pay bills, and access financial services.
“The success of these fintech startups is a testament to the entrepreneurial spirit and innovation of Nigerians, as well as the demand for digital financial services in the country. Despite the challenges faced by the Nigerian economy, the fintech sector has continued to thrive and has the potential to drive significant economic growth and financial inclusion in the country.”
TechCabal Insights’ Odunowo highlights that “this is just one part of the story and not the true picture. This perspective seeks the diminish how talented Nigerian youths are and how driven they are to succeed. So, while it’s true that the lack of basic amenities is forcing young people to find the answers, it’s only one part of the story.”
Bolu Tinubu
Odunowo also provides insight into what each candidate could offer the Nigerian fintech and digital payments space. Regarding Bolu Tinubu, he explains that it is still unclear what this candidate could bring. “However, he’s been known in the past to select some great leaders. There’s a possibility he could select a capable ICT Minister.
“This is barring any party agenda to reward someone who isn’t seen as qualified for the position. Considering his support and role in electing President Buhari, one could see the reason why he believes it’s his turn. However, the rhetoric is quite problematic given the diversity of the country’s people and talent.”
Atiku Abubakar
On the other hand, according to Odunowo, “Atiku is generally seen as pro-economy and positive for the industry. He’s managed to run some of the nation’s leading businesses. I expect him to grow the fintech industry, but the challenge could be corruption. His party is known to reward their loyalists with roles and deals.”
Peter Obi
Obi – despite formerly being a part of the financial services industry and known to be popular with middle-class Nigerian youths in the startup ecosystem, “he is not necessarily considered the most supportive of the fintech industry, according to Odunowo.
“However, the expectation is that he has a point to prove. Of all the candidates, he seems to be the best at listening to and engaging young people. So, there are high hopes for the fintech industry if he wins. I believe his Presidency will seek to support and grow the industry. Also, he is likely to implement the Startup Act to the fullest compared to the lull in activity under the current presidency,” Odunowo continues.
Robert has a similar view and mentioned that “if Peter Obi is indeed supportive of the fintech industry, it’s possible that his leadership could lead to the creation of a favourable environment for the growth and development of the fintech sector in Nigeria. A fintech-friendly environment could include policies that encourage innovation and investment in the sector, such as tax incentives for fintech startups, a streamlined process for registering and incorporating startups, and increased access to funding. It could also involve a focus on financial inclusion and digital literacy initiatives aimed at increasing the uptake of digital financial services by individuals and businesses.
“In addition, a Peter Obi-led Nigeria could potentially see increased collaboration between the government and the private sector to drive the growth of the fintech industry. This could involve government investment in infrastructure such as broadband and mobile networks and the creation of a regulatory environment that provides clarity and certainty for fintech startups. Ultimately, a supportive environment for the fintech industry could lead to increased innovation and competition in the sector, which could benefit consumers and businesses by providing them with a wider range of financial products and services to meet their needs.”
Nsofor concludes that “it doesn’t matter who the presidential candidate is.”
He adds: “In the technology space, it is whether you accept disruption, or you get disrupted. When the current president came into power eight years ago, he probably did not know how much technology would blow up as much as it has today or that the conversation of technology replacing oil would be at the forefront of roundtable discussions.
“So, whoever the next president is, will need to see the clear signs that the new oil in Nigeria is a human resource, especially in the technology industry. For players in the tech space, we are focused on delivering pure tech solutions to the less privileged, making life easier and more convenient. Our focus is disrupting the space, so we need a leader who believes this and is ready to join us on that journey.”
