Brand Matters
Critical Analysis Of Digital Payment System In Nigerian Banking System -By Pelumi Abdul
This approach by the Central Bank of Nigeria along with their cashless policy of 2012 has witnessed significant growth despite not at its full implementation then. Within 2010 and 2012, financial exclusivity in adults reduced from 46.3% to 39.7% in the country.
INTRODUCTION
Globally, banking systems serve as the cornerstone for development, and are considered the engine room for social-economic development. Over the years, the most significant development of the millennium that has influenced substantially banking systems of countries around the globe is the emergence of information technology.
Information and Communication Technology (ICT) now makes it possible to digitize information and transactional activities of banks, particular by digital payment. Thus facilitating transactions more conveniently, increasing domestic and cross-country retail payment and reducing financial cost.
The Nigerian banking system is that characterized by different phenomenal changes since the 1980s.[1] It has been manifested in the system, volume and complexity of operations, financial liberations and process reengineering. Nevertheless, some years back, there was need to eliminate all forms of difficulties facing the system in order to advance service delivery and efficiency.
Thus, in 2012 the Central Bank of Nigeria affirmed the cashless policy to promote the use of electronic means of transactions and towards making Nigeria a cashless economy in the nearest future.[2]
As a result, Nigerian payment space took the giant strides towards becoming digital. Although, digital payment methods such as; internet banking, mobile banking, Unstructured Supplementary Service Data (USSD)[3]etcetera have been in existence prior to this policy, but the policy decision and the due Coronavirus pandemic redefined digital payment experience for a vast number of Nigerians and made it easily accessible.
The Nigerian Digital Payment
It is axiomatic to note that Nigeria has recorded significant progress in creating a robust payment system targeted at creating convenience. Avenue now exists, where operators and consumers transact with trust and confidence. Thus, underpinning a reform in the system.
By definition, payment systems are mechanisms that facilitate the clearing and settlement of money and other financial transactions and serves as major service provided by banks and other financial institutions.[4] Payment systems maybe physical or digital. It is digital, where it involves electronic transactions without the use of cash, cheques, letter of credits or documents.
Digital payment system takes many forms including e-commerce, internet banking, virtual cards, debit and credit cards, electronic funds transfer, mobile transfers from host of others. Prior to digital payment system in Nigeria, the traditional banking system is characterized with large financial exclusivity. This was due to limited public awareness, high rate of illiteracy and restricted access to banking infrastructures.
In attempt to address these challenges, the Central Bank of Nigeria launched in 2007 the “Payment Systems Visions 2020”[5], which was aimed at increasing the resilience of payment infrastructural systems in Nigeria and encourage the usage of digital means of payments, in order to simplify payment methods and financial inclusion.[6]
This approach by the Central Bank of Nigeria along with their cashless policy of 2012 has witnessed significant growth despite not at its full implementation then. Within 2010 and 2012, financial exclusivity in adults reduced from 46.3% to 39.7% in the country.[7]
Advantages of Digital Payment system in Nigerian Banking System
The Nigerian banking system has witnessed tremendous growth as a result of introduction of digital payment system. As evident, using paper-based payment system costs around 9.5% of the transaction.[8] This is unlike digital payment system that mobilize savings and cost, thus improving transactions and use of banking institutions in Nigeria.
According to the Business Day Research and Intelligence Unit (BRIU)[9], in 2019 fiscal year, mobile inter-scheme transactions was at 42.1 million at a value of 828.1 billion in naira. As a result, the banking public grew, as the total number of active bank users same year stood at 72.3 million, at a 3% increase from 2018 fiscal year’s 69.9 million users.
Apart safety, digital payment has significant economic benefits for the banking system in Nigeria. For instance, automated electronic payment deepens bank deposits. Also, the use of cards at point of sale by cardholders help keep money in the banking system. This could displace shadow economy and bring hidden transactions into the system, thus promoting confidence and participation in financial systems.
The Gross Domestic Product (GDP) would not be left out from digital payment quota in Nigeria, if fully implemented as done in Canada. According to Global Insight and Visa Canada Association[10], digital payment has contributed over 107 billion dollars to Canadian economy since 1983. There is need to fast track digital payment system in Nigeria to reach this heights.
Nigerian Quick Response
To facilitate digital payment system, the Nigerian Inter-bank Settlement Systems (NIBSS) launched the Nigerian Quick Response (NQR) payment solution.[11] It is a barcode, made up of black squares in a contrasting background designed to provide veritable avenue for promoting digital payment.[12]
The code tends to ensure financial inclusion. In January, 2021, the Central Bank of Nigeria released framework for the Quick Response (QR) code payment.[13] This is part of the efforts of ensuring stability in digital payment platforms in the country.
The framework would push start-up companies to grow and contribute to economic development in Nigeria. Thus is because the framework is committed to make available enabling environment for interoperability, good market conduct and innovation in Nigerian banking ecosystem. Moreover, it would promote healthy competition, high quality service and protect participants involved in digital payment.
Licensing
The Payment Service Providers (PSP) license is a new licensing regime emanating from the Central Bank of Nigeria to enhance access to financial services for low income earners. The categories for licensing are; switching and processing, mobile money operations, regulatory sandbox and it is meant to promote strong and credible payment systems and offers. The digital companies involved include; Paystack, Flutterwave, InterswitchwebPAY and eTranzact.[14]
Conclusion
The introduction of digital payment system in the Nigerian banking system is a step into the right direction. This is because banking institutions in the country now experience huge success, convenience and safety in payment transactions. Unlike, traditional paper systems that exhaust finance, energy and others, digital payment system encourages financial inclusion, thus facilitate more involvement in banking.
References
Nwachukwu .S, Nwaneri .S &Ogbuchi .N, “Critical Analysis of Electronic Banking in Nigeria” available at https://nibss-plc.com.ng/news/4zk00wkv9g3x1zp9n19zrqsfmg accessed 14th August 2021.
Eyisi A.S, “A Critical Analysis of Cashless Banking Policy in Nigeria” available at www.researchgate.com accessed 14th August 2021.
Janet .J, “How Digital Wallets have boosted Financial Inclusion in Nigeria” available https://www.google.com/amp/s/nairametrics.com/2021/03/09/how-digital-wallets-have-boosted-financial-inclusion-in-nigeria%25E2%2580%25AF%25E2%2580%25AF%25E2%2580%25AF/%3famp accessed 14th August 2021
Davidson .O, “Nigeria: Categorization of Nigerian Payment Systems- What it means for Fintechs” available at https://www.mondaq.com/nigeria/fin-tech/1016944/categorisation-of-nigerian-payment-systems-what-it-means-for-fintechs accessed 15th August 2021.
Nibss, “Simplifying Nigeria’s Payment System” available at https://nibss-plc.com.ng/news/4zk00wkv9g3x1zp9n19zrqsfmg accessed 17th August 2021.
Isaac .E, “The Rising Fortune of Digital Payment Platforms” available at https://www.google.com/amp/s/businessday.ng/research-post/article/the-rising-fortune-of-digital-payment-platforms/amp/ accessed 16th August 2021.
Invoice, “Key Benefits of Online Payments for Nigerian Small Businesses” available at https://invoice.ng/blog/key-benefits-of-online-payments-for-nigerian-small-businesses/ accessed 16th August 2021.
Okifo .J &Igbunu .R, “Electronic Payment System in Nigeria: Its Economic Benefits and Challenges” available at www.google.com accessed 16th August 2021.
NM Partners, “NQR Code Payment System launched in Nigeria” available at https://www.google.com/amp/s/nairametrics.com/2021/03/16/nqr-code-payment-system-launches-in-nigeria/%3famp=1 accessed 18th August
Manifield Solicitors, “For Quick Response Code (QR Code) Payment Solutions in Nigeria” available at https://www.manifieldsolicitors.com/2021/03/15/the-nibss-nqr-payment-solution-and-the-cbn-regulatory-framework-for-quick-response-code-qr-code-payment-solutions-in-nigeria/ accessed 20th August 2021.
[1]Nwachukwu .S, Nwaneri .S &Ogbuchi .N, “Critical Analysis of Electronic Banking in Nigeria” available at https://nibss-plc.com.ng/news/4zk00wkv9g3x1zp9n19zrqsfmg accessed 14th August 2021.
[2]EyisiA.S, “A Critical Analysis of Cashless Banking Policy in Nigeria” available at www.researchgate.com accessed 14th August 2021.
[3]Janet .J, “How Digital Wallets have boosted Financial Inclusion in Nigeria” availablehttps://www.google.com/amp/s/nairametrics.com/2021/03/09/how-digital-wallets-have-boosted-financial-inclusion-in-nigeria%25E2%2580%25AF%25E2%2580%25AF%25E2%2580%25AF/%3famp accessed 14th August 2021
[4]Davidson .O, “Nigeria: Categorization of Nigerian Payment Systems- What it means for Fintechs” available at https://www.mondaq.com/nigeria/fin-tech/1016944/categorisation-of-nigerian-payment-systems-what-it-means-for-fintechs accessed 15th August 2021.
[5]Isaac .E, “The Rising Fortune of Digital Payment Platforms” available at https://www.google.com/amp/s/businessday.ng/research-post/article/the-rising-fortune-of-digital-payment-platforms/amp/ accessed 16th August 2021.
[6]Nibss, “Simplifying Nigeria’s Payment System” available at https://nibss-plc.com.ng/news/4zk00wkv9g3x1zp9n19zrqsfmg accessed 17th August 2021.
[7]Ibid at note5
[8] Invoice, “Key Benefits of Online Payments for Nigerian Small Businesses” available at https://invoice.ng/blog/key-benefits-of-online-payments-for-nigerian-small-businesses/ accessed 16th August 2021.
[9] Ibid at note7
[10]Okifo .J &Igbunu .R, “Electronic Payment System in Nigeria: Its Economic Benefits and Challenges” available at www.google.com accessed 16th August 2021.
[11]NM Partners, “NQR Code Payment System launched in Nigeria” available at https://www.google.com/amp/s/nairametrics.com/2021/03/16/nqr-code-payment-system-launches-in-nigeria/%3famp=1 accessed 18th August
[12]Manifield Solicitors, “For Quick Response Code (QR Code) Payment Solutions in Nigeria” available at https://www.manifieldsolicitors.com/2021/03/15/the-nibss-nqr-payment-solution-and-the-cbn-regulatory-framework-for-quick-response-code-qr-code-payment-solutions-in-nigeria/ accessed 20th August 2021.
[13]Ibid at note12
[14]Ibid at note11
