Critical Analysis of the Digital Payments System in the Nigerian Banking System -By Pelumi Abdul

INTRODUCTION

Globally, banking systems are the cornerstone of development and are seen as the engine of socio-economic development. Over the years, the most important development of the millennium that has significantly influenced the banking systems of countries around the world is the emergence of information technology.

Information and Communication Technologies (ICT) now make it possible to digitize the information and transactional activities of banks, in particular through digital payment. Thus facilitating transactions more easily, increasing domestic and international retail payments and reducing financial costs.

The Nigerian banking system is one characterized by different phenomenal changes since the 1980s.[1] It manifested itself in the system, volume and complexity of operations, financial releases and process re-engineering. Nevertheless, a few years ago, it was necessary to eliminate all forms of difficulties facing the system in order to improve service delivery and efficiency.

So, in 2012, the Central Bank of Nigeria affirmed the cashless policy aimed at promoting the use of electronic means of transactions and making Nigeria a cashless economy in the near future.[2]

As a result, the Nigerian payment space has taken leaps and bounds towards digital. Although digital payment methods such as; internet banking, mobile banking, unstructured supplementary service data (USSD)[3]etc existed before this policy, but the political decision and the coronavirus pandemic have redefined the digital payment experience for a large number of Nigerians and made it easily accessible.

Nigerian digital payment

It is axiomatic to note that Nigeria has recorded significant progress in creating a robust payment system aimed at creating convenience. Avenue now exists, where operators and consumers transact with confidence. Thus, underpinning a reform of the system.

By definition, payment systems are mechanisms that facilitate the clearing and settlement of money and other financial transactions and are a major service provided by banks and other financial institutions.[4] Payment systems can be physical or digital. It is digital, where it involves electronic transactions without the use of cash, checks, letters of credit or documents.

The digital payment system takes many forms, including e-commerce, internet banking, virtual cards, debit and credit cards, electronic funds transfer, mobile transfers from others. Prior to the digital payment system in Nigeria, the traditional banking system was characterized by high financial exclusivity. This was due to limited public awareness, high rate of illiteracy and restricted access to banking infrastructure.

In an attempt to address these challenges, the Central Bank of Nigeria launched the “Payment Systems Visions 2020” in 2007.[5]which aimed to increase the resilience of payment infrastructure systems in Nigeria and encourage the use of digital means of payment, in order to simplify payment methods and financial inclusion.[6]

This approach by the Central Bank of Nigeria, as well as its 2012 cashless policy, saw significant growth despite its full implementation at the time. Between 2010 and 2012, financial exclusivity among adults rose from 46.3% to 39.7% in the country.[7]

Benefits of Digital Payments System in the Nigerian Banking System

The Nigerian banking system has witnessed phenomenal growth following the introduction of the digital payment system. It is obvious that using a paper payment system costs about 9.5% of the transaction.[8] This is different from the digital payment system which mobilizes savings and costs, thereby enhancing transactions and utilization of banking institutions in Nigeria.

According to the Business Day Research and Intelligence Unit (BRIU)[9], in FY 2019, cross-plan mobile transactions stood at 42.1 million with a value of N828.1 billion. As a result, banking audiences grew, with the bank’s total number of active users in the same year standing at 72.3 million, an increase of 3% from the 69.9 million users of the bank. financial year 2018.

Apart from security, digital payment has significant economic benefits for the Nigerian banking system. For example, automated electronic payment deepens bank deposits. Additionally, cardholders’ use of point-of-sale cards helps keep money in the banking system. This could displace the underground economy and introduce hidden transactions into the system, thereby promoting trust and participation in financial systems.

Gross Domestic Product (GDP) would not be excluded from the digital payment quota in Nigeria, if fully implemented like in Canada. According to Global Insight and the Canada Visa Association[10]digital payment has contributed over $107 billion to the Canadian economy since 1983. There is a need to accelerate the digital payment system in Nigeria to reach these heights.

Nigerian rapid response

To facilitate the digital payment system, the Nigerian Interbank Settlement Systems (NIBSS) has launched the Nigerian Quick Response (NQR) payment solution.[11] It is a barcode, made up of black squares on a contrasting background, intended to constitute a real promotional track for digital payment.[12]

The code tends to ensure financial inclusion. In January 2021, the Central Bank of Nigeria released a framework for Quick Response (QR) code payment.[13] This is part of efforts to ensure the stability of digital payment platforms in the country.

The framework would push start-ups to grow and contribute to the economic development of Nigeria. This is why the framework is committed to providing an enabling environment for interoperability, market conduct and innovation in the Nigerian banking ecosystem. In addition, it would promote healthy competition, high quality service and protect participants involved in digital payment.

Licence

The Payment Service Providers (PSP) License is a new licensing scheme emanating from the Central Bank of Nigeria to improve access to financial services for low-income people. The license categories are; switching and processing, mobile money operations, the regulatory sandbox and it is intended to promote robust and credible payment systems and offers. The digital companies involved include; Paystack, Flutterwave, InterswitchwebPAY and eTranzact.[14]

Conclusion

The introduction of the digital payment system in the Nigerian banking system is a step in the right direction. Indeed, the country’s banking institutions are now enjoying tremendous success, convenience, and security in payment transactions. Unlike traditional paper-based systems that drain finance, energy and the like, the digital payment system encourages financial inclusion, thereby facilitating greater 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 August 14, 2021.

Eyisi AS, “A Critical Analysis of Cashless Banking Policy in Nigeria” available at www.researchgate.com accessed 14e August 2021.

Janet .J, “How Digital Wallets 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 14e August 2021

Davidson .O, “Nigeria: Categorizing Nigerian Payments 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 August 15, 2021.

Nibss, “Simplifying Nigeria’s Payments System” available at https://nibss-plc.com.ng/news/4zk00wkv9g3x1zp9n19zrqsfmg accessed August 17, 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 16e 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 16e August 2021.

Okifo .J & Igbunu .R, “Electronic Payment System in Nigeria: Its Benefits and Economic Challenges” available at www.google.com accessed 16e 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 18e 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 20e 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 14 August 2021.

[2]EyisiA.S, “A Critical Analysis of Cashless Banking Policy in Nigeria” available at www.researchgate.com accessed 14e August 2021.

[3]Janet .J, “How Digital Wallets Boosted Financial Inclusion in Nigeria” available https://www.google.com/amp/s/nairametrics.com/2021/03/09/how-digital-wallets-have- boosted-financial -inclusion-au-nigeria%25E2%2580%25AF%25E2%2580%25AF%25E2%2580%25AF/%3famp consulted 14e 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 August 15, 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 16e August 2021.

[6]Nibss, “Simplifying Nigeria’s Payment System” available at https://nibss-plc.com.ng/news/4zk00wkv9g3x1zp9n19zrqsfmg accessed 17 August 2021.

[7]Same as note 5

[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 16e August 2021.

[9] Same as note 7

[10]Okifo .J & Igbunu .R, “Electronic Payment System in Nigeria: Its Economic Benefits and Challenges” available at www.google.com accessed 16e 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 viewed 18e 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 20e August 2021.

[13]Same as note 12

[14]Same as note 11


Post views:
393

Comments are closed.