How domestic card scheme will benefit 38m unbanked Nigerians
The Central Bank of Nigeria (CBN) recently launched Africa’s first central bank-driven, domestic card scheme known as AfriGo and analysts say this could help over 38 million unbanked customers.
This latest development now adds Nigeria to the list of countries with their own domestic card schemes such as India, Turkey, China, and Brazil.
India, the world’s second most populated country is among such countries and Africa’s biggest economy can take lessons from its national domestic card scheme called ‘RuPay’ which was launched in 2012. This scheme has helped to include the unbanked into the financial net
According to Davidson Oturu, partner at Aelex Legal, a full service commercial & dispute resolution law firm, RuPay was established by the National Payments Corporation of India, an umbrella organization set up by the Reserve Bank of India and the Indian Banks’ Association.
“In 2011, almost half of the adult Indian population did not have bank accounts as account holders were required to have a minimum balance to maintain an account. To resolve this, the Indian government launched a financial inclusion program in 2012, which included the setting up of a national card scheme, RuPay,” he said.
He said subsequently, in 2014, it rolled out a program that enabled customers to open zero-balance savings accounts and Basic Savings Bank Deposit Accounts. “Customers were then offered a free RuPay debit card upon opening an account.”
Oturu added that these actions led to an upsurge in the financial inclusion scheme in India as over 400 million bank accounts have been opened since then and card transactions have multiplied.
Data from World Bank shows that the number of Indians with bank accounts rose by 42.3 percentage points to 77.5 percent in 2021 from 35.2 percent in 2011, while Nigeria’s own rose by 15.6 percentage points to 45.3 percent.
A card scheme is a central payment network that uses credit and debit cards to process payments. It helps to manage payment transactions according to a set of procedures, rules, and arrangements that allow cardholders to use their cards with third parties.
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With card schemes, people can easily purchase and pay bills, online or in-store, without any need for cheques or cash exchanges.
Some of the benefits of the card listed by the CBN are that the card scheme will strengthen the national payments system, deepen the usage of electronic platforms in the country, reduce the cost of cashless society, save the country foreign transaction fees and improve the country’s data sovereignty and security.
“The new card scheme is aimed at providing more options for domestic consumers whilst also promoting the delivery of services in a more innovative, cost-effective and competitive manner,” it said.
It said the scheme will open more opportunities for the Nigerian economy to integrate the informal segment of the economy, reduce shadow banking and bring more Nigerians into formal financial services, thereby accelerating financial inclusion.
“It will make it easier for individuals to access financial services and perform financial transactions particularly in rural areas where access to traditional financial institutions may be limited.
“This can help to promote economic growth and stability, and can also help to reduce poverty and inequality,” it added.
Babatunde Akin Moses, chief executive officer and co-founder at Sycamore, a peer to peer lending platform, said, “A Card Payment Scheme (CPS) is basically the mechanism that makes Automatic Teller Machine cards work. It processes payments using debit and credit cards and banks usually pay the CPS to use its system to create cards,”
Currently, foreign cards like Visa, Mastercard, and Verve by Interswitch are the three major card payment providers of financial institutions in Nigeria.
Godwin Emefiele, governor of CBN, said the high cost of card services as a result of Foreign Exchange (FX) requirements of international card schemes have limited the inclusion of Nigerians.
“And also the existing card products do not address local peculiarities of the Nigerian market,” he said.
Akin Moses said the CBN is going into the CPS business for at least three reasons such as to provide the cards to local banks at a cheaper cost, and to help conserve Foreign Exchange (FX) since the arrangements with the international players typically require FX.
“There’s also the general sovereignty and independence risk to consider. Many countries started to think about this more critically after some international companies stopped services in Russia due to the war.”
The annual value of card transactions in the Nigeria cards and payments market was $18.2 billion in 2021 and it is expected to grow at a compound annual growth rate of more than 18 percent during the forecast period, according to Globadata.
This indicates that a lot of transactions are carried out using card schemes in Nigeria, said Oturu.
“With CBN’s recent policies around cash withdrawal limits, as well as other aspects of its Payment Systems Vision 2020, the use of cards for transactions may see a significant uptick in 2023,” he added.