The volume of financial transactions performed electronically in Africa’s most populous nation rose by 45.6 percent in February 2023 on the back of the scarcity of naira notes.
According to the latest data from the Nigeria Inter-Bank Settlement System (NIBSS), the total volume of NIBSS Instant Payment platform (NIP) transactions increased to 787.9 million in February from 541.7 million in the previous month.
It also surged on a year-on-year basis by 121.6 percent from 355.6 million in the same period of last year.
“The cash situation propelled the use of electronic payment systems. So, I am not surprised,” Damilola Adewale, a Lagos-based economic analyst, said.
He said the country saw significant rise in the use of these electronic channels as part of a coping mechanism. “I would say the increased use of e-channels came on the back of the naira redesign policy.”
On October 2022, the CBN received the approval of President Muhammadu Buhari to redesign higher denominations of the naira such as N200, N500 and N1,000.
The new naira notes was introduced into the economy from December 15, 2022.
The apex bank also directed commercial banks to return existing denominations. The bank said the deadline for the collection of the old naira notes was January 31, 2023. But it was extended till February 10.
But since February, Nigerians have struggled to get cash due to the scarcity of the new naira notes. The scarcity of the naira notes has disrupted several economic activities and the livelihoods of many people.
A recent data from CBN show that the currency in circulation declined by 29.2 percent to N982.1 billion in February from N1.39 trillion in the previous month. It also declined on a year-on-year basis by 69.9 percent in February 2022.
Amidst the crisis, Nigerians have switched to using electronic payment channels to perform transactions.
Babatunde Akin Moses, chief executive officer and co-founder at Sycamore, said people had no choice but to use electronic means of payment since cash wasn’t available.
“More people have account numbers than Point of Sale (PoS) machines, so payment via bank transfers surged,” he said.
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Over the years, Nigerian banks have exposed NIP (an account-number based, online-real-time Inter-Bank payment solution) through their various channels i.e. internet banking, bank branch, Kiosks, mobile apps, Unstructured Supplementary Service Data, PoS, Automatic Teller Machines, etc. to their customers.
A 2022 report by ACI Worldwide, ranks Nigeria in the league table of the world’s most developed real-time payments markets. The country ranked sixth behind South Korea, Brazil, Thailand, China and India.
“Nigeria is one of the countries for which real-time payments provide the biggest economic growth opportunities. Its transactions in 2021 resulted in an estimated cost savings of $296 million for businesses and consumers.
“This helped to unlock $3.2 billion of additional economic output, representing 0.67 percent of the country’s Gross Domestic Product (GDP),” it said.
The report projects that with real-time transactions set to rise to 8.8 billion in 2026, net savings for consumers and businesses are forecasted to climb to $2.3 billion.
“That would help to generate an additional $6 billion of economic output, equivalent to 1.01 percent of the country’s forecasted GDP.”
A further breakdown of the NIBSS data also shows that apart from NIP transactions, the volume of mobile transfers increased by 69.9 percent to 183.7 million in February from 108 million in January. Its value also rose by 8.3 percent to 2.6 trillion.
PoS also followed the same trend as its volume increased by 17.9 percent to 113.5 million from 96.3 million in January. In terms of value, it recorded an increase rate of 9.5 percent month-on-month from 807.2 billion to N883.5 billion.
More consumers are shifting towards the use of electronic banking channels for financial transactions, said Gbolahan Ologunro, senior research analyst at Cordros Securities.
“So, there is an increased use of digital channels for transactions and mobile payments,” he said.
A latest Mastercard survey said that 99 percent of Nigerians use digital channels such as banking apps and websites to make financial transactions.
This percentage makes the country to have the highest usage when compared with other Middle East and African countries like Kenya (87 percent), Pakistan (66 percent), Jordan (53 percent), Morocco (34 percent) and Iraq (27 percent).
“There is now a greater awareness of mobile money, combined with a broader diversification in its uses. Consumers are now more open to using mobile money for more than just transactions,” the report said.