Understanding CBN’s partnership with Bitt.Inc for eNaira design
The Central Bank of Nigeria is opening a new era in Nigeria’s payment landscape with the proposed launch of eNaira, tagged ‘Project Giant’, under the Central Bank Digital Currency (CBDC).
A central bank digital currency (CBDC) is the virtual format of a fiat currency or an electronic record or digital token of the official currency issued and regulated by a nation’s monetary authority.
The CBN has spent two years exploring the concept of digital currency and plans to launch one next month.
Given the significant explosion in the use of digital payments and the rise in the digital economy, the CBN’s decision follows an unmistakable global trend in which over 85 percent of Central Banks are now considering adopting digital currencies in their countries.
Godwin Emefiele, governor of the CBN listed the benefits of the Central Bank Digital Currency (CBDC) to include increased cross-border trade, accelerated financial inclusion, cheaper and faster remittance inflows, easier targeted social interventions, as well as improvements in monetary policy effectiveness, payment systems efficiency, and tax collection.
Notwithstanding the likely benefits of eNaira implementation to the banking sector such as lower cost of operations and reduced cost of cash management, the project will come with a number of risks some of which have been articulated by the CBN, Uche Uwaleke, chairman, Chartered Institute of Bankers of Nigeria (CIBN) Abuja Branch said.
These include the risk of disruptive competition, the associated cost, and the risk of deploying or onboarding a new payment platform as well as interoperability risk.
He said, perhaps the greatest implication the eNaira implementation would have for banks is the risk of disintermediation which is the possibility that it might erode the role of Deposit Money Banks as financial intermediaries.
As customers convert their bank deposits into eNaira, banks will have a smaller base on which to create loans. For smaller banks, in particular, that may have to compete for deposits with bigger banks, this could increase their cost of funds.
“Arguably, the ease of converting bank deposits to eNaira could make DMBs less stable. This explains why the CBN is applying limits on eNaira holdings. Also, the eNaira will result in much greater surveillance of the banking sector due to the issue of cyber security risk,” Uwaleke said.
On August 30, 2021, the CBN announced the formal engagement of the global Fintech company, Bitt Inc., as the technical partner for its digital currency, named eNaira.
Project Giant, as the Nigerian CBDC pilot is known, has been a long and thorough process for the CBN, with its decision to digitize the Naira in 2017, following extensive research and explorations.
The CBN’s selection of Bitt Inc, from among highly competitive bidders, was hinged on the company’s technological competence, efficiency, platform security, interoperability, and implementation experience.
In choosing Bitt Inc, the CBN will rely on the company’s tested and proven digital currency experience, which is already in circulation in several Eastern Caribbean Countries. Bitt Inc. was key to the development and successful launch of the central bank digital currency (CBDC) pilot of the Eastern Caribbean Central Bank (ECCB) in April 2021.
Findings show that Bitt Inc. will now register as a Nigerian company and the CBN will own shares in the company.
Bitt Inc. (Bitt) is a financial technology company that provides digital currency solutions to central banks, financial institutions, and ecosystem participants worldwide. Bitt specializes in the development, customization, and integration of secure financial technology solutions, including digital currency infrastructure and management, web, and mobile applications.
Bitt has partnered with the Eastern Caribbean Central Bank (ECCB) to issue and operate the world’s first Central Bank Digital Currency (CBDC) monetary union instrument which is now legal tender across the eight nations of the Eastern Caribbean Currency Union (ECCU). Enabling financial institutions, government agencies, merchants, and retail users across the region.
Bitt is a leader in the CBDC industry with subject matter experts at the intersection of technology and policy.
The firm has experience working in a regulated, collaborative, multi-stakeholder environment, unique solutions for financial inclusion including the agency model and zero-rating of mobile wallet applications, and can facilitate integrations with other CBDC networks for cross-currency exchange with international central banks.
Bitt provides APIs and documentation that allows approved participants to integrate with the CBDC network in an easy manner.
Bitt Digital Currency Management System (DCMS) allows connections to different networks blockchain-based networks, RTGS, databases, et cetera.
A presentation titled ‘Central Bank of Nigeria (CBN) & Bitt Digital Naira Overview of Bitt’s CBDC Solution’, stated that Bitt’s DCMS enables central banks to open the CBDC network to foster innovation, competition, and support for adoption and use.
Licensed private sector entities can connect to the CBDC network via unique API keys to provide a variety of payment services.
Private sector entities can implement their own fee structures, and compete for users based on the feature sets and competitive fees.
The central bank can govern fees through legislation should they wish. The private sector is responsible for delivering CBDC payment services to end-users, including retail users, merchants, enterprises Governments, and other economic stakeholders.
The DCMS is available for Monetary authority in the areas of minting solution, digital monetary infrastructure, (Transaction Network + Numa Architecture) Bitt Vault, digital currency operations manager.
It is available for financial institutions in terms of Bitt Vault, digital currency and core banking integration, digital currency operations management, retail & merchant suite, sub-license for clients, and AML Compliance Module.
It enables FIs to integrate with CBDCs, Stablecoins, and crypto networks. “Enable your institution and your clients, to execute transactions on a variety of internet-native payment networks,” Brian Popelka, chief executive officer, Bitt said.
The Bitt DCMS can be configured to maintain financial stability, and mitigate the risks associated with commercial bank disintermediation.
According to the presentation revenue models could be devised to achieve Central Bank’s desired objectives. It stated that network Fees could be charged to Financial Institutions, Payment Service Providers, and Third-Party Application Providers to use the CBDC network
Apart from Network fees, transaction fees, customer support, API calls, data monetization fees are other potential revenue sources.
Central Banks stand to eliminate a number of legacy costs by rolling out a CBDC using Bitt’s DCMS.
Costs associated with the following actions are reduced if not eliminated: counterfeiters: detection, removal, and law enforcement; transportation, security, and management logistics; economic conditions associated with ineffective monetary policy tools; Central Banks stand to gain significant value from the use of the Bitt DCMS. Increased financial inclusion increased economic activity; decreased foreign exchange costs for instance trade and remittance; increased seigniorage revenue by 90 percent; increased efficiency of audit process; and increased tax compliance.
Merchant and consumer retail suites are designed to be easy to use. The DCMS system has demonstrated the ability to handle real-world traffic at over 10,000 requests in an hour on a low-end configuration (GCS “e2-small” servers, one Hyperledger node).
DCMS applications are available for eGovernment Suite, enabling government agencies to: accept digital currencies for government services, taxes, make digital currency payments for benefits, covid relief, unemployment, tax refunds, salary, and more.
It Integrates digital currencies with back-office operations including currency management, transaction, and reporting integrates digital currencies with front office operations including e-commerce and POS.
For the Merchant and businesses, it enables the financial institutions to offer merchants and businesses the ability to accept digital currencies for goods and services, both online and in person.
It delivers BNairaed e-commerce plugin and POS applications for businesses and merchants to receive payment in digital currency, manage digital currency, make payments to vendors and employees, monitor payment flows, issue reports, and reconcile back to cash or bank account.
For the retail consumer, the DCMS applications enable Financial Institutions to offer expanded digital onboarding journeys via mobile wallets to their existing clients and target market(s). It delivers a BNairaed mobile wallet application for retail users to enable a variety of payments, invoice settlement, transfers, and traditional banking operations.
The application enables PSPs. governments and monetary authorities to expand its reach to unbanked and underbanked individuals by providing modern digital mobile applications that are self-sufficient.