eNaira: How not to implement a cashless policy

eNaira, the world’s second Central Bank Digital Currency (CBDC) faces an uncertain future two years after it was launched and billions of naira invested to develop and create awareness for it. Its inability to attract users continues to be its biggest drawback.

In May 2022, the International Monetary Fund (IMF) released a report that did not flatter the CBDC, as it showed that less than one percent of the banking customers in Nigeria downloaded the wallet two years after it was released – on October 25, 2021. The total volume of transactions at 802,000 was less than the number of downloaded wallets at 919,000.

But the number of wallets has increased more than 12-fold to 13 million in 2023. The value of transactions so far rose by 63 percent to N22 billion ($48 million). That is a small number for a country with an adult population of close to 110 million.

As of September 2023, the total installs for the eNaira wallet remain below 1 million on the Google Play store, while the website is ranked 4,062 in Nigeria, according to Similarweb. Users also continue to complain about the poor service on the platform.

A user on X (formerly Twitter) with the handle @Cicerorian said he still uses the eNaira and it functions “very fine”. “Their customer service is very non-existent, so difficult to resolve basic things.”

When the Central Bank of Nigeria (CBN) launched the eNaira in October 2021, it said the objective was to allow for financial inclusion and fiscal benefits to ultimately boost the economy. However, experts have said the manner in which it was deployed is a clear example of how not to drive financial inclusion policy. Here are a few things they say have kept many users away from the eNaira.

Read also: eNaira future uncertain after Emefiele ouster

eNaira launch and crypto ban

The eNaira was launched in the same month that the CBN slammed a sledgehammer on the booming cryptocurrency market in Nigeria which trapped billions of naira in users’ funds across the various crypto exchanges. The restriction on cryptocurrency platforms from accessing financial services and the closure of their accounts left the market in disarray, with users significantly negatively impacted.

Hence, when later the same CBN came back with its digital money, which it also did a poor job explaining what it does and what the difference was from the digital currency it has banned, it met largely apathy. According to the IMF report, it took 25 days for the number of downloaded eNaira wallets to reach 500,000 units – but going from there to 600,000 units took another 63 days, and to 700,000 units yet another 143 days. Bloomberg reported in October 2022 that less than 1.22 million Nigerians have used the eNaira wallet. In terms of customer feedback, the eNaira Speed Wallet app has ratings of 2.9 on the Android Play Store and 2.2 on the iOS App Store.

Crypto industry experts said they were not consulted before the ban decision was made. Prior to the ban, they had been having discussions with the apex bank and there were some indications.

Low industry buy-in

One of the early flaws of the eNaira was the inability of the CBN to convince the financial services industry that it was a viable project and guaranteed return on investment. First, the apex bank’s handling of the platform means no third party was allowed to layer their services on the technology.

The eNaira is a liability of the CBN that uses blockchain technology, is stored in digital wallets, and can be used for payment transactions. While all eNaira transactions are handled in real-time and recorded by a CBN system (albeit using a distributed ledger (DLT)11), transactions with retail CBDC clients (e.g., exchanging CBDC with retail clients’ cash or deposit holdings) are all handled by financial institutions, mainly banks — with CBN directly transacting only with them.

With the CBN controlling every aspect of the eNaira and providing few incentives for commercial banks to leverage the platform, only a few of them felt the need to push the awareness of digital money to their currency. Also, the eNaira is almost replicating the digital banking services the individual banks have already launched. This is one of the limiting factors highlighted by the IMF about CBDCs.

Read also: eNaira fails to lift informal economy, remittance amid users’ snub

A “CBDC’s user appeal, as digital money, will likely be limited due to the availability of existing private digital money with similar or superior traits (e.g., bank deposits with fast payment). However, it also argues that in jurisdictions with limited banking penetration and unreliable settlement platforms, CBDC may gain more user attractiveness, particularly if private digital money fully secured by cash such as mobile money does not exist,” noted the IMF report.

Without the active buy-in of banks and other financial institutions, the reach of the eNaira will be limited. The apex bank has made some partnership with fintech companies like Flutterwave. The regulator also upgraded the eNaira app with Near Field Communication, a technology that allows two devices, like a mobile phone and a payment terminal to talk to each other when they are close together. This enables the app to accept contactless payments in a few seconds.

“I think it would have solved the issue of failed transfers and excessive bank charges. The marketing is poor and banks deemed it a competitor. This has greatly hindered mass adoption. Worse still, no incentives, network effect missing,” said Goodnews Emmanuel, an X user.

A senior officer in one of the big consulting firms in the country said the way out for the CBN is to dump the eNaira project and move on.