One year after, eNaira lacks business case for banks

Nigeria’s Central Bank Digital Currency (CBDC), eNaira may have marked its one-year anniversary, but traditional financial institutions still see no clear business case to encourage adoption.

The recent Interswitch Global Payment Innovation Juro Report found that while fintech companies are the most likely to benefit from CBDCs, traditional banks may well experience significant negative effects. Feedback from 79 of the most senior players in the global payments industry whose views shaped the report is that there is little conviction that there is market demand for CBDCs and they also highlighted the significant technology costs associated with deployment.

“Essentially, the Jury believes that CBDCs will happen, but it is not clear that there will be tangible benefits for much of the industry nor end users,” the report noted.

There are only three countries in the world where CBDCs are live, they include Bahamas, Nigeria, and China. The Nigerian eNaira clocked 1 year on 25 October 2022 and the apex bank marked it with a series of activities including a plan to onboard 7,740 agent points. These agents include tricycle drivers in cities like Abuja and Lagos. A driver who does a payment transaction with a customer on the eNaira platform will get a 5 percent discount while the customer also gets an equal amount of discount on the actual price of the transport fare.

The apex bank’s latest awareness campaign is aimed at addressing the lack of enthusiasm many Nigerians have shown towards the CBDC since it was launched by the regulator. In September, Godwin Emefiele, the CBN Governor said the total downloads of the eNaira mobile appl stood at 905,588, out of which only 282,600 are currently active. This is approximately 31 percent of the total downloads. Users have conducted 1.49 million transactions worth N3.484 billion.

Read also: Seven milestones eNaira achieved in one year – CBN

A report by Bloomberg notes that one in every 200 Nigerians has downloaded the eNaira app. BusinessDay also reported in May that merchants were not excited about the usage of eNaira. Out of 168,380 active wallets, a document from the CBN showed only 80 were merchants.

“Majority of the transfers are done using bank apps, not eNaira. There are also channels like PoS which the customers prefer. So the eNaira does not come into the discussion,” said a merchant then.

That is underwhelming considering the expectation of the CBN before the launch of the CBDC that banks would easily push it to millions of their customers, leading to a major spike in adoption. Many banks do not see a path to recouping their investment should they join the CBN. This could lead to a potential loss of capital for the institutions The apex bank has total control of the blockchain technology.

The lack of a clear business case for major financial institutions has largely been responsible for the continuous shifting of the launch date for CBDCs in many countries. The Interswitch Global Payment Innovation Juro report found that a majority (55%) of the 79 payment leaders around the world say their respective countries may eventually launch a CBDC in the next 5 years. Only 6 percent think the launch of a CBDC could happen in the next 16 months.

John Chaplin, author of the report told BusinessDay that the rush to launch a CBDC by the central bank was largely influenced by the growing adoption of cryptocurrencies.

However, the central bank’s debate for introducing the eNaira is mainly for financial inclusion, support for monetary policy, cash replacement, and payment innovation. The jurors are not also convinced about the argument that CBDCs would increase competition or reduce costs for consumers.

In the long run, fintech companies are likely to benefit from the launch of CBDCs, the report noted. The Nigerian central bank is already making a push for fintech collaboration. Flutterwave announced in September that it has added eNaira as a payment option for merchants, a move that could help boost the adoption of the digital currency.