How weak digital payment system undermines e-transactions in Nigeria

Mrs Patience Ehigiator, a petty trader in Benin in Southern Nigeria, juggles multiple businesses to support her family. She is majorly a food vendor, but complements the business with sales of table water, soft drinks, beverages, among others. Ehigiator says that she has been in the business for more than five years. The young woman says she loves digital transactions which she finds safe and secure. “Digital payment methods are not common in our area, but I always encourage my customers to pay through mobile money to a designated bank account. “I was excited when the Federal Government announced the plan to implement a cashless policy in Nigeria; clearly, the policy will streamline transactions and reduce the risk of dealing with cash. “Online payment is good. It is secure and safe. It reduces robbery since nobody would be carrying money around. Even with an ATM card, one can go to a POS operator and transfer money without anybody knowing. This informed why I preferred to be paid digitally even before the government policy,” she says. The Central Bank of Nigeria (CBN) in 2012 introduced a cashless policy in Lagos, Nigeria’s major financial centre and economic hub, but extended it to other parts of the country on July 1, 2014. This policy, alongside naira redesign, ensured a full implementation of a cashless economy from January 9, 2023. The initiative, according to the CBN, seeks to reduce financial crime and tax avoidance, decrease cash dependency, advance the adoption of Digital Financial Services (DFS), decrease the risks to the payment system and foster financial inclusion. Eager to embrace the change, Mrs Ehigiator applied for a Point of Sale (POS) machine for financial services which could also expand her petty business. She says, however, that the excitement about the new digital payment system introduced by the government has been replaced with general frustration. According to her, malfunctioning POS machines and intermittent network failures constitute constant hindrance. “Very often, we struggle to receive payments from customers to restock our goods,” she fumes. Ehigiator is not alone in the situation. Bushrah Yusuf-Badmus, a civil servant, who also engages in petty trading, says she has lost many customers due to the ineffective payment system introduced by the government at the centre. “My experience has not been palatable. Buying and selling has been very difficult because of the digital failures while making payment for goods and services,” she says. “The situation has resulted in poor sales because people do not have cash to make purchases and they cannot make digital payments because of poor infrastructure. As a result of this, I only sell to people I know. “When I tried to find alternatives, Igot swindled. “This bad infrastructure forced me to open a palmpay account which is faster, but I got swindled through the application and I lost over N6,000 before I later deleted the application,” Yusuf-Badmus says. But Yusuf-Badmus is optimistic that the policy to digitise payments, if implemented well, will solve many challenges traders like herself face. “Cashless economy is a good initiative as it reduces carrying cash around and also reduces theft, but it can only thrive in a society that has a good facility and available network. “I prefer a cashless economy but Nigeria seems not ripe enough for it. There are many things that have to be put in place before we can have a total switchover.” These experiences are faced by many Nigerians since the relaunch of the digital payment policy, judged by many to be good. Even when the digital payment system seems to work, the collapse of several financial institutions has often left people in a state of uncertainty. Reports of funds disappearing, accounts frozen and difficulties in making online payments as a result of downturns are common. For individuals like Mrs Ehigiator, who rely heavily on online platforms for their livelihoods, these drawbacks have brought financial strain and anxiety. While the objective of the policy was to bring positive change, the lack of adequate preparation and infrastructure has proved to be debilitating for Nigerians. Government agencies, financial institutions and technology providers appear ill-equipped to handle the immediate and broader impact of the policy. According to a report by the Centre for the Promotion of Private Enterprise (CPPE), Nigeria lost more than N20 trillion to the policy implementation between January and March 2023. In the report obtained by Dataphyte, a media research and data analytics organisation, the losses emanated from the de-celeration of economic activities, crippling of trading activities, stifling of the informal economy, contraction of the agricultural sector and the paralysis of rural economy. The report said the economy was gradually grinding to a halt due to the collapse of payment systems across all platforms, as digital platforms performed sub-optimally due to congestion and poor infrastructure. As the problems mounted, Nigerians voiced their frustrations, demanding swift action and resolution. The government, recognising the urgency, pledged to rectify the situation by investing in improved digital infrastructure, training personnel and ensuring seamless access to digital payment platforms. Calls for policy reevaluation Currently, government is under intense pressure to fix the challenges of implementing the policy as demands for digital payments and transactions grow among the populace. Charles Collins, a student, has been transacting via the government-built platform and wants the government to address current challenges so he could fully benefit from the system. “There is a need to revisit the policy for its inherent benefits. However, it must be ensured that the technical glitches that undermined the policy are looked into,” he said. Corroborating Collins’ stance, Yusuf-Badmus also backed a re-evaluation and re-introduction of the policy. According to the trader, this is necessary due to the weighing benefits of digital payments which surpass whatever may be the shortcomings, particularly in a country battling insecurity. “Cashless economy guides against carrying physical cash and reduces chances of corruption because any digital payment made or received can easily be traced. This will reduce theft and can also help one to control lavish spending,” she says. Experts’ opinions Mr Abbo D’Léon, a digital expert, acknowledged the impressive growth Nigeria has recorded in the adoption of digital payments in Africa, but noted, nonetheless, that limited investment as well as lack of trust occasioned by low awareness of the inherent benefits of the policy among the public, still hinder the progress of this technological innovation in the country. D’Léon blamed the poor infrastructure on the financial institutions in the country, which have failed to expand their facilities to meet future demands. “Infrastructure for the policy was not anticipated at that rate. There is what we call bandwidth. Internet subscription or internet access is limited by either speed or bandwidth. “Technically, the internet is free, but it is being limited by speed and bandwidth. So, the access or bandwidth that an organisation has, based on the existing infrastructure, could be 10,000 users at a particular time frame. That means, that is the limit they are paying for. “When the policy implementation started, they may now be getting 50,000 transactions or processings. Meanwhile, the system was not set up to do that. It means the institutions are only managing their existing infrastructure instead of upgrading the infrastructure to fit the current demand that led to the collapse,” he said. Similarly, a tech expert, Mr Oloruntobi Oladele, has observed that right of way laws were slowing down digital infrastructure expansion in the country. Many cables for strong connectivity, which is an enabler of digital public infrastructure, he says, are being destroyed owing to right of way claims by the government. Right of way law is the total land area acquired for the construction of the roadway. Under this law, the government hides to unearth telecommunication cables meant to improve quality service delivery. The infrastructure that is unearthed remains the backbone of enabled service delivery all over the world, Oladele points out. He opines that investment is required at government and private sector levels to optimise infrastructure interventions as digital payments run through the same service providers which are few at the moment. “The huge traffic on those infrastructure leads to poor quality of service provisioning,” the expert says. D’Léon, on the other hand, identifies awareness as key to deepening adoption of digital payments for commercial transactions, which the cashless policy seeks to encourage. “There is adoption among institutions because of the high educational awareness, but adoption in the less formal sector is low such as among marketers and other SMEs because of lack of educational awareness. “The second part is lack of awareness of the capability of the facility. If people do not know that something exists, they cannot use it. The conventional type of transaction that works and is reliable to them, is cash,” he said. Backing the calls for the full scale implementation, D’Léon says that when cashless economy grows in a nation, it fastens such economy at a very rapid rate “Based on the way money works in terms of how cash works and the value that is attached to it, cash, in terms of currency, is limited in print and supply. When a cashless economy grows, we see that it allows the economy to grow at a very faster rate as it does not require you necessarily to have more cash. “With increase in mobile financial transactions and purchases across different sectors or industries, you do not necessarily need to print more cash. That is one benefit; it helps the economy to grow faster. The cost of printing money is reduced. It does not necessarily mean they won’t print or make cash available, but when people adopt this, it increases the growth of the economy and makes it easier as well as less expensive for the government to manage it. “It also increases the ease of doing business because it ensures there is convenience on the part of business owners and the consumers because nobody needs to start looking for cash to carry out transactions,” he says. He submitted that since Nigeria had tested the policy, it was a very good learning phase for the country and an opportunity to take a look at how the system operates and create a better system. “I think people were beginning to get used to the situation before the policy was relaxed. If it had existed a month longer, we would have adapted properly to it and be able to manage it. “Nevertheless, the adoption rate has increased. It was a good learning period for the financial institutions, business mechant and for the government in terms of seeing how people want to do business,” the expert said. CBN’s efforts on efficient payments system Meanwhile, to make the digital payment system more robust in Nigeria, the Central Bank of Nigeria (CBN) has developed Nigeria Payments System Vision 2025 meant to promote and encourage electronic payments and convince the public of the benefits of the new technology solution. The CBN, in the document, aspires for Nigeria, a cashless and efficient electronic payment system infrastructure that will facilitate financial services in all sectors of the economy, and provide secured, reliable and user centric financial solutions in compliance with international standards, with minimal risk. To achieve this, the apex bank says it has initiated a review of the core payments infrastructure and central switching platform to ensure continued capacity to meet payment demands.