Nigeria: Collaboration Gaps and Infrastructure Challenges Impede Digital Payment Growth in Nigeria

Nigeria, a leader in telecom adoption in Africa, faces hindrances to the growth of its digital payment system due to a lack of collaboration, inadequate infrastructure, and regulatory frameworks.

The Central Bank of Nigeria’s decision to reduce the volume of cash in circulation in the past year exposed vulnerabilities in the digital payment system. This initiative aimed to redesign the highest naira notes to reduce cash outside the banking system, resulting in cash withdrawal limits and a push towards digital payments.

As Nigerians adapted to these changes, digital payment platforms faced challenges due to the sudden surge in traffic. High volumes of failed transactions and digital platform breakdowns became common issues. Additionally, cybercrime posed a significant threat to the digital payment landscape, with banks losing billions to fraud in the first half of the year.

The Financial Correspondents Association of Nigeria (FICAN) hosted a conference in September 2023 to discuss these challenges and explore ways to strengthen the digital payment infrastructure.

Key challenges discussed at the conference included:

1. Inadequate Digital Infrastructure: The World Bank’s report highlighted Nigeria’s digital and financial infrastructure’s incapability to support a swift transition to a cashless economy. The lack of adequate digital infrastructure, coupled with low bank account penetration, has inflated transaction costs.
2. Cybercrime: Cybercriminals have been targeting users of digital payment systems, causing financial losses and eroding trust in the security of banking services.
3. Lack of Collaboration: Stakeholders in the digital payment ecosystem, including the Central Bank, telcos, commercial banks, and fintech companies, need to collaborate to expand internet connectivity, improve interoperability, and enhance payment platforms.
4. Regulatory Framework: Regulations covering digital payments should be robust to ensure secure and competitive digital payment systems. Effective cybersecurity measures, multi-factor authentication, and consumer awareness are essential.
5. Digital Literacy and Inclusion: Nationwide digital literacy campaigns are needed to educate citizens, especially those in rural areas, about digital payment systems. Encouraging the adoption of mobile banking and agency banking can reach unbanked populations.
6. Investment in Infrastructure: Investments in broadband expansion, mobile network upgrades, data centers, and reliable power supply are essential to support the growth of digital payments.

Collaboration among regulators, financial institutions, fintech companies, and government entities is crucial for addressing these challenges and strengthening Nigeria’s digital payment ecosystem. The country’s potential for growth in this sector is substantial, but concerted efforts are required to overcome the obstacles and unlock its full potential.

Efforts to address these challenges, including improving digital infrastructure and enhancing cybersecurity, will play a pivotal role in ensuring the success of innovative solutions in Nigeria’s digital payment landscape.