Nigerians kick as banks stop naira-denominated cards for foreign transactions

Banks recently barred customers from performing international transactions with their naira-denominated debit cards. TEMITAYO JAIYEOLA examines the impact of this decision on bank customers

Guaranty Trust Bank Plc on Thursday, (December 29, 2022), sent a mail notifying its customers that their naira-denominated Mastercard would no longer be allowed for foreign transactions from December 31, 2022.

According to the bank, these cards would no longer be supported for international online and Point of Sale transactions. While the bank did not give reasons for this decision, it advised them to get dollar cards, which means they need to open dollar accounts.

The bank said, “Dear customer, we write to inform you that you will no longer be able to use your Naira Mastercard for international online and POS transactions effective 31st December 2022.

With this move, GTB joined a growing list of banks that have suspended international transactions on naira-denominated cards. Standard Chartered Bank announced in July that it was suspending international transactions on its naira visa debit card.

It told its customers, “Kindly be informed that effective August 1, 2022, International spending on our Naira Visa Debit Card will be suspended.”

First Bank of Nigeria had to suspend the usage of its naira-denominated cards for foreign transactions due to the foreign exchange scarcity that the country has been grappling with.

In September, the bank said, “Due to current market realities on foreign exchange, you will no longer be able to use the Naira Mastercard, Naira Credit Card, our Virtual card, and Visa Prepaid Naira card for international transactions. This will take effect on 30 September 2022.”

Although banks gave their customers the option of dollar-denominated cards to enable them to engage in international transactions, it is a pointer that naira-denominated cards are becoming useless outside the borders of the country.

But things were not always like this. It has been a long road to where naira-denominated cards are now.  Users of naira-denominated cards were formerly allowed to spend up to $150,000 per annum ($12,500 per month) for international transactions. But in April 2015, the spending limit on naira-denominated cards for international transactions was reduced to $50,000 per person per annum or $4,166.7 per month. This soon dropped to $500 per month and then $100 per month. In the first quarter of 2022, holders of naira-denominated cards were limited to $20 international transactions. And in December, they were finally barred from transacting any international transaction with their naira-denominated cards.

Nigerians have been here before. In 2016, banks also suspended international payments on naira-denominated cards. In a mail to its customers at the time, Standard Chartered Bank blamed limited foreign exchange supply for its decision to stop supporting international transactions on naira cards.

Banks are not the only ones struggling to facilitate international transactions in the country. Fintechs are in the same situation. With every rising of the sun, a new fintech springs up and promises to help Nigerians facilitate foreign transactions. But like shooting stars, they are here today and gone tomorrow.

Fintechs such as Flutterwave and several others that used to have virtual dollar cards have since suspended services that facilitate international transactions.

A tech expert, who did not want to be named, claimed he has been having issues renewing international subscriptions, which his business depends on. According to him, he has had to try different products to enable him to renew his subscriptions.

He explained, “I was using Gomoney but it stopped working. I just discovered Grey, which was launched recently.

“I used it to pay for my apple music, software subscriptions, and Google. The other option was to open a domiciliary account, which is stressful. You have to get referrals, like two reference letters. I would stick to this alternative until there is another one.

“Also, there is Aboki Africa. They have a mobile app. They have a dollar card too, and there is Chipper Cash. But it is all black market rates, which is expensive. All my naira cards are not working again.”

Other people who spoke to our correspondent stated that their naira cards from banks such as GTB, Access, and First Bank had stopped working on international platforms.

One of them described how he almost lost his Microsoft 365 subscription because his GTB card stopped working. According to him, he had to use a friend’s Zenith naira card to pay for the subscription. This is currently the reality of many Nigerians.

A lot of Nigerians cannot pay for dollar-denominated services such as streaming services, application fees, magazine subscriptions, domain renewal, etc. with their naira cards.

With this latest suspension on naira-denominated cards, Nigerians would have no choice but to turn to the parallel market to continue to enjoy subscription services.

On Thursday, $1 was about N739 in the parallel market and N461.50 in the official forex window.

With the stoppage of naira-denominated cards for international transactions, Nigerians may be able to enjoy a lot of international technology services that are subscription-based. This may hamper the country’s drive to have a fully digitised economy in the not-too-distant future.

The Managing Director of Cowry Asset Management Limited, Johnson Chukwu, explained that banks only serve as intermediaries and rely on the CBN for FX supply.

He said, “The basic reason is that they are not getting reimbursement from the Central Bank. It is coming from the Central Bank of Nigeria. They cannot provide the dollar cover to fund those cards.

“When the CBN denies them access to or does not allocate FX for funding of naira-issued dollar transactions, the banks have no choice but to suspend foreign currency payment on those cards. The banks are at best what you call intermediaries.”

Chukwu added, “We don’t have liquidity. The banks cannot manufacture FX, what matters is what kind of flow comes into the economy. The CBN is the recipient of about 90 per cent of the inflow that comes into the economy.

“The CBN is the market marker when it comes to the FX market.”

Also, Director, Research and Strategy at Chapel Hill Denham, Tajudeen Ibrahim, explained that banks were suspending international transactions because of sustained illiquidity in the financial market.

He said, “The major reason is the sustained illiquidity in the exchange market. Do not forget that we are barely one week into the new year, and this problem started last year, around the second quarter.

“Since then, we have not seen any improvement. If we are not seeing inflows from foreign borrowings and the government, or we see inflows from portfolio investors or foreign direct investment or diaspora remittances into the official channel of the market.

“Liquidity will not improve if these sources do not improve. The consequence of this is what we are witnessing now. Banks are suspending their naira cards for foreign transactions because we have not seen improvement in inflows or we have not even seen inflows from the channels I mentioned earlier.”

He noted that this was why investors have been struggling to repatriate their funds out of Nigeria as the country is out of dollar supply. He explained that once the CBN doesn’t have forex to sell to banks and investors, liquidity in the market would tank and demand would outweigh supply.

Ibrahim added, “If foreign portfolio inflow, which has been a major component of forex, improves we should be better positioned in terms of the CBN’s ability to supply liquidity to the market.

“Importantly, if Nigeria can sell more crude oil in terms of volume, if we are able to produce more, and sell more, we would generate enough and the CBN would no longer struggle to supply forex to the market. What I think is going to happen is that a lot of people would have to depend on the parallel market where rates are substantially high for their transactions.”

The CBN is the country’s largest supplier of FX. Nigeria has been grappling with dollar scarcity due to a significant drop in the country’s oil output, which is its main source of forex.

Foreign investors have been struggling to repatriate their funds because they cannot access forex.  In August 2022, foreign airlines threatened to suspend flights to Nigeria because of trapped earnings.

In June, the International Air Transport Association stated that the Federal Government was blocking foreign airlines from repatriating ticket sales revenue running into $450m.

Nigeria gets most of its forex inflow from oil earnings, diaspora remittance, and foreign investments in form of Foreign Portfolio Investments and Foreign Direct Investments. But oil revenue makes up about 90 per cent of these earnings.

The World Bank recently disclosed that Nigeria’s foreign portfolio investments fell by $2.08bn from $2.15bn in 2010 to $72m by 2021. It added that FDI inflows into the country depreciated from $5.97bn in 2010 to $2.45bn in 2021.

In its recent report, it said, “FDI and FPI flow into Nigeria do not compare favourably with similar economies of the world, reflecting difficulties with FX availability, security concerns and other structural challenges in recent years.”

While the country officially attracted $60.22bn from its diasporan population from 2019 to 2021, most of it was for consumption purposes. According to the World Bank, remittance offers a critical lifeline for households in developing countries and helps to alleviate poverty, improve nutritional outcomes, and more.

The country’s major source of FX, crude oil exports, has been on a steady decline because of oil theft, denying it the benefit of the recent surge in crude prices.

According to data from the Central Bank of Nigeria, the country’s external reserves fell from $40.52bn as of December 31 2021 to $37.09bn as of December 29, 2022.

During the country’s last Monetary Policy Committee, a member, Robert Asogwa, said, “The recent drop in external reserves is, however, linked to the decline in oil exports even at a time of higher oil prices.”

Meanwhile, more Nigerians would feel the impact of the stoppage of naira-denominated cards from international transactions as the year goes by. Some believe they would soon find ways around the challenges that the stoppage poses.