Nigeria’s Payment Systems Preparing to Upgrade Infrastructure
Introduction to Nigeria
An overview of Nigeria's currency, population and key statistics.
The currency of Nigeria is called the naira (NGN), and its currency symbol is ₦. The naira is divided into 100 kobos (k). Its denominations consist of three coins – 50k, ₦1, and ₦2 – and eight banknotes – ₦5, ₦10, ₦20, ₦50, ₦100, ₦200, ₦500, and ₦1,000.
The Central Bank of Nigeria also has a digital currency known as eNaira. The eNaira is a type of central bank digital currency fully backed by the sovereignty of Nigeria. It serves as a valid form of legal tender in the country.
But unlike physical cash, the eNaira exists only in digital form and is stored in a special digital wallet called eNaira Speed Wallet. Essentially, the eNaira is a type of currency that serves as a unit of account, medium of exchange, and store of value all in one.
The United Nations estimated that Nigeria's population was 206,139,589 as of mid-2020. However, Worldometer data suggest that this number had risen to 209,378,644 as of February 2021. About 52% of the population lives in urban areas, mainly in Lagos.
The population's median age was relatively young, estimated to be around 18.1 years. In terms of internet usage, Nigeria had around 104.4 million active users as of January 2021, according to DataReportal.
Languages spoken in Nigeria
Nigeria has more than 500 native languages but English is the official language and most widely spoken. The major native languages in terms of the number of speakers are Hausa, Yoruba, Igbo, Fulfulde (Fula), Kanuri, Tiv, Nupe, and several languages of the Cross River basin, such as the Efik-Ibibio cluster.
Nigeria had a gross domestic product of $440.83 billion in 2021, according to World Bank data. However, the African Development Bank Group predicted that the country's GDP growth would decline, averaging 3.2% in 2022 and 2023, due to increasing insecurity and reduced oil production. Also, due to fresh borrowing, Nigerian government debt is expected to rise to 40% of GDP by 2024.
As of 2021, Nigeria had a gross savings rate of 34% at $144.31 billion, a 5% increase from the previous year. International Monetary Fund data show that the rate dropped to 17.7% in 2022.
Only 40% of Nigerians had bank accounts in 2020, and just 3% of those also had credit cards.
Nigerian internet & mobile phone trends
Research by DataReportal shows that Nigeria had 122.5 million active internet users as of January 2023, accounting for 55.4% of the country's total population. In addition, Nigeria will have approximately 170 million mobile subscriptions in 2023, but only 10% to 20% of the population currently uses smartphones.
Nigeria had around 104.4 million active internet users in January 2021, indicating an increase of approximately 22% from the previous year. The internet penetration rate in the country was 50.0% at the beginning of 2021. Additionally, around 56% of the population had smartphones in 2020.
Nigeria e-commerce stats
Nigeria's limited internet, banking, and smartphone adoption poses a significant obstacle to developing an e-commerce market. Per the PPRO Report, Nigerian shoppers generated an average annual revenue of $417 per paying user in 2020.
Most cross-border e-commerce transactions involved purchases from the United Kingdom, Germany, and the United States.
Summary of Nigeria's fiscal policy
Nigeria has set budgetary priorities, tax policies, and debt management strategies to promote economic growth, reduce poverty, and maintain macroeconomic stability. The budget prioritises infrastructure development, human capital development, security, and social investment programmes.
To fund these priorities, Nigeria has implemented various tax policies to increase revenue, such as increasing the value-added tax to 7.5% from 5% in 2022.
The country's debt management strategies aim to ensure debt sustainability, including managing external borrowing through concessional loans, reducing short-term borrowing, and implementing fiscal consolidation measures to reduce the fiscal deficit.
The country's debt restructuring programmes included an optimal debt portfolio mix of 60:40 for domestic and external debt by the end of 2019 and a ratio of 75:25 for long and short-term debt instruments in the domestic debt portfolio by the same period.
Despite those efforts, Nigeria is experiencing economic challenges, with the third quarter of 2022 seeing a decline in real GDP growth to 2%. There is also high inflation, with annual inflation reaching 21% in October and food inflation nearly hitting 24%.
Furthermore, a considerable proportion of Nigeria's population, specifically 63%, is experiencing multidimensional poverty. Additionally, the federal government's debt service-to-revenue ratio has reached 83% during the first eight months of 2022. These economic hurdles have implications for the current and future administrations.
There are several opportunities for Nigeria to improve its fiscal policy. Those are:
1. Domestic resource mobilisation
2. Improving expenditure efficiency
3. Alternative sources of financing for fiscal deficits
4. Eliminating quasi-fiscal activities
5. Effective coordination between monetary and fiscal policy
How people pay in Nigeria
An overview of how people in Nigeria choose to make payments.
Traditional payment methods
The primary traditional payment methods used in Nigeria
Cash is still a popular payment method in Nigeria, particularly for small transactions. However, its use has been declining in recent years as electronic payment methods have become more widespread.
Credit and debit cards issued by domestic payment systems
In Nigeria, domestic payment systems were the preferred choice for credit and debit cards in 2022, making up 54% of card transactions.
Some examples of Nigeria's popular domestic payment systems include National Domestic Cards and the Nigeria Inter-Bank Settlement Systems Plc.
Mastercard and Visa
Mastercard and Visa cards were held by approximately 28% and 18% of cardholders, respectively.
Alternative payment methods (APMs)
The top APMs used in Nigeria
Paysera is a global digital payment system that provides a diverse range of financial services such as currency conversion with favourable rates, an e-commerce payment platform, online trading of gold with the option of withdrawing physically, and prompt and cost-effective international transfers.
Skrill provides a vast array of financial services, including payment processing, money transfers, and online shopping facilities. Skrill is accessible in Nigeria, and it offers its citizens an eWallet that functions similarly to a bank account.
BitPay is a crypto-payment processing platform that offers a range of financial services. It allows Nigerian citizens to purchase, store, exchange, and use their cryptocurrencies. Moreover, BitPay can facilitate transactions in local currencies for bank accounts in multiple countries, Nigeria being one of them.
Splitit provides a buy now, pay later (BNPL) facility for consumers. Using the current credit card payment infrastructure, Splitit's technology seamlessly integrates instalment payment options at the checkout stage through a single network API.
How to accept payments in Nigeria
A guide to accepting payments in Nigeria
Accepting online payments
The fintech industry has made it easier for businesses in Nigeria to accept online payments. Several payment solutions are available, including payment gateways Interswitch, eTranzact, GT Pay, Paystack, Voguepay, SimplePay, Amplify, and Remita. Businesses should also consider the price, integration costs, payment flow, user experience, and developer friendliness before selecting a payment solution.
Then, businesses should have an invoicing solution that includes payment options. This is a good option for businesses that cannot afford to create an online payment system. Online invoicing solutions are simple and offer more than just invoicing. They offer a fast and efficient way for small businesses to create and send invoices and receive payments.
A payment link or page is the last step for businesses to receive online payments. Businesses can create a unique payment URL for each product or service rendered.
How long does an international payment from Nigeria take?
International payments from Nigeria may take varying amounts of time to reach their destination, ranging from almost instant to up to seven days. The time it takes for a wire transfer to arrive abroad is influenced by several factors, such as:
Involvement of banks/international money transfer services/currency brokers,
Whether an intermediary bank is involved,
And the time and day of the transfer initiation.
In Nigeria, the fees merchants are charged for online payments can differ based on the payment method and the merchant services provider they choose. Below are some examples of the fees each provider charge:
Credit/debit cards charge somewhere between 0.50% and 5% per transaction.
PayPal charges 3.4% + ₦139.5 per domestic transaction, and 4.40% + ₦139.5 per international transaction.
Stripe charges 2.9% + ₦139.5 per transaction.
Apple Pay charges 3.9% + ₦100 per transaction.
Online payments attract additional charges in Nigeria, including fees incurred by merchants, financial institutions, and payment processors involved in the payment processing chain. The following are some common fees:
Interchange fees refer to charges paid by merchants' banks to cardholders' banks to offset the expenses of processing card transactions. These fees are usually a percentage of the transaction amount and can differ depending on the card type and the merchant's industry.
Payment gateway fees are levied by payment gateway providers for processing transactions on their platforms. These fees can either be a percentage of the transaction value or a fixed fee per transaction.
Cross-border fees are extra charges that merchants accepting payments from outside the United Kingdom may face, including fees for currency conversion and international processing.
Chargeback fees are additional costs that merchants who receive chargebacks may be liable for, including chargeback processing fees and penalties for excessive chargebacks.
Security challenges of online payments in Nigeria
Online payments in Nigeria face significant security challenges such as:
Fraud and chargebacks: Online transactions are often "card-not-present" transactions, in which criminals can use payment networks and steal payment data. To combat this, payment processors can use technologies such as EMV and fingerprint recognition to enhance security and reduce the risk of fraud.
Cross-border transactions: These can be slow, inefficient, and expensive due to differences in national banking infrastructure and software platforms. Emerging transnational systems, government initiatives, and outsourcing can help to manage credit risk, liquidity, and costs more effectively.
Data security: Card data security is also a major concern, with PCI DSS certification required for all merchants and businesses accepting credit or debit cards. Merchants and processors must meet specific security criteria to protect cardholder data.
Multi-currency transactions: Accepting various payment methods and currencies is essential for global e-commerce. Multi-currency transactions can require new bank accounts, business entities, and regulatory hurdles in each national market. Selecting a payment service provider with the necessary infrastructure can provide effective and immediate solutions.
In Nigeria, online payment security heavily relies on the efforts of banks, payment processors, and fintech companies. These industry players employ various security measures to safeguard online payments. For example:
Banks are responsible for issuing credit and debit cards and using two-factor authentication and fraud detection systems to secure online transactions.
Payment processors securely transmit payment data and implement encryption technologies and PCI DSS compliance measures to prevent fraud.
Fintech companies provide tailored payment solutions and prioritise security, using advanced measures such as biometric authentication and blockchain technology to safeguard online payments.
Key sectors & industries in Nigeria
An overview of the Nigerian market.
Nigeria's top 10 industries by revenue
According to the Nigerian Investment Promotion Commission and the World Bank, the top 10 industries in Nigeria are:
Oil – Natural resources such as oil, natural gas, and other products are crucial to Nigeria's economy. These resources account for over 90% of the country's export volume and 80% of its government revenues.
Manufacturing – The government's various interventions and programmes have led to recent growth in the manufacturing sub-sector. Its capacity utilisation has increased from an average of 35% in the 1990s to an average of 54% in the past five years. The sub-sector's contribution to the country's GDP has also risen steadily, averaging 9% annually during the same period.
Cement – The Nigerian cement industry has become a vital economic sector due to government interventions/programmes. Nigeria is currently home to the world's largest emerging cement companies. The industry is dominated by two major players, Dangote Cement, and Lafarge WAPCO Cement Plc, accounting for over 80% of the domestic market share.
Textile – The textile industry in Nigeria contributes approximately 2% of the GDP. The industry had an average annual growth rate of 67% and relied on locally grown cotton. Nigeria produces cotton, silk, and other fibres, which are primary materials for the textile industry.
Food processing – The Nigerian food processing industry is expanding rapidly. Over the past five years, the industry has seen an average growth rate of 3%. It has contributed an annual average of 4% to the country's GDP while employing about 5% of the local workforce.
Brewing – The brewing industry is expected to grow at a rate of 23% in the coming years. Despite the global decline in beer consumption, the Nigerian market remains strong and is the second largest in Africa after South Africa. Also, there is a demand gap of about 53 million hectolitres due to the growing population and the country's expanding middle class.
Agriculture – The agriculture industry is Nigeria's largest employer, providing jobs to approximately 70% of its labour force, the World Bank reported. Agriculture contributes significantly to the country's revenue, accounting for about 23% of GDP in 2021.
Information and communications technology (ICT) industry – Nigeria's ICT industry is expanding rapidly. In 2019, it contributed 13.04% to the GDP and continued providing job opportunities for professionals from diverse backgrounds. The digital world in Nigeria is constantly evolving, with many citizens benefiting from economic opportunities in the sector. Its contribution to the country's GDP rose to 16.51% in 2022.
Utilities – The utility industry in Nigeria, consisting of companies that provide electricity and water, has consistently grown over the past decade. The power sector is the main player, generating slightly over 4,700 megawatts of electricity to drive the nation's economy. Demand for electricity in Nigeria has grown steadily due to population growth and industrialization.
Real estate – The Nigerian economy benefits greatly from the real estate sector. It ranked as the fifth-largest contributor to GDP, contributing approximately 6.4% in the second quarter of 2019. Recent assessments indicate that in 2022, the annual growth rate of the real estate industry was 10.75%, contributing a total of 5.64% to the GDP, which is higher than the 5.60% reported in 2021.
Key international trade
Nigeria's total international trade in the third quarter of 2022 was ₦11,597.93 billion. It was less than the second quarter's ₦12,841.54 billion but exceeded the ₦10,472.42 billion recorded in the third quarter of 2021.
Total exports were worth ₦5,933.63 billion, and total imports amounted to ₦5,664.30 billion. In the third quarter of 2022, exports decreased by 19.89% from the second quarter but increased by 15.52% from the third quarter of 2021.
Imports increased by 4.22% from the second quarter and 6.16% in the third quarter of 2021. Re-exports in the third quarter of 2022 were ₦25.04 billion, up 160.16% from the second quarter but down 86.07% from the third quarter of 2021.
The top five re-export destinations were Ivory Coast, Ghana, the United Kingdom, China, and The Netherlands. The most re-exported commodities were "vessels and other floating structures for breaking up," "floating or submersible drilling or production platforms," and "aeroplanes and other aircraft, of an un-laden weight exceeding 15,000 kg."
Regulation in Nigeria
The regulatory environment of Nigeria
Summary of the regulatory environment in Nigeria
In Nigeria, the government regulates businesses through laws and agencies to ensure investors, entrepreneurs, and business-minded people can efficiently operate while protecting customers' interests.
The Corporate Affairs Commission (CAC) is responsible for company incorporation.
The National Investment Promotion Commission oversees foreign investments in Nigeria.
The Federal Inland Revenue Service assesses and collects taxes.
The National Office of Technology Acquisition and Promotion is responsible for registering contracts involving technology transfer with Nigerian partners.
The Commercial Law Department, Trademarks, Patents and Designs governs trademark, patent and design registrations.
How card payments are regulated in Nigeria
The Central Bank of Nigeria (CBN) is responsible for regulating card payments in the country, and it has provided guidelines for card issuance and usage in the country to ensure that the process is secure, efficient, cost-effective, and user-friendly.
Some key points of the regulations are:
Banks without clearing capacity may partner with those with clearing capacity but must document service-level agreements delineating their responsibilities for issuing the cards.
All banks must seek approval from the CBN for each card brand and type they wish to issue. Payment cards to be issued can be a "pay now," such as debit and prepaid, or a "pay later," such as credit and charge cards.
All payment card transactions shall be subject to current Nigerian Financial Intelligence Unit reporting requirements.
The cardholder shall have the flexibility to customise the usage limits, select transaction channels, and other customizable features, to suit their personal risk preferences.
Issuers should continuously educate cardholders on security tips, costs and charges, and contact numbers to report issues or problems.
All domestic card transactions must be settled within a cycle of T+1, while international transactions shall be settled as defined and reviewed by the settlement agent.
Card issuers shall keep internal records over a sufficient period to enable easy tracking of card-related transactions.
The security of the payment card shall be the issuer's responsibility, and all debit entries arising from failed transactions attributable to system-related issues must be auto-reversed.
The CBN and Nigeria Inter-Bank Settlement Systems Plc are also working with the Bankers' Committee to improve payment systems in the country. They launched a national card scheme that will improve acceptance and efficiency, lower card operating costs, and help different sectors like micro-payment and credit, e-government, identity management, transportation, health sector, and agriculture.
Do I need a licence to do business in Nigeria?
Yes. Before commencing operations in Nigeria, it is necessary to register your business with the CAC to comply with the law. In addition, depending on the type of business, other government agencies may require you to obtain further licences or permits.
Payment solutions in Nigeria
An overview of how to accept payments from customers in Nigeria.
Payment gateways and providers in Nigeria
APEXX is a payment technology company headquartered in London that provides a solution for merchants seeking to accept payments from various providers. With a presence in over 70 countries, including Nigeria, APEXX focuses on delivering support for multiple payment methods to enable businesses to meet customer preferences and enhance their experience.
With APEXX, businesses can offer customers multiple payment options while managing them through a single platform. The APEXX Payment Orchestration Layer (POL) platform connects with various payment providers, such as banks, acquirers, and alternative payment methods, such as Alipay and PayPal.
The APEXX POL also uses intelligent routing to help businesses optimise their payment processing by automatically selecting the best payment provider for each transaction based on factors such as cost, currency, and risk. The service allows businesses to save money on transaction fees and reduce the risk of failed payments.
To use the APEXX POL, businesses need to integrate it into their existing payment systems, such as their e-commerce website or point-of-sale system. This can be done using APEXX's API or through one of their pre-built plugins for popular e-commerce platforms, including Shopify and Magento.
Cheapest payment solutions in Nigeria
Nigerian merchants can take several steps to optimise their payment stack and reduce payment processing fees.
Negotiating fees with payment providers is one of the most important steps. By doing so, they can secure the best possible rates for transactions, interchanges, and subscriptions. This can lead to significant savings for their business and help them reduce payment processing costs.
Choosing the right payment provider is another crucial step for Nigerian merchants to optimise their payment stack. They should select a payment provider that offers competitive rates and low fees. By selecting the right payment provider, merchants can save money on payment processing fees and improve profitability.
Using alternative payment methods like e-wallets or bank transfers that charge lower fees than traditional card payments can also help reduce payment processing costs. With multiple payment options, merchants can reduce payment processing fees and improve customer satisfaction.
Merchants can also reduce operational fees and minimise risk by using best-in-class tools to fight fraud and keep their customers secure. This includes using a fraud detection service that combines a rule engine and machine learning scoring system to detect fraudulent transactions. By preventing fraud, merchants can reduce payment processing costs and protect their businesses from financial losses.
Lastly, monitoring payment processing fees is essential for merchants. They should use payment analytics tools to monitor fees and identify areas where costs can be reduced. This will ensure that merchants are only charged what they should be.
BNPL in Nigeria
The Nigerian BNPL payment sector is predicted to reach $2,727.9 million in 2023, with an expected annual growth rate of 23.2%. The BNPL industry also has experienced significant growth in the past year due to increased e-commerce activity.
The long-term outlook for BNPL in Nigeria is positive, with a projected compound annual growth rate of 12.7% between 2023 and 2028. The gross merchandise value for BNPL in Nigeria is estimated to rise from $2,214.2 million in 2022 to $4,958.7 million by 2028.
By integrating with multiple BNPL providers, such as Splitit, which is widely used in the Nigerian market, APEXX provides a convenient way for merchants to offer BNPL payment options to their customers. This integration allows merchants to manage their payment stack effectively, ensuring seamless and efficient payment processing.