Consumer education and trust are key impediments to the growth of online banking in Nigeria
The Issue
Nigeria’s top bank, the Central Bank of Nigeria (CBN) reintroduced the cashless policy in February 2018, with a focus on achieving three primary objectives: provide more efficient transaction options and wider reach to reduce costs in banking services and drive financial inclusion; develop and modernise Nigeria’s payment systems to drive economic growth, and finally, to increase the effectiveness of monetary policy in managing inflation and drive economic development.
The policy encouraged several innovative services introduced by the country’s commercial banks. First Bank announced FirstMonie, a mobile banking service that allows both the banked, underbanked, and unbanked population to make mobile transfers and payments anywhere in the country. Guaranty Trust Bank launched the widely popular Bank 737, a service that began as a one-click airtime top-up service — the bank later expanded it to include a wide range of financial services.
According to the CBN, the value of electronic payment transactions increased by 88% in 4 years – N27.56 trillion in 2012 to N51.8 trillion in 2016. According to the Nigerian Inter-Bank Settlement Scheme (NIBSS), the value of the total transactions made on two major electronic payment platforms — NIBSS Instant Payment (NIP) and National Electronic Fund Transfer (NEFT) – amounted to N35 trillion in the last three quarters of 2016. By 2018, more than 80% of the country’s online population had used the internet to purchase something. In February the same year, FirstBank became the first financial institution in Nigeria to achieve 100 million e-banking transactions in one month.
By January 2020, the Nigerian Inter-Bank Settlement System (NIBSS) reported that the value of point-of-sale (POS) transactions amounted to ₦3.2 trillion ($8.854 billion) in 2019. The value of POS transactions rose by ₦882.03 billion ($2.44 billion), a 37.9% increase from ₦2.32 trillion ($6.4 billion) in 2018 while the volume increased by 152.8 million, a 53.4% increase from 285.8 million also in 2018.
With the COVID-19 pandemic in 2020, a larger volume of transactions now occurs online. Nigeria’s financial system recorded a further surge in the value of e-payment transactions, wth N65.6 trillion in the first quarter of the year (Q1’21), indicating a whopping 82% YonY from N36.02 trillion in the corresponding period of 2020 (Q1’2020). Data released by the Nigeria Interbank Settlement System (NIBSS) on the four major e-payment channels shows that the surge is driven by an 80% YoY increase in the volume of transactions to 54.07 billion in Q1’21 from 30.04 billion in Q1’2020.
And there are more opportunities for improvement. A recent study by Mastercard shows that the adoption of new payment technologies is rising, and consumer appetite for new, fast, and flexible digital experiences continues to grow. 96% of Nigerian consumers will consider using at least one emerging payment method, such as cryptocurrency, biometrics, contactless, or QR code, in the next year. Additionally, 78% say that digital payment methods help them save money.
The Question
E-payments and e-commerce have rapidly expanded in recent years due to demographic trends and the increasingly higher levels of internet penetration. Since the cashless policy was first introduced by the CBN in 2012, the country’s financial system has consistently witnessed remarkable success through its online and mobile payment structure. With e-commerce penetration at 37% in both Nigeria and South Africa, and at 25% in Kenya, the potential for significant growth in Nigeria, especially with its massive youth demography, is telling.
But are we really out of the woods? With the surge in online transactions, the NIBSS also reported that fraudsters attempted attacks 46,126 times and were successful on 41,979 occasions, 91% of the time. Consequently, Nigerian financial services companies lost ₦5.2 billion to fraud between January and September 2020. This was a 510% increase from the ₦550 million lost to fraudsters in the same period in 2019. What is the effect of the pervasive electronic banking fraud on the customers and their interests in online payments?
Among the focus group, all between 18-45 years, 100% claim to own personal bank accounts. 93% of the respondents claimed to have used an e-payment or e-transfer option at one point, while 65% claimed to have used it because it was the only option made available to them. On whether they were registered to access internet banking options, 25% said they registered to improve their payment options, 60% said they did not, while 15% were uncertain that they registered for online banking services.
What The Streets Are Saying
Among the focus group, all between 18-45 years, 100% claim to own personal bank accounts. 93% of the respondents claimed to have used an e-payment or e-transfer option at one point, while 65% claimed to have used it because it was the only option made available to them. On whether they were registered to access internet banking options, 25% said they registered to improve their payment options, 60% said they did not, while 15% were uncertain that they registered for online banking services.
Rating their experiences on a scale of 1- 10, 56% rated their experiences above average (between 6 – 10), citing convenience, speed, flexibility and personalisation. 44% rated their experiences below average. About 41% explained that they still consistently conduct online transactions, even though they have issues with their banking deductions. When asked about their perception on online banking and payments, 89% strongly agreed that it saves time and money; 97% agreed that it offers more payment options for customers to send and receive money, even as 93% confirm that they are worried about fraud, payment security, and online transactions.
“Almost 55% of the adult population are yet to have access to smartphones, so the banking and payment opportunities in Nigeria look really good,” said Nimide Fala, Manager, Marketing Central, Eyowo. “It has become as simple as conducting even large transactions on feature phones, tablets, or even laptops – basically, anyone with a phone number. But, fundamentally, it has become essential that users are also educated on specific security measures and how they can identify and raise the alarm about fraud messages they receive. As more innovative platforms arise, the potential points of vulnerability need to be proactively engaged to boost customers confidence in financial services”.
“Since the COVID-19 lockdown and the recent social and economic re-opening, the growing trend of digital adoption has also led to incredible growth in POS and Instant Payments both channels,” said Muyiwa Babarinde, Marketing Manager, Savyt. “It’s simple – the message is convenience. Every business, either an SME or large enterprise, understands that the growing internet population in the country represents an opportunity. The young customers, especially those you would call the digital natives, see online banking channels and platforms as not only a choice but a necessity. Such growth requires more attention in providing better financial services, either from regulators, fintechs, and the government”.
Evidently, users may also be motivated by offering a secure, fraud free, and efficient banking architecture through policy formulation and legal framework design supported by government officials, banks, IT firms, and major players in the finance industry. This will have a resultant effect on enhanced participation in e-commerce, enhance trust, integrity and efficiency and a reduced level of fraud. With such a robust architecture, global businesses are bound to trust the system and hence, increase the level of acceptability of the cards.
Insights on What The Streets Are Saying are drawn from data collected through in-depth interviews and surveys with our 500-member consumer panel spread across the country, including 100 culture insiders, who are all leading thinkers and doers across media and marketing.
Download This Report 