Previously, payment in Nigeria, as in many other African countries, used to primarily be cash. Despite the advent of Automated Teller Machines (ATM) and other banking services, Nigerians would always withdraw cash from banks to spend when needed. The country’s transition to digital banking began with the introduction of transfers and the cashless policy initiative, implemented by the former establishment of the Nigeria Interbank Settlement System (NIBSS), which began operations in June, 1994.
NIBSS was established to ensure seamless settlement of funds between banks. Upon the introduction of the cashless policy, transfers were encouraged and basically done through bank applications. These transfers were also done through USSD to foster inclusion. This enabled people using feature phones to make money transfers. As the cashless policy drive intensified, transfers became a very popular medium of digital payment to date. This method assures the security of customers’ money as they possess a sense of control and higher confidence.
Agency banking has made people become the banks.
To further foster inclusion, the Central Bank of Nigeria (CBN) has put more efforts to ensure agency banking becomes a vital part of Nigeria’s financial experience. These efforts had allowed banking in areas where it used to be fiscally unfeasible. Agency banking has made people become the banks as they are able to receive cash and credit or release cash for digital payment. With this, cash-in-cash-out merchants carry out a primary banking function of deposit and withdrawals for residents in areas without available banking services.
These cash agents have also contributed to promoting inclusivity in the financial sphere. They made it possible for businesses and people who had no bank accounts, initially, to make digital payments. This enabled more intranational transactions, that had no location limits, by businesses. People who had to travel far distances to buy and sell goods are able to make safe transactions through the availability of these agents. It made them use their cash for payment, without having to move about with large amounts of cash at unsafe hours.
By 2022, online transactions through POS terminals had improved.
Access to digital financial services through business safety represents one of the feats of the significance of financial inclusion in Nigeria. Access to online payment and collection services assures the safety of business, ensuring good interconnection between agents and customers from different locations all over the country. Previously, agency banking used to rely on terminals that only accepted card payments, with T–1 as settlement. This system was challenging as it was difficult to track transactions. Agents had no access to digital record, and consequently, it became a low-trust banking agency.
However, there was a renewal of the service in 2019 due to the introduction of advanced technology for point-of-sale (POS) terminals. With better technology, agents were able to track transactions, get instant settlement and even seek refunds on behalf of their customers. By 2022, online transactions through POS terminals had improved from being a primary agency banking to being adopted by business owners. Business owners got their personal terminals, without going through middlemen agents, to receive payments from their customers.
The transition towards digital banking is significant.
Also, financial technology is capable of driving more creation and exploration. The fact that people can make digital payments means commerce can prosper with ripple effects that will boost the economy. The transition towards this form of payment is significant as it is capable of opening the door to more digital financial service solutions. Supported by access to payment, these businesses can be beneficiaries of access to business management, credit, and full banking services. With the growth of these businesses, the Nigerian economy will accelerate.