It was really nothing more than a routine afternoon stroll in a Lagos shopping mall. Abiola Rasaq, a 30-year-old equity analyst, took some friends to lunch at Kentucky Fried Chicken and bought a few shirts.
What made the outing extraordinary was how he paid. In a country where all but 2 percent of transactions are carried out in cash, Rasaq pulled out a debit card, dispensing with the wads of notes that Nigerians have grown used to stuffing in their pockets after a decade of inflation averaging 11.9 percent.
“You didn’t have such experiences in the past,” said Rasaq, the head of research at Lagos-based UBA Capital Plc. (UBCAP) “I have issued fewer checks in the last 12 months and have paid for most of my shopping at formal stores with cards.”
Two years into a push by policy makers to wean Africa’s second-largest economy and biggest oil producer off its cash dependency, Nigerians are starting to change their habits. Shaking off skepticism about a payment method associated with theft and fraud and plagued by faulty communications networks, some see the push as a way of reducing transaction costs, countering corruption and bringing more Nigerians into a financial fold that the central bank estimates has left out 46 percent of the 170 million-strong population.
As electronic payments gain ground, the number of connected card readers has increased to about 158,000 from 5,000 before 2012, according to the Central Bank of Nigeria. The value of transactions rose 26 percent to 1.4 trillion naira ($8.5 billion) in the first half of 2013 from the year-earlier period.
The central bank is targeting an increase to 375,000 readers by the end of 2015, Deputy Governor Kingsley Moghalu, who heads financial-system stability, said in a phone interview March 11. Cards issued by Nigerian banks carry either the MasterCard Inc., Visa Inc. or Interswitch Ltd.’s Verve logo, giving them access to the world’s biggest payment networks. Of the 25 million electronic payment cards in circulation, 18 million are Verve branded, the company said in an e-mail today.
“It will help the central bank to also make monetary policy more efficient because you can monitor more the movement of money,” Moghalu said from the capital, Abuja. The central bank, which has kept interest rates at a record high since October 2011, meets next week on monetary policy. “It’s easier to measure that economic activity.”
The campaign to encourage card use began under central bank Governor Lamido Sanusi, who was suspended last month amid a dispute with President Goodluck Jonathan over the state-run oil company’s repatriation of export proceeds. Sanusi’s removal won’t impact the initiative, Moghalu said.
The rise of online-shopping websites, such as Jumia and Konga.com, the local equivalents of Amazon.com (AMZN), has also spurred Nigerians to consider electronic payments. The value of online retail transactions, estimated at 62 billion naira in 2011, may rise to 150 billion naira this year, according to Euromonitor International, a London-based researcher.
Turning Nigerians away from their reliance on cash goes hand-in-hand with government efforts to diversify the economy beyond oil by boosting other industries such as agriculture. The economy may have expanded 6.4 percent last year and will accelerate further in 2014, the International Monetary Fund said March 7.
“Urbanization, an expanding labor force, and the rise of the middle class, are all fueling demand for safe, secure and convenient payment products,” Marc Carolus, the Johannesburg-based division lead at MasterCard Advisors, said by e-mail. Nigerian authorities are realizing “the benefits of a cashless society, namely increased transparency, cost effectiveness, financial inclusion, foreign investment and economic growth,” he said.
Automated teller-machine withdrawals accounted for 93 percent of electronic payments by volume in the first half of 2013, according to central bank data. Cash makes up about 98 percent of consumer payments in Nigeria, compared with 85 percent in emerging markets and 80 percent in South Africa, the continent’s largest economy, according to MasterCard Advisors.
Mobile money also hasn’t taken off in Nigeria, with phone payments accounting for 3.7 percent of all electronic transactions in the first half of 2013, according to the central bank. While mobile payments increased more than threefold in the period compared with a year earlier, only 6 million naira was transacted, compared with 57.2 billion naira on card readers.
The central bank wants commercial lenders to drive growth rather than phone operators because they regulate the banks and not the telecommunication companies, Moghalu said. The number of mobile-phone subscribers, at 159 million, dwarfs the 20 million bank accounts in Nigeria. In Kenya, Safaricom Ltd.’s M-Pesa, the mobile phone money-transfer unit of the country’s largest telecommunication company, accounts for the equivalent of 27 percent of the country’s $27 billion gross domestic product.
Ghana is also introducing devices that will triple the number of people who can use debit cards to pay for purchases. About 2.3 million people will be able to swipe their local debit or e-zwich card on 2,500 point of sale devices in Accra by May, Archie Hesse, chief executive officer of state-owned Ghana Interbank Payment and Settlement Systems, said in a March 14 interview. Currently, customers can only use them to withdraw money from the issuer’s automated teller machines.
Even among Nigerians with bank cards, cash still dominates daily business because of connection and network difficulties and delays in transaction times, according to Lagos-based Nigeria Inter-Bank Settlement System Plc. Consumers are occasionally debited twice for the same purchase, it said.
About 40 percent to 50 percent of card-reader transactions also crash because of patchy radio and phone networks, Moghalu said. The central bank is trying to reduce failure to below 10 percent over time, he said.
Fixing botched transactions causes “quite a bit of frustration” because they can take months to resolve, Bisi Lamikanra, a partner and head of management consulting at KPMG Advisory Services, said in an interview in Lagos. “Because of those things, consumers typically rather withdraw cash from the ATM, even if they’re withdrawing it outside the shop.”
While the start of chip-and-pin-card technology in 2010 helped lower incidents of ATM fraud by more than 90 percent, graft is still a deterrent.
In the first half of 2013, there was a fourfold increase in the value of fraud and forgery to 22.4 billion naira from the same period a year earlier, according to the central bank, with 2,478 reported cases. The country ranks 144th out of 177 in Transparency International’s Corruption Perceptions Index.
At shops in Nigerian cities, there’s some resistance from employees, Lamikanra said. Staff wary of losing cash tips often deliberately hide card readers from customers, she said.
To encourage the use of electronic payments, a pilot project in Lagos state, home to an estimated 21 million people and sub-Saharan Africa’s most populated city, penalized individuals for withdrawing from banks more than 500,000 naira a day in cash and 3 million naira for companies.
When the initiative goes nationwide in July, the test will be reaching rural and poorer regions. More than 68 percent of Nigerians live on less than $1.25 a day, according to World Bank estimates. Gross domestic product per capita still more than trebled to $1,725 in the decade through 2013, IMF data show.
In the commercial hub of Lagos, Rasaq says he has little cause for complaint, with his pockets lighter and less need to wait in queues to draw cash.
“It’s been a good experience,” he said. “The challenge that I face now is I tend to spend more on things I wouldn’t have ordinarily.”
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