At the 31st Seminar for Finance Correspondents (FICAN) and Business Editors held in Enugu, the CBN Governor, Mr. Godwin Emefiele spoke on the emerging trends in Nigeria’s payments system and how the CBN is regulating the financial technology digital playing field. The CBN Governor’s speech focused on the progress being made by the CBN in advancing the boundaries of payments system; the areas of speedy progress and plan for the future of payments system in Nigeria, which he envisioned shall soon be the hub of payments in Africa.
It was also at the conference that the CBN governor announced CBN’s plan to unveil the Central Bank Digital Currency (CBDC), the e-naira, making Nigeria one of the first countries in Africa, and indeed the globe, to adopt the digitization of its national currency. No one can tell a story better than the owner of the story. The purpose of this article is not to retell Emefiele’s speech but to bring the issues raised back to the front burner using his own words with very minor redactions. The title of this article could as well be cast as ‘How CBN is regulating the fintech digital playing fields, by Godwin Emefiele.
His words: “The payments system of any country plays a pivotal role in its economy, being the channel through which financial resources flow from one segment of the economy to the other. This represents the major foundation of the modern market economy’.
“In line with our mandate, as encapsulated in the Central Bank of Nigeria Act, 2007, the CBN regulates the Payments System, while banks, the Nigeria Inter-Bank Settlement System (NIBSS), the Nigerian Exchange Group, payment service providers and switching companies are the other major players in the system. The CBN, complemented by the Nigeria Deposit Insurance Corporation (NDIC) provides the necessary oversight function to ensure the efficiency and effectiveness of the payments system.
‘The year 2007 marked a turning point in the country’s payments system terrain with the launch of the CBN’s Payment Systems Vision 2020 (PSV 2020), which identified series of recommendations to increase the resilience of the payment system infrastructure and work-streams to encourage the usage of electronic payment methods. Since then, the country has continued to introduce initiatives that would help simplify payments and deepen financial inclusion.
‘Over the past 14 years, the Nigerian payment system has evolved significantly with extensive technological development backed by deliberate enabling regulation by the CBN. This has, no doubt, accelerated the development of novel financial products, services and channels all of which have placed Nigeria at the fore of the financial innovation race.
‘Due to the lockdowns associated with the management of the Corona Virus (COVID-19) pandemic, financial traffic to digital platforms increased significantly in 2020. Indeed, the spread of the virus at the time accelerated the speed of digitalization of many sectors of the economy. Expectedly, discussions have increased around the issue of the digital economy just as more opportunities have come up for financial institutions and other players within the payment ecosystem to innovate and provide more efficient options for payments and settlements. ‘The post-COVID economy is predicted to be dominated by certain trends, including a radically altered financial industry landscape as the accelerated shift towards digital financial services will attract more fintech investment and encourage competition to traditional financial institutions. This calls for an Increased and intensive regulatory scrutiny on the part of regulators to proactively monitor developments and ensure the continuous safety and soundness of the financial ecosystem. It is therefore imperative that regulators must keep pace with these exponential developments and leverage new knowledge and technology tools such as Regtech and Suptech to enhance the efficiency and effectiveness of their mandate’.
‘Studies have already shown that only one per cent of FinTechs have been critically affected by COVID-19 and two per cent severely affected. By comparison, around 17 per cent of other high-growth companies fall into these categories. It is therefore unsurprising that many FinTechs have experienced a surge in demand as working practices and customer banking habits changed. As a country with one of the largest millennial populations in the world- (an estimated 62% of the Nigerian population below 25 years of age), fast Smartphone growth driven by increasing affordability, increasing mobile penetration and fast transition to 5G technology, Nigeria remains primed to be an active playground for digital transformation and cannot afford to ignore the Fintech challenge.
‘COVID-19 pandemic is one of the biggest crises that have faced mankind in recent history. The pandemic stretched health systems and impacted economies, with most jurisdictions going into recession. The crisis also disrupted social and business activities globally, affecting lives and livelihoods. Expectedly, Nigeria like most commodity-dependent countries was not spared the deleterious impact of the pandemic, given our dependence on crude oil export as a major source of revenue and foreign exchange.
‘Furthermore, the pandemic tested the operational resilience and business continuity strategies of our banks. Operational risk increased due to the increased reliance on technology and third-party service providers during the period. Also, the risk of money laundering and cybercrimes have increased. There is also the elevated risk of unauthorized access to banks’ networks and data security breaches.
‘It is noteworthy that the International Monetary Fund (IMF) estimated the global economic cost of the COVID-19 pandemic at $28 trillion in lost output. In a bid to address the fallouts of the pandemic, authorities all over the world have implemented extraordinary policy measures to ease financial stability risks and we were not an exception’.
‘In response to the crisis, the CBN introduced and implemented a suite of measures aimed at reducing the risk to financial stability, boosting demand and economic growth, ameliorating the impact of the pandemic on some sectors and obligors, such as the Oil & Gas, Manufacturing, Agriculture, pharmaceutical and hospitality sectors.
‘Key among the measures taken were the approval of regulatory forbearance to banks to restructure their loans to severely affected sectors; provision of liquidity support to banks; provision of the COVID19 Targeted Credit Facilities (TCF) disbursed to individuals and households through the NIRSAL Microfinance Bank, several CBN intervention funds targeted at the real sector, and the mobilization of the private sector to contribute to the National response under the CACOVID Initiative.
‘These measures have yielded the desired outcomes, as we begin to see the initial outline of an encouraging recovery given the recent data released by the National Bureau of Statistics with GDP growth put at 5% for the second quarter of 2021’.
‘Despite the headwinds associated with the pandemic, the banking industry has however, remained relatively resilient. This is attested to by our financial indicators with the industry Capital Adequacy Ratio (CAR) and Liquidity Ratio (LR) standing at 15.2% and 41.7%, respectively, at end-July 2021.
‘Our robust payment system has continued to evolve towards meeting the needs of households and businesses in Nigeria. The high level of confidence in our payment system, between 2015 and 2020, has attracted the investment of about $500m in firms run by Nigerian founders’.
‘In spite of these gains, about 36 percent of adult Nigerians still do not have access to financial services. Improving access to finance for individuals and businesses through digital channels can help to improve financial inclusion, lower the cost of transactions, and increase the flow of credit to businesses. The Central Bank of Nigeria decided to introduce a central bank digital currency, the eNaira, which would help in attaining our goals of fostering greater inclusion using digital channels, supporting cross border payments for businesses and firms as well as providing a reliable channel for remittances inflows into the country. ‘With the deployment of the eNaira, Nigerians in remote areas can conduct financial activities using their digital as well as features on phone devices. Partnering with our stakeholders in the financial industry, I believe that more Nigerians will be financially included.’