Account-Based Direct Debit (ABDD) System in Nigeria: Prospects and Comparison with Card-Based Solution

Prospects for ABDD in Nigeria

Promising but nascent: ABDD solutions are still in their early stages in Nigeria, but they hold significant potential for growth due to:

Strong regulatory support: The Central Bank of Nigeria (CBN) is actively promoting ABDD through initiatives like the Guidelines on Direct Debit Scheme and the introduction of NIBSS Direct Debit (NDD) platform.

Increased mobile penetration: Nigeria boasts a high mobile phone adoption rate, creating a ready infrastructure for mobile-based ABDD solutions.

Benefits over card-based solutions

ABDD offers the following advantages over the traditional card-based system:

• Higher success rates
• Lower transaction fees
• Improved security compared to cards

Challenges and opportunities

• Consumer awareness and adoption: Building consumer awareness and trust in ABDD is crucial for wider adoption.
• Integration with existing systems: Integrating ABDD with legacy banking systems and payment platforms requires further development.
• Competition from established card networks: Existing card networks still dominate the direct debit market and will put up resistance.

Statistics and references

• Limited data: Currently, there's a lack of comprehensive data on ABDD usage in Nigeria. However, the NIBSS Direct Debit website shows a steady increase in NDD mandates since its launch in 2006.
• EFInA's "Access to Financial Services in Nigeria (A2F) 2023 Survey" mentions growing interest in direct debit solutions but doesn't explicitly differentiate between account-based and card-based options.

Comparison with card-based direct debit solutions

• Pricing: ABDD guarantees lower transaction fees than card-based due to card network charges
• Success Rate: ABDD has the potential for a higher transaction success rate as it doesn't have to grapple with card expiration or re-issuance concerns, location and other technical issues associated with the card option.
• Improved security ABDD offers a lower risk of fraud due to direct bank authentication of users; issues of compromised card details do not apply.
• Mobile-friendly: The card option may require physical presence in some instances but ABDD can be set up remotely via USSD, mobile banking or digital wallet apps.
• Emerging technology: The card option is currently very well established and widely used while electronic ABDD is still relatively new.

Overall, ABDD holds significant promise for improving the efficiency and security of direct debit transactions in Nigeria. While challenges remain in terms of awareness, integration and slow mandate activation, the supportive regulatory environment, growing mobile penetration and fintech enthusiasm create fertile ground for its growth in 2025 and beyond.

Further Information:

• CBN Guidelines on Direct Debit Scheme: https://www.cbn.gov.ng/out/2010/circulars/bod/guidelines%20on%20nigeria%20direct%20debit%20scheme.pdf
• NIBSS Direct Debit website: https://nibss-plc.com.ng/nibss-direct-debit-ndd-2/
• EFINA A2F 2023 Survey: https://efina.org.ng/our-work/research/access/