Dubious benefits of domestic card scheme for Nigeria
The payment news article that caught our eye this month was the announcement that Nigeria – through its Central Bank, the National Interbank Settlement System and the Bankers Committee –?intends to launch a domestic card scheme in 2023. Nigeria already has a private domestic card in Verve by Interswitch, which is partly owned by Visa Inc. Several others have been attempted by ValuCard, eTranzact and 3Line.?
Nigeria remains a big market for debit cards. After cash, payment cards are the second most preferred payment method for merchant payments at point of sale. The alleged benefits of such a scheme are:
?Revenue and profit retention in the country:?A significant proportion of card payments are for domestic transactions. This means that the revenue and profits from those transactions will remain in Nigeria, thus reducing demand for foreign currency.?
Domestication of use cases:?International card schemes have not been agile enough to respond to the unique needs of the Nigerian market with tailor-made services. For instance, Nigerian fintechs cannot access suitable integrations for services such as BNPL as is the case in developed markets.?
Reduced barriers to entry:?Banks pay fees to join and remain a part of international card networks. These include fees for connectivity, testing, membership and authorisation. Some of these fees could be eliminated with a local scheme.
Decreased foreign reliance:?If a country faced international sanctions, these could be used to disrupt local payments if the card scheme was operated by US companies such Mastercard and Visa.
Reduced interchange fees:?Regulators might set interchange at lower levels on domestic payments.?
We are not convinced by these benefits, that?are?either?intangible (profit retention) and/or inconsequential.?Would-be participants to the new card scheme can?already?opt to work with local providers such as Interswitch to achieve the benefits listed above,?can be achieved?through?the?regulation of interchange and planning for local business continuity.
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With the world increasingly fragmented between instant payment markets, mobile money markets and card-dominated markets, the best chance for driving the adoption of cards in Nigeria is to continue to leverage the unique and proprietary technology that is available from the card associations. This technology has driven the rapid growth in card payments in mature card markets, particularly?through?the adoption of Tap to Pay using NFC-enabled cards, Samsung Pay and Apple Pay.?
Those who assume Nigerians don't purchase digital goods produced offshore should consider that Spotify has the second-highest global user base in Nigeria. Visa and Mastercard products will remain the bedrock of e-commerce for years. Many Nigerians will continue to ask for international cards, leaving banks with the cost of running two systems, eliminating any imagined cost savings to the industry.?
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Best wishes