Evolution in Financial Landscape: Nigerian Banks Adopt Domestic Card Systems in Response to Consumer Trends Shift
In a significant move, nearly all Nigerian commercial banks, excluding Guaranty Trust Holding Company (GTCO), have adopted Verve, a card scheme operated by Nigerian payments unicorn Interswitch. This shift towards local card schemes is a response to various factors, including the complex pricing structures of international card schemes like Visa and Mastercard.
The Central Bank of Nigeria (CBN) has also launched Afrigo, a local card scheme, as a potential cost-saving measure for banks. The naira's devaluation has made switching from international card schemes more appealing, as their fees are charged in USD.
Prior to the COVID-19 pandemic, Nigerian fintech companies offered foreign debit cards as a customer acquisition strategy, which boosted customer spending and increased transaction fees. However, the pandemic led to changes that reduced reliance on card payments, with bank transfers gaining popularity.
Paystack, owned by Stripe, has launched pay-by-transfer products in response to the growing preference for bank transfers over card payments. Card operations require significant scale to become profitable, considering factors such as logistics, manufacturing, technology, regulatory costs, and fraud risks. Bank transfers offer better margins compared to card payments due to the elimination of multiple processors involved in card transactions.
While international card schemes have considered collecting fees in naira, alternatives like virtual cards have become popular due to years of foreign exchange restrictions and limits on global payments. First Bank, the country's oldest bank, has issued Verve cards to over half of its card customers. Chinese-backed fintech OPay and Moniepoint have also joined the trend, issuing 13 million and 4 million Verve cards, respectively.
The changing landscape of card payments in Nigeria reflects broader shifts in consumer behavior and economic conditions, highlighting the adaptability of the financial sector in response to evolving market dynamics. Many customers may remain indifferent to the switch from international card schemes, as long as cards function at stores, restaurants, and POS terminals.
Financial institutions must meet stringent requirements to use Visa and Mastercard, including monthly implementation charges, offshore account maintenance, annual contract renewals, and substantial collateral deposits. The current cost of living crisis in Nigeria has led to a decrease in interchange fees, posing a challenge for fintechs relying on high transaction volumes for card operations.
Despite significant investments from Mastercard and Visa in Africa's fintech industry, the complexities and requirements of international card schemes have driven the popularity of local alternatives like Verve and Afrigo. The last bank that has not yet adopted the use of Verve cards, operated by Nigerian payments unicorn Interswitch, is not explicitly named in the search results.
This shift towards local card schemes is a testament to the resilience and adaptability of the Nigerian financial sector in the face of economic challenges and changing consumer preferences. As the landscape continues to evolve, it will be interesting to see how these trends impact the future of card payments in Nigeria.
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