Evolutionary Currents: Nigerian Financial Institutions Adopt Domestic Card Systems in Response to Evolving Consumer Preferences
In recent years, the Nigerian fintech industry has experienced a significant transformation, with the rise of online transfer payments prompting the development of products facilitating bank transfers. This shift is evident in the increasing popularity of local card schemes like Verve, a card scheme operated by Nigerian payments unicorn Interswitch, which was founded by Mitchell Elegbe.
Before the COVID-19 pandemic, Nigerian fintech companies offered foreign debit cards at little to no cost as a customer acquisition strategy, boosting customer spending and transaction fees. However, the naira's devaluation has made switching from international card schemes like Visa and Mastercard more appealing due to their fees being charged in USD.
The complexities and requirements associated with financial institutions using Visa and Mastercard, including monthly implementation charges, offshore account maintenance, annual contract renewals, and substantial collateral deposits, have driven the popularity of local alternatives like Verve and the Central Bank of Nigeria's recently launched Afrigo.
Despite significant investments from Mastercard and Visa in Africa's fintech industry, the shifting landscape of card payments in Nigeria is evident. Today, nearly all Nigerian commercial banks, except Guaranty Trust Holding Company (GTCO), have embraced Verve. 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 growing preference for bank transfers over card payments is not lost on fintechs like Paystack, owned by Stripe, which has launched pay-by-transfer products in response to this trend.
The Nigeria current cost of living crisis has led to a decrease in interchange fees, posing a challenge for fintechs relying on high transaction volumes for card operations. While international card schemes have considered collecting fees in naira, alternatives like virtual cards have gained popularity due to years of foreign exchange restrictions and limits on global payments.
Despite the launch of Afrigo, Nigerian banks and fintechs continue to embrace Verve. This is partly due to bank transfers offering better margins compared to card payments, as they eliminate the need for multiple processors involved in card transactions.
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. While many customers may remain indifferent to the switch from international card schemes, as long as cards function at stores, restaurants, and POS terminals, the trend towards local payment solutions shows no signs of slowing down.
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