Nigeria Struggles with its New Central Bank Digital Currency (CBDC) – fintechs and Nigerian Consumer Banking

The new CBDC, the eNaira, was initially scheduled to launch on 1 Oct. That was postponed since the launch clashed with Independence Day celebrations. Nigerians became suspicious of their central bank’s (CBN) readiness for a digital currency rollout; after all, Independence Day is a fixed event every year and so authorities should have planned better. Shrugging off skeptics, President Muhammadu Buhari unveiled the eNaira wallet at a ceremony in Abuja 3 weeks later (on 25 Oct). Buhari said the innovation could grow Nigeria’s economy by $29bn in the coming decade, and further financial inclusion goals. Unlike other digital currencies, the CBN explained that the eNaira is traceable because there are components of due diligence in hindering any prospects of fraudulent and illicit activities like money laundering and illicit financial flows, however, there are concerns that its security is fragile.

Fintech dominates Nigeria’s startup space. Not only does it have the most unicorns (companies with up to $1 bn valuations), it has also received the most interest from investors. By valuation, MTN’s MoMo is the biggest fintech in Nigeria, estimated at $6bn. But going by customer base alone, Paga is the largest mobile payments firm in Nigeria with 17 million users. In 2020, the country attracted $305 million in startup funding, according to Partech Africa. Fintech deals represented around 44% of startup investment activities. According to a report by Frost and Sullivan, the fintech space is expected to grow by over $543.3m in 2022. Fintechs also account for 95.95% of this year’s fundraising announcements, with OPay, Flutterwave, and Kuda leading the pack.

Meanwhile, MFS Africa, the South Africa-based payments gateway that enables over 300 million wallets to transact across different mobile money platforms, has bought Capricorn Digital, a Nigerian company that runs a network of agents. Capricorn is known for its Baxi boxes, a sort of the point of sale device that agents—in their wooden kiosks and corner shops—use to offer services like cash deposits, withdrawals, and utility payments to consumers. This shows the power of the agents in Nigeria – it is estimated that agents outnumber ATMs. For MFS Africa the strategic value is in taking advantage of mobile payments for easier pan-African trade. MFS Africa’s usual procedure for establishing a market in Africa is to become partners with mobile network operators that run mobile money services. Some of their partner telcos include Safaricom and MTN Uganda. Beyond remittances, MFS Africa wants to use Capricorn Digital’s expertise for pan-African trade in the informal economy.