THE EVOLUTION OF FINANCIAL PAYMENT SYSTEMS
The financial payment landscape in Nigeria has evolved significantly in recent years, with the introduction of various payment systems designed to enhance efficiency and reduce the reliance on traditional cash transactions.
Before attaining independence in 1960, Nigeria primarily operated as a cash-based economy with a limited banking infrastructure in place. Transactions heavily depended on the use of physical cash. The Central Bank of Nigeria (CBN) was established two years before achieving independence and played a pivotal role in shaping the financial landscape of the nation. To enhance the efficiency of payments and fund transfers, the Nigerian Interbank Settlement System (NIBSS) was established, automating the processing and settlement of interbank transactions. The introduction of ATMs and debit cards significantly improved accessibility to funds and facilitated electronic payments for Nigerians. In 1998, the Nigerian Payment System Act was enacted, providing a legal framework for electronic payment systems and establishing guidelines for electronic transactions within Nigeria.
In 2015, the CBN introduced a cashless policy aimed at reducing the amount of physical cash in circulation, promoting electronic payments, and enhancing the efficiency and transparency of financial transactions. In 2016 there was an introduction of mobile money services in Nigeria, such as MTN Mobile Money and Paga, which made it easier for individuals to send and receive money using their mobile phones.
The CBN further introduced the concept of Payment Service Banks (PSBs) in 2018 to extend financial services to unbanked and underbanked populations, promoting digital financial inclusion, in 2020 the CBN launched the Nigerian RTGS system, a modern payment system for large-value interbank transactions, enhancing the efficiency and safety of fund transfers. In 2021, in response to the growing interest in cryptocurrencies, the CBN issued regulations that restricted financial institutions from providing services related to cryptocurrencies. This move was met with mixed reactions from the public and the FinTech industry. Currently, Nigeria is exploring open banking, which allows third-party providers to access financial data and offer innovative financial services. This has the potential to drive further innovation in the payment space. In 2021, the CBN introduced the digital currency, E-Naira, as a way to further promote digital payments in the country. It is intended to coexist with physical cash and existing payment methods.
The evolution of financial payment systems in Nigeria reflects the country’s commitment to modernizing its financial infrastructure and promoting financial inclusion. As technology continues to advance, and regulatory frameworks adapt to changing needs, Nigeria’s payment ecosystem is likely to continue evolving, offering more options and convenience to consumers and businesses.