Boom in plastic money as Nigeria spends, spends, spends

In 2002, when Mitchell Elegbe was starting his technology business, there were few proper bank cards in Nigeria, ATMs were rare and there was no inter-connectivity between banks. Drawing money meant walking into your branch, collecting a token indicating a number in the queue, and returning several hours later in the hope of being near the teller.
“People used to keep a lot of money at home,” said Mr Elegbe. “We thought: why can’t people have cash just-in-time.”

So his fledgling company built a “switching” infrastructure to connect the different banks. Interswitch also provided the technology for ATM cards, in the hope of becoming the Nigerian equivalent of Visa or MasterCard.
A decade on, and the two American payment giants are scrambling to play catch-up in Africa’s second-biggest economy. Today, Nigeria has nearly 12,000 ATMs, 131,000 point-of-sales machines and several internet payment portals. Of the 25m bank cards in circulation, more than 18m carry Interswitch’s “Verve” brand, Mr Elegbe says.
Its success is a clear example of the first-mover advantage is Nigeria, where for years the difficult operating conditions caused many multinationals to sit on the sidelines.
With the economy expanding steadily at between 6 and 7 per cent a year since 2007, ever more foreign companies are looking for a way in, from supermarket chains such as Carrefour, which recently announced a deal to expand into west Africa, to Ermenegildo Zegna, the luxury men’s brand. And, as data from the banking sector show, later is better than never, for there is still huge room for growth.
As in many other African countries, access to financial services has traditionally been limited to the wealthier class in Nigeria. In recent years, however, banks have courted lower-income customers. The number of people with bank accounts grew from 18.3m in 2008 to 28.6m in 2012, according to Enhancing Financial Innovation & Access, (EFInA), an organisation that promotes financial inclusion in the country.
Even so, that represents just one in three Nigerian adults, compared with the two in three who formally bank in South Africa, the continent’s largest economy. Nearly 60m Nigerian adults – out of a fast-growing population of 160m people – do not use traditional banking services.
“We have this massive market, and that gives us a natural advantage over other countries,” said Mr Elegbe, the MD of Interswitch, whose shareholders now include four local banks, the private equity firm Helios and the International Finance Corporation. “There’s still a huge opportunity to bring more people into the banking system.”
Nigeria presents its own unique challenges too, from the chronic power outages that require standalone ATM’s to run on generators much of the day, to its reputation for fraud. In its early years, Interswitch used magnetic stripe cards that were susceptible to being cloned. Mr Elegbe said that fighting swindlers became “my full-time job”. Then Visa and MasterCard, whose presence in sub-Saharan Africa had mainly been limited to countries that drew foreign tourists, such as Kenya and South Africa, entered the market with chip-and-pin cards.
The Central Bank of Nigeria (CBN) mandated that this become the new standard, and Interswitch adopted the technology for its Verve cards. Scamming has now been greatly reduced – by 90 per cent, the CBN says – and is today a much smaller issue than people might imagine, said Ade Ashaye, country manager for Visa.
“[By coming in later] we have not repeated the mistakes made in other markets,” he said. “Fraud on our cards issued in Nigeria is significantly lower than global averages.”
At the same time, spending on plastic is rising fast. According to the CBN, the volume of card purchases and ATM withdrawals nearly tripled between 2009 and 2011. The vast majority of transactions are made using savings account or debit cards; since Nigeria’s banking crash in 2008, when reckless lending was common, the percentage of bank customers holding credit cards has fallen from 12 per cent to 5 per cent, according to EFInA.
One reason for the surge in e-purchases is the CBN’s efforts to promote cashless transactions, which has seen handheld point-of-sales terminals installed everywhere from church donation booths to hairdressers. Another is the rise of internet shopping and sites, such as Paga and Interswitch’s Quickteller that facilitate money transfers, bill payments and airtime purchases.
MasterCard, which formally moved into the market in 2010, has seen a strong growth in revenues, according to Omokehinde Ojomuyide, its business head for west Africa, as people have become more comfortable using their cards. The company has an agreement with the government to rollout 13m MasterCard-branded national identity cards that will enable people to load money and make electronic payments.
Along with Visa and Interswitch, MasterCard is also working with overseas vendors to improve acceptance of cards issued in Nigeria, which are sometimes still rejected because of a fear of fraud.

“Like it or not, Nigerians spent a lot of money abroad,” said Mrs Ojomuyide. “There’s no reason that they should not get the same services as anywhere else in the world.”

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