Sylvia Duruson
In recent years, Nigeria’s banking landscape has witnessed a significant transformation. Banks are increasingly adopting local card schemes like Verve, moving away from international giants such as Visa and Mastercard. This shift is driven by evolving consumer behavior and macroeconomic factors.
Before the COVID-19 pandemic, Nigerian fintech companies discovered a simple yet effective customer acquisition strategy: offering foreign debit cards. These cards, often provided at little to no cost, enabled customers to withdraw money from ATMs and make purchases at various establishments. This approach boosted customer spending and increased transaction fees for fintechs.
However, the pandemic brought about changes that altered this dynamic. Restrictions on in-person shopping, cash shortages at ATMs, and a cash crunch in 2023 reduced reliance on card payments. Consequently, bank transfers gained popularity, prompting both fintech startups and traditional banks to reassess their card operations.
Today, nearly all Nigerian commercial banks, with the exception of Guaranty Trust Holding Company (GTCO), have embraced Verve, a card scheme operated by Nigerian payments unicorn Interswitch. 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 naira’s devaluation has made switching from international card schemes more appealing, as their fees are charged in USD. Visa and Mastercard’s pricing structures are complex, with varying fees based on factors such as institution size and region. Financial institutions must also meet stringent requirements, including monthly implementation charges, offshore account maintenance, annual contract renewals, and substantial collateral deposits.
These complexities have driven the popularity of local alternatives like Verve and Afrigo, despite significant investments from Mastercard and Visa in Africa’s fintech industry. The decision to switch to local card schemes is also influenced by customer spending patterns, which predominantly involve local transactions rather than international purchases.
Nigeria’s current cost of living crisis has further impacted customer spending, leading to a decrease in interchange fees. This presents a challenge for fintechs that rely on high transaction volumes to break even with card operations. The Central Bank of Nigeria’s launch of Afrigo, a local card scheme, has been positioned as a cost-saving measure for banks.
The rise of online transfer payments has prompted fintechs to develop products facilitating bank transfers. Paystack, owned by Stripe, has launched pay-by-transfer products in response to the growing preference for this payment method. Bank transfers offer better margins compared to card payments due to the elimination of multiple processors involved in card transactions.
Card operations require significant scale to become profitable, considering factors such as logistics, manufacturing, technology, regulatory costs, and fraud risks. While international card schemes have considered collecting fees in naira, years of foreign exchange restrictions and limits on global payments have made alternatives like virtual cards popular.
As long as cards function at stores, restaurants, and POS terminals, many customers may remain indifferent to the switch. 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.
