Draft:Afrigo Payment Scheme

Introduction
AfriGo is Africa’s first national domestic card scheme introduced by the Central Bank of Nigeria (CBN) to revolutionize the payment landscape within Nigeria. . Launched on 26th of January 2023, by Godwin Emefiele, the former Governor of the CBN, in collaboration with the Nigeria Inter-Bank Settlement System (NIBSS), this initiative marks the entry of the Central Bank into the market of card payment schemes, aimed at bolstering the cashless economy and expanding financial inclusion for Nigerians. AfriGo now joins the ranks as the fourth significant contender in the card payment landscape, vying for market share alongside well-established entities like Mastercard, Visa, and the Nigerian-owned Verve.

AfriGopay Financial Services Ltd, an affiliate of NIBSS, is licensed by the CBN to deploy and manage the card scheme. Since its establishment, AfriGo has introduced various products, including debit and credit cards, as well as virtual cards, available to all Nigerians at their preferred bank.

Background
A card scheme facilitates the infrastructure necessary for users to execute transactions utilizing their debit, credit, or prepaid cards at automated teller machines (ATMs) or point-of-sale (POS) terminals. Consequently, commercial banks utilize these card schemes to issue cards to their customers.

Prior to AfriGo's emergence, Nigeria's payment system landscape was predominantly dominated by Mastercard, Visa, and Verve, enabling transactions within a country boasting a population of 218 million. Despite the companies serving a substantial portion of the population, Nigeria’s payments landscape was seen to be riddled with issues. Some of the issues include:

Low Financial Inclusion
The Nigerian government recognized a significant deficiency in financial inclusion within the country. The issue of low financial inclusion refers to the limited accessibility and availability of financial services to individuals and businesses, particularly those who are unbanked or underbanked. This problem arises due to various factors such as limited access to banking services, high transaction costs, lack of financial literacy, barriers to documentation, geographical constraints, lack of trust in formal financial institutions, and regulatory barriers.

In response, the Central Bank of Nigeria aligned itself with global policy initiatives by signing the "Maya Declaration" in 2010, aimed to decrease financial exclusion in Nigeria to 20% by 2020. Subsequently, this commitment spurred the development of a National Financial Inclusion Strategy (NFIS) in 2012, with the objective of attaining an 80% adult financial inclusion rate by 2020. Over the years, the CBN has adjusted its approach to accommodate the evolving financial terrain through initiatives like NFIS 2.0 (2018-2020). Nevertheless, the CBN's forecast for the subsequent four years (2019-2024) underscores a financial inclusion rate of 64.1%, which falls shy of the targeted 80% by the close of 2024. Upon closer examination of the data, it becomes apparent that the payments, savings, credit, insurance, pensions, and formally served segments have all lagged by an average of 30%. Consequently, one of its initiatives aimed at fostering greater financial inclusion is the establishment of the AfriGO Card Scheme.

Low Payment Card Penetration
Concurrent with Nigeria's low financial inclusion, the country grapples with limited payment card usage. As of 2022, Nigeria stands at 75th globally in terms of debit card ownership per capita, with just 32% of adults possessing a debit card. Additionally, its credit card ownership ranks 114th, with only 3% of the population owning one. The ramifications of this low payment card penetration include constrained access to financial services, heightened dependence on cash, and inadequate tracking of financial transactions, all of which impede the nation's economic development.

FX issue
In recent years, Nigerians have been confronted with one of the most severe economic crises, driven by escalating inflation rates resulting from monetary policies that have precipitated Niara’s unprecedented decline against the dollar. Furthermore, the reliance of the payment industry on dollar-based transactions, particularly with Mastercard and Visa, has considerably exacerbated Nigeria's foreign exchange (FX) challenges. Firstly, these payment network's facilitation of transactions in dollars has heightened demand for the currency domestically, straining the nation's already limited foreign exchange reserves and contributing to the devaluation of the Naira. Secondly, as Nigerians utilize their cards for international or online transactions with foreign vendors, it exacerbates the drain on foreign currency reserves, further compounding FX scarcity. Thirdly, this reliance on dollar transactions contributes to exchange rate volatility, impacting transaction costs and affecting both consumers and businesses. Additionally, the depreciation of the Naira makes dollar-denominated transactions more expensive for Nigerians, consequently raising the overall cost of living and conducting business activities.

In summary, the dependence on dollar transactions by Mastercard and Visa has exacerbated Nigeria's FX challenges by increasing the demand for the dollar, depleting foreign currency reserves, fostering exchange rate volatility, elevating transaction costs, and constraining access to foreign currency for individuals and businesses alike.

Data Sovereignty
Concurrent with the FX challenges stemming from the three payment schemes, the Nigerian government has raised concerns regarding data sovereignty. These concerns revolve around safeguarding the personal and financial data of Nigerian citizens managed by these global payment networks. Key issues include worries about data localization, as Nigerian authorities are unsettled by the storage and processing of sensitive financial data beyond the country's jurisdiction. Additionally, there are concerns about data security, as potential breaches pose risks to individuals' and nations' privacy and financial security.

These concerns have catalyzed the swift development of a domestic card scheme designed with stringent data protection policies, cybersecurity measures, and oversight mechanisms to ensure compliance with local regulations while safeguarding citizens' privacy and security.

International cards schemes
In recent decades, international card schemes (ICSs) like American Express, JCB, Mastercard, Visa, and UnionPay have emerged as dominant players in the payments sector. These international schemes offer standardized payment infrastructure capable of facilitating transactions on a global scale.

Over time, major ICSs such as Visa and Mastercard have witnessed substantial growth, with their networks expanding significantly to encompass numerous financial institutions, merchants, and cardholders worldwide.

Based on a recent Nilson report, it is anticipated that the global circulation of payment cards will reach 28.4 billion by December 2027, up from 25.8 billion at the close of 2022. Of this amount, ICSs are forecasted to reach 17.9 billion cards by the end of 2027, marking an increase from 16.6 billion at the end of 2022.

Despite their robust projected growth, International Card Scheme (ICS) operations have encountered several challenges, including regulatory demands to adhere to international standards and ethical business conduct. Additionally, governments have expressed apprehensions regarding payment data sovereignty, foreign exchange pressures associated with transactions in USD, and heightened ICS fees. In response, governments of various nations have mandated the creation of domestic payment schemes.

Domestic Payment Schemes
A domestic payment scheme is a system established within a particular country to facilitate electronic transactions, typically involving payments made within that country's borders. These schemes are often regulated by the government or a designated authority and may involve collaboration between banks, financial institutions, and other stakeholders within the country. Domestic payment schemes provide infrastructure and standards for processing transactions such as card payments, bank transfers, and other electronic payments, tailored to the specific needs and regulations of the country in which they operate.

Each domestic payment scheme establishes its own card scheme, to facilitate electronic transactions using debit, credit, virtual, or prepaid cards issued by local financial institutions. These schemes typically operate independently or in collaboration with international card schemes. They serve a pivotal role in facilitating transactions within the country's borders by providing the infrastructure required for card issuance, authorization, settlement, and clearing processes.

Over the last few years, these schemes have flourished. Some of the most prominent ones are the following:


 * Cartes Bancaires: France’s local card scheme that handles 60% of all card transactions within the country . To enable their cards for worldwide usage, they have partnered with either Visa or Mastercard for co-branding.


 * Verve: Owned by Interswitch Group, Verve is a Nigerian Pan-African card. It is Africa’s largest domestic card scheme with more than 19 million cards activated on its network.


 * Rupay: Launched by the National Payment Corporation of India (NPCI) to propel India towards a ‘Less Cash’ economy with a low-cost debit/credit card . In 2012, Rupay partnered with Discover Financial Services, to bring international services to Indians . As of November 2020, 603.6 million Rupay cards have been issued by nearly 1,158 banks.


 * Nets: The Network for Electronic Transfers (NETS) was established in 1985 by Singapore’s three largest banks: DBS, OCBC, and UOB . NETS runs Singapore's primary debit scheme, allowing customers from major banks to conduct transactions using physical or contactless ATM cards, along with mobile devices. Participating banks comprise DBS Bank/POSB, HSBC, Maybank, OCBC Bank, Standard Chartered Bank, and UOB.


 * Other notable domestic Card payment schemes include: Troy (Turkey), Meeza (Egypt), Mada (KSA), Mir (Russia), Elo(Brazil), PromptPay (Thailand), Swish (Sweden), iDEAL (Netherlands), IPP(UAE).

The AfriGo Domestic Card Scheme
In view of the pre-existing payments landscape, there are major gaps current international payment schemes fail to bridge: Promoting financial inclusion, leading the transition to a cashless economy, enhancing debit/credit cards to population ratio, decreasing transaction fees, data sovereignty, lessening reliance on the Dollar, and alleviating pressure on foreign exchange.

On the 26th of January 2023, the AfriGo domestic card scheme was launched by Godwin Emefiele, the former Governor of the CBN, in collaboration with the Nigeria Inter-Bank Settlement System (NIBSS). AfriGo has subsequently established the payment infrastructure, approved three card manufacturers, established a testing laboratory, and introduced a range of products. This product lineup includes contactless debit, credit, virtual, and prepaid cards, all designed to address the longstanding challenges within Nigeria. Locals stand to enjoy the following advantages of the AfriGO cards:


 * Cheaper Cards: CBN asserts that the card scheme will provide a more economical option compared to current cards available in the country. It is reasonable to anticipate that the card will be priced at less than ₦‎1,000, which is the typical cost of obtaining a debit card at most commercial banks in Nigeria


 * Reduction in operating fees: As per the CBN, AfriGo is expected to decrease the operational expenses associated with cards in the country. For instance, 100% of the fees for the cards will be settled in naira, eliminating vulnerability to fluctuations in the dollar exchange rate.


 * Reduce pressure on Forex Reserve and Exchange: Prior to the introduction of the AfriGO scheme, all Nigerians encountered significant challenges accessing foreign exchange for both personal and business transactions. The main reason for this was the limited availability of the dollar. However, by conducting all transactions in Naira, there would be an increased availability of the dollar, consequently alleviating pressure on the forex reserves and exchange rates.


 * Data Sovereignty: AfriGo will ensure that the valuable and sensitive data generated from financial transactions will remain within Nigeria, contrasting with the current outflow of data managed by Visa and Mastercard. This will empower AfriGo to improve the safeguarding and understanding of the country's payment ecosystem.


 * Greater Financial Inclusion: Offering a more affordable card, lowering operating fees, and simplifying the process of obtaining it, the CBN anticipates a wider adoption of the card across the nation. This aligns with the CBN's goal of achieving financial inclusion, as outlined in 2012.


 * Products for its people: Having an overarching view of the payments landscape, AfriGo will be able to create products that better fit Nigeria’s use cases, at an affordable price. Moreover, with regulatory oversight and robust security protocols in place, the Nigerian government can exert greater control and promptly introduce solutions that directly benefit its people.

The introduction of the domestic card in Nigeria is expected to bring manifold benefits to the nation and its citizens. Over the past few months, there has been a notable increase in demand for AfriGo from both banks and individuals. AfriGo is actively working with its stakeholders and partners to ensure a consistent supply. Citizens are urged to join Nigeria's journey of progress and to acquire their AfriGo cards from their selected bank branch.