How the cash shortage impacted B2B payments in Nigeria

The ongoing demonetisation policy in Nigeria has surged digital payments in the B2B ecosystem. For instance, Duplo recorded a 34% increase in its virtual accounts usage.

How the cash shortage impacted B2B payments in Nigeria
B2B digital payments 

About 60% of business-to-business (B2B) payments in Nigeria were cash-based in 2022, amidst challenges like the inability to accurately track transactions, theft, counterfeiting and fraud.

Despite the introduction of digital payments on the continent including in Nigeria, the process of making and receiving payments on the continent has been manual, making it more expensive and highly inefficient for businesses.

Last year, the Central Bank of Nigeria (CBN) announced a demonetisation process to mop up the currency in circulation, tackle counterfeiting, solve inflation and also curb insecurity. Apart from the aforementioned, the CBN governor, Godwin Emefiele, said the policy would also drive the country’s shift to a cashless economy.

The CBN redesigned higher denominations—₦200, ₦500 and ₦1000—of the Naira notes to drive this policy. Within three months, Naira notes worth ₦1.9 trillion was returned to the bank vaults, out of ₦3.2 trillion that was in circulation as of October 2022.

Amidst the implementation of this policy, the country was plunged into an acute cash shortage leading to protests and vandalisation of banks' physical assets by unsatisfied customers' who were made to wait in long queues inside banking halls and at ATMs across the country looking for new notes.

Since most B2B payments are often made with higher denominations, businesses (and even individuals who used lower denominations for day-to-day spending) had to shift to digital payment methods.

For instance, Duplo, a Nigerian B2B payment platform claimed that its virtual account usage increased by 34%. “We saw a massive growth in our payment volume and our virtual accounts within the period of this redesign policy,” Yele Oyekola, CEO and co-founder of Duplo, told “There has been a tremendous uptake in digital payments in the country, be it ‘forcefully’ or naturally.”

Within this period, transactions with the Nigerian central bank digital currency, eNaira, increased by 63%. Emefiele attributes the growth to the redesign policy and the use of eNaira to disburse aid via a national welfare programme.

Yele likens the demonetisation policy to the COVID-19 pandemic lockdown where the circumstances forced people to use digital payments. The shift also exposed the inadequacies of the Nigerian digital payment infrastructure as there were continued challenges around failed transactions, fraud and poor internet.

In Nigeria, 44% of businesses still have to wait more than 24 hours to receive payments from customers and partners. Meanwhile, 34% take up to seven days to receive payments, 17% take up to 30 days and 3% take more than 30 days to receive business payments.

“Across the country, the infrastructure for digital payments was weak due to the increased volume of transactions leading to failed and delayed payments that caused customers a lot of pain,” Duplo’s CEO said. The cash shortage across Nigeria presents a significant challenge for businesses that are often unable to maximise the opportunities available to them due to the aforementioned challenges with digital payment methods.

“For us, it is an opportunity to fill in the gap and also invest in providing more security and stability for businesses that depend on our channels. We are seeing a lot of inbounds from FCMG companies—distributors and manufacturers who are trying to digitise their entire value chain,” Yele added.

When Duplo launched in January 2022, 97% of FCMG companies in Nigeria made cash-based transactions, Yele claimed that this number went down to 70% within five months after its commenced operations and has since processed payments worth $100 million.

Last year, the fintech company raised a $1.3 million pre-seed fund to digitise payment flows for B2B companies. Yele said aside from the pre-seed fund, Duplo has raised at least $6.2 million. 

He further stated that to increase and sustain the adoption of digital payments post-Naira demonetisation “the CBN will need to do more work around creating awareness about the advantages of digital payments and cashless transactions in general”. Yele admits that some businesses still lack trust in digital payments with issues around security.

For instance, last month, Flutterwave was reportedly hacked for $6.3 million in over 60 transactions. Although court documents showed that the company filed a suit in Lagos against 16 commercial banks to freeze over 100 accounts suspected of receiving proceeds of the reported hack, the fintech unicorn denied the incident, saying that some merchants’ accounts were compromised but “ user lost any funds”.

A few days after the alleged hack, Semafor Africa reported that some of Nigeria’s largest fintech startups are working on a joint strategy to tackle fraudulent transactions within their networks, starting with plans for a shared list of suspected criminals.

“With this initiative, there will be a pool of data that anyone can leverage to trace fraudulent activities. Although it is quite difficult, it is important for fintech operators to share such data amongst themselves,” Yele Oyekola, said. “Most importantly, payment companies need to invest in providing secure platforms and compliance.”

He added that increased strategic engagement between regulators and fintech operators will further strengthen the security of the digital payment infrastructure in Nigeria.

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