A shift in consumer behavior and macroeconomic conditions is prompting Nigerian banks to issue local cards like Verve to customers, moving away from international card schemes such as Visa and Mastercard. Before the COVID-19 pandemic, Nigerian fintechs leveraged foreign debit cards as an effective customer acquisition strategy. These cards, often issued at little to no cost, allowed customers to withdraw money at ATMs or make payments at supermarkets, driving increased spending and higher transaction fee revenues for fintechs.
A former banker, who requested anonymity, explained that no regular Nigerian would spend money from a bank account if they did not have a card. However, COVID-19 restrictions on in-person shopping, a cash crunch in Nigeria in 2023, and ATM cash shortages have shifted consumer habits, reducing reliance on card payments and increasing the popularity of bank transfers.
Fintech startups and banks are now reevaluating their card operations in light of these new realities. All Nigerian commercial banks, except Guaranty Trust Holding Company (GTCO), have started issuing Verve cards, operated by Nigerian payments company Interswitch. For instance, First Bank, Nigeria’s oldest bank, has issued Verve cards to over half of its card customers. Chinese-backed fintech OPay has issued 13 million Verve cards, while Moniepoint has distributed about 4 million. Since the end of the COVID-19 pandemic in 2021, Verve has captured 54% of the Nigerian card market.
The switch from international card schemes, which charge in USD, has gained popularity following the naira’s devaluation, making foreign exchange-denominated bills more expensive. Visa and Mastercard fees vary based on the financial institution’s size and region, with their pricing strategies often being complex and burdensome. Mastercard’s pricing guide, for instance, spans 300 pages. Financial institutions also face requirements such as a $2,000 monthly implementation charge, maintaining an offshore account, annual contract renewals, and significant collateral, according to industry insiders.
International card schemes also impose fees on Nigerian banks for dispute resolution and prevent non-banks from directly connecting to their card schemes, forcing fintechs to partner with commercial banks. These complexities have increased the appeal of local alternatives like Verve and Afrigo, despite significant investments from Mastercard and Visa into the continent’s fintech industry. Both companies have invested at least $700 million to remain relevant.
The decision to switch to local card schemes is also influenced by the predominant use of cards for local payments. With inflation eroding spending power, the capability to make global payments, offered by the major card schemes, is useful to only a small percentage of customers. “The majority of fintech customers use cards for POS transactions, not for shopping on international platforms,” an employee at a Nigerian card scheme explained.
Nigeria is currently experiencing its worst cost of living crisis in three decades, reducing customer spending and causing a drop in interchange fees—the fees merchants pay for card processing. This poses a challenge for fintechs that rely on a high volume of transactions to achieve profitability with card operations. In response, the Central Bank of Nigeria, under Godwin Emefiele, launched Afrigo, a local card scheme aimed at helping banks save costs. Fintechs, keen to align with regulatory expectations following a recent ban on onboarding new customers, see adopting Afrigo as a favorable move.
The rise of online transfer payments has also prompted Nigerian fintechs to develop products facilitating bank transfers. Stripe-owned Paystack, for example, has launched two pay-by-transfer products recently, as bank transfers represented 58% of its transactions in Nigeria in 2023, up from 28% in 2022. These transfers offer better margins than card payments by eliminating the multiple processors involved in card transactions. Given these shifts in consumer behavior and the high costs associated with card operations, international card schemes are considering collecting fees in naira. However, years of FX restrictions and $20 limits for global payments have made alternatives like virtual cards popular, leading to customer indifference about the switch. As long as the cards work at local stores, restaurants, and POS stalls, the transition is largely seamless.