Godwin Emefiele and CBN e-naira
Emefiele, CBN governor

BY EMEKA EJERE

As Nigerians await the launch of the central bank’s digital currency, the eNaira, the question on the lips of many is how the development will affect the activities of the commercial banks and financial technology (fintech) companies.
The launch was originally scheduled for October 1, but on 30 September the Central Bank of Nigeria (CBN) announced it had been postponed so as not to clash with the country’s Independence Day celebrations and to ensure a seamless launch.

However, according to Nairametrics website, which claims to quote anonymous sources close to the launch, the real reason was that visits to the new currency’s official platform, which went live on 27 September, were 10 times higher than expected, and the CBN “decided to postpone the launch in order to recheck and retest the robustness, safety, scalability and security of the eNaira system”.

The eNaira will be an electronic version of the local paper naira currency, equal in value and issued by the CBN. It is not intended to replace cash but will function as a safe and efficient alternative means of payment. It is expected to be a legal tender for the country and has a non-interest-bearing status, as well as a transaction limit for customers.

As Johnson Chukwu, founder and managing director of Cowry Asset Management Limited explained on Arise News’s Morning Show, “it’s not in coins and it’s not in notes, it’s in virtual format. So you can’t physically hold it, but you have it as a store of value, as a piece of payment, and it’s backed by the good faith of the central bank… for every unit of that currency you hold, the central bank can give you physical naira.”

According to the CBN, the planned launch of its Central Bank Digital Currency (CBDC) pilot scheme with Bitt Inc., a financial technology company that utilis¬es block chain and distributes ledger technology, will facilitate secure peer-to-peer transactions.

Cryptocurrencies

The planned launch comes as a surprise to many as the CBN, like other central banks, had been suspicious of cryptocurrencies, such as Bitcoin, since their inception. In February, the banking sector regulator issued a directive that prohibited banks taking part in financial transactions involving cryptocurrencies, in which many Nigerians have placed their savings as a hedge against naira depreciation.

Although the apex bank later clarified that individuals were not prohibited from buying and selling, traders were forced to carry out their business on peer-to-peer platforms, an effective black market. U.S. research firm Chainalysis has said that Nigeria is among the top 10 nations with the highest cryptocurrency use.

However, moved by developments in China, central banks are increasingly coming round to the idea of creating their own digital currencies, seeing them as useful tools for promoting cross-border transactions, providing stability to payment systems and extending financial inclusion.

Nigeria is one of around 80 countries across the world that have been exploring the possibility, but will be the first to launch one in Africa. South Africa is moving towards a trial, while Ghana, Morocco, Tunisia, Kenya, and Madagascar are all said to be in the research stages.

Banking in Era of eNaira

Analysts believe that the much-anticipated un¬veiling of digital currency by the CBN is a major step in digital bank¬ing that would be beneficial to consumers but not good for the banks, at least in the short run.

According to a top banker, who prefers anonymity, banks are afraid that the eNaira will erode their profitability.

“You know fees and com¬missions are major incomes for banks and with eNaira banks will see a drop in these and it is only the banks that can think outside the box that will remain in the green at the end of the year”, he said.

Cyril Ampka, an Abuja-based economic analyst, said, “With eNaira, there is no hiding place for banks and their hidden charges as everything about the CBC is transparent and open.

“I expect banks to start thinking of how to onboard the eNai¬ra feature on their e-channels because majority of Nigerians had experienced deduction of unbelievable charges.”

Another economic analyst, Mr. Tochukwu Egesi, noted that although financial institutions will be able to develop their own eNaira wallets, the initial roll-out will use the CBN’s Speed Wallet.

“This, along with the fact the CBN will own the infrastructure, platform, customer and data could turn the regulator into a competitor and provide the CBN a first-mover advantage over the banks”, Egesi cautioned.

“Furthermore, because peer-to-peer and peer-to-merchant transactions will be free, traffic will be lured away from the payment services of banks and fintechs. This could “grossly affect” banks’ non-interest revenue models and present “uncertainty in the business model and sustainability of thriving payment fintechs in Nigeria. In addition, users might choose to hold money in their eNaira wallets instead of leaving it in deposits with their banks.”

But the CBN has told financial institutions in the country that eNaira is not a subtle scheme to take away bank customers but a plan to grant access to more financially excluded people.

In details published on the website of the nation’s digital currency which went live ahead of the planned launch on October 1, the CBN said the eNaira opens up a whole new market of digital currency users for financial institutions to increase their customer base and add value to their account owners.

The apex bank said,“Integral to the establishment of e-Nairais the necessity to build more syn¬ergy with financial institutions.

“The framework of e-Naira is such that it entrenches many pipelines of collaboration and further strengthens financial institutions’ core service delivery.

“By its very nature with regards to its mandates, e-Naira enhances the structures of these institutions instead of replacing same.

“Financial institutions act as bridges between customers and the CBN. This increased customer interaction can help them adopt better customer support models.”

However, a national daily claimeds its investigationrevealed that just about two banks with robust e-channels have signified interest in taking part in the eNaira introduction as the majority do not know how to benefit from it.
GuarantyTrust Bank, according to the paper, has informed its teeming customers of its readiness to integrate the eNaira feature of its app.
“Kindly note that you will need to download and on¬board on the CBN e-Naira speed wallet app to create your eNaira username and password”, the bank was quoted as telling its customers