Micro transactions, defined as transfers below N10,000, are powering Nigeria’s electronic payment (e-payment) boom, highlighting the increasing adoption of digital channels in everyday life, BusinessDay’s analysis of electronic transfer levy has revealed.
These micro transactions gained prominence following the Central Bank of Nigeria (CBN)’s recent unsuccessful cashless policy initiative.
In October 2022, Godwin Emefiele, then CBN governor, announced a naira redesign policy to improve the monetary policy, promote digital alternatives like the eNaira, and enhance the currency’s integrity.
By January 2023, physical naira became scarce, prompting many to adopt digital channels. Data from the Nigeria Inter-Bank Settlement System (NIBSS) show that cashless transactions rose by 45.41 percent year-on-year to N39.58tn in the month. By the end of the first quarter of 2023 (before the cash scarcity waned), cashless transactions had increased by 44.84 percent to N126.73tn from N87.49tn in the corresponding period of 2022.
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By the end of 2023, cashless transactions had surged to over N600 trillion from N395.38 trillion in 2022 as more Nigerians embraced digital payment channels. This trend continued in 2024, with transactions growing by 88.09 percent to N237 trillion in the first quarter (Q1) of 2024.
But the significant increases in e-payment transactions did not translate into higher government revenue through the Electronic Money Transfer Levy (EMTL) contribution. In Q1, 2024, the government made N66.35 billion from EMTL between January and April 2024, the same amount it made in the corresponding period of 2023. The basic reason for this is that most transactions were less than N10,000 and were not subject to tax.
The EMTL, introduced in the Finance Act 2020 as an amendment to the Stamp Duty Act, is a single, one-off charge on electronic receipts or transfers of money deposited in any bank or financial institution on any account for sums of N10,000 and above. EMTL was meant to be the government’s gateway into the country’s electronic transfer boom, partly fuelled by the pandemic.
Higher e-payment values are expected to result in higher revenue, something the government counts on with its projection of increased accruals from EMTL. However, the current boom in e-payment is driven by microtransactions.
“Payment methods have become easier, faster, and better, and people are using them for everyday things,” said Adedeji Olowe, founder of Lendsqr.
“Everyone from small kiosks to supermarkets now accepts transfers. If I go downstairs where I live, I can buy something worth N1,000 and pay with transfers,” Olowe stated.
He said this indicates a maturing payment space in which real-time transfers are becoming a more acceptable form of payment in an economy striving to reduce reliance on physical cash.
Africa had the highest real-time share of electronic payments in 2023 at 40 percent, with Nigeria leading the region, according to ACI Worldwide, a leader in real-time payments. In its 2023 spotlight report, Paystack revealed that 58 percent of transactions on its platform from Nigeria were through transfers.
Experts in the payment space explain that most transactions in the country are below N10,000.
“The range below N6,000 makes up about 45 percent of transfer transactions. Some in the range of N10,000 is around 25 percent,” an industry source commented.
“There has been a boom in microtransactions. When the cashless issue happened, people started moving away from cards and focusing more on transfers as a means of payment. Because of that, transfers are no longer just for P2P but are now widely adopted,” noted Nosa Oyegun, VP of product and innovation at Kuda.
This has led to a boom of new fintechs such as PalmPay, Opay, and Moniepoint. “Even point-of-sale withdrawals are mostly via transfers rather than cards,” Oyegun added.
This micro-transaction growth bodes well for financial inclusion, drawing more individuals into the digital financial system. “It is good for them because there is now more access to financial services,” an industry source said.
While it might not translate into more taxes for the government, experts argue that the boom in micro transactions supports the government’s plans for digital inclusion and the economy.
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“It is fostering a national policy… I don’t think it is lost revenue for the government because it is like the gold. I don’t think you can tax it,” an industry expert said.
The growth of micro transactions could also be a reflection of the general economic downturn, with Nigerians grappling with double-digit inflation.
“People are struggling today due to economic downturn. Incomes have been strained and most people go for things that are affordable, which are usually cheaper than N10,000,” said Ike Ibeabuchi, a macro economy analyst.
Though not expected to become a significant revenue source, the Federal Government recently outlined plans to generate N483.73 billion from EMTL over three years in the 2023 – 2025 Medium Term Expenditure Framework and Fiscal Strategy Paper. The Budget Office projected a revenue of N137.03 billion in 2023, and N157.59 billion in 2024.
It targeted N189.11 billion based on the estimated volume of eligible online transfer transactions: 2.7 billion in 2023, 3.1 billion in 2024, and 3.8 billion in 2025.
In 2023, the government exceeded its target, making N180.31 billion from EMTL, N43.96 billion more than its N136.35 billion goal.