In recent weeks, several players in Nigeria’s financial ecosystem have unveiled partnerships aimed at accelerating the adoption of contactless payments across the country.
AfriGO, the domestic card scheme, has teamed up with Moniepoint to issue five million contactless cards, while PalmPay and Cash Africa are rolling out tap-to-pay solutions through the former’s POS terminals. Access Bank has also partnered with Visa to offer similar contactless solutions.
After years of growth in digital payments, from cards to bank transfers, contactless payments are now emerging as the next frontier in Nigeria’s payments landscape.
The benefits are clear: they’re fast, cost-effective, and convenient. But while the potential for this technology is huge, Nigeria’s payment infrastructure, consumer habits, and security concerns may stand in the way of a full-fledged contactless payment revolution.
How contactless payments work
Contactless payments are powered by Near-Field Communication (NFC) technology, which allows users to make payments by simply tapping their card or smartphone on a compatible Point of Sale (POS) terminal.
The process is quick, requiring no physical connection between the payment device and the terminal, hence the term “contactless.” Cash Africa CEO Malik Asamu notes that the startup’s solution can complete payments in a second.
When you tap your card or phone, it sends encrypted payment information to the terminal using radio waves. This interaction is typically completed in a fraction of a second, making contactless payments much faster than traditional card transactions, which often require inserting the card and waiting for approval.
With contactless technology, consumers can complete their transactions without entering a PIN for small purchases. For mobile payments, users can store their credit or debit card details on their smartphones through apps like Google Pay, Apple Pay, or even banking apps.
Nigeria’s payment infrastructure today and contactless payments
One of the most significant developments in Nigeria has been the growth of digital payments. When the CBN launched its cashless policy in 2012, its stated goal was to “reduce the amount of Naira notes and coins (Cash) used for business but not to eliminate cash usage.”
On that note, it has succeeded, with cash transactions declining from 91% of total transactions in 2019 to 55% in 2023. Today, anyone attempting to pay for a product or service is availed of a myriad of payment options, from cards to bank transfers, and, to a lesser extent, mobile money.
However, when it comes to contactless payments, the country still has some way to go to bring it mainstream.
In a 2024 article where he argued that contactless cards could revolutionise payments in Nigeria, Adedeji Olowe, CEO of Lendsqr had this to say:
“It’s one thing to have a contactless card; it’s another thing to have places you can use them. The millions of cardholders taking their contactless cards around use them as decorations since [there] are no places to tap and go.”
A year later, that statement remains true, although the partnerships referenced earlier are working on fixing it.
Asamu suggests that Nigerians’ growing demand for faster payment methods could drive the adoption of contactless payments.
“What we’ve seen from the market is that there’s a possibility and an ability to embrace convenience. That might come in the form of contactless or QR codes, but there’s a willingness to embrace convenience, and we see that in the adoption transfers, especially from the cash crunch era,” he notes.
Yvonne-Faith Elaigwu, Head, Operations and Governance at OnePipe, notes that while contactless payment infrastructure may not be readily available in most parts of the country, driving adoption might happen faster than expected.
“If OPay, PalmPay, and Moniepoint introduce contactless [payment] and decide that it is in their interest to push for it, then between the three of them, they’ll be able to reach a large number of Nigerians through people who use POS terminals. If they go on a campaign to say, ‘When people come, instead of putting in their card, tell them to tap it,’ I think that with the reach of all three, we can go far,” she says.
Asamu agrees, noting that financial institutions have a few options to drive adoption. While banks may pursue adoption using cards, fintechs are likely to do so using mobile phones.
Overcoming barriers to adoption
Despite the optimism expressed by many industry insiders, there are a few stumbling blocks on the path to adoption.
The first, which might be the easiest to overcome, is awareness. While banks have been issuing cards that can perform contactless payments, many customers remain unaware of this, a challenge Asamu says his startup has come up against. Investing in customer education could help with this, but he shares that merchants ultimately hold the keys.
Security is another issue that could hinder adoption. Fraud has become a major topic for fintech operators on the continent in recent years, and with contactless payments not requiring authentication, Jacquelyn Madu, CEO of Azapay, worries that customers may be reluctant to use contactless payment methods.
“The question is, have they thought about the huge risk around it? Have they created security measures? Are they working in tandem with the government to ensure that there’s security for contactless payments?” she queries.
The CBN appears to have anticipated this challenge and has imposed a daily transaction limit of ₦50,000 for contactless payments. However, in a country where the minimum wage stands at ₦70,000, even that may be too high a price to pay for faster transactions. Consequently, Asamu shares that companies may have to include authentication options to build trust with customers.
“Most people can input their PINs or FaceID in under one second. If that’s the sacrifice they have to make to protect their income, then they’ll most likely be okay with it,” he notes.
Should they overcome these challenges, they still have to contend with existing payment options. Card payments work for the most part, even if they often have high failure rates. Even then, transfers are largely effective, with a much higher success rate than card payments.
While the promise of faster payments is attractive, payment service providers will be betting on customers being attracted by the promise of saving a few extra seconds.
For such customers, introducing contactless payments through frequent activity may help. In that regard, Touch and Pay has a headstart as it currently powers Lagos State’s Bus Rapid Transport (BRT) system.
With a handful of fintechs springing up with the promise of making contactless payments seamless, the tendency is to drive adoption by providing incentives to users, but Asamu is wary of that approach.
“While that might drive adoption, that’s not what will drive retention,” he notes.
