President Bola Tinubu stated during his inaugural address that his administration would strive for a single exchange rate. What does this signify for the country’s use of virtual cards?
Following the World Bank and International Monetary Fund (IMF) recommendations, President Bola Tinubu’s proposal to harmonise the nation’s exchange rate is currently the topic of various discussions. International payments are challenging, according to experts, because of the existing exchange rate system. Yet, switching to a single, market-based currency rate will impact Nigeria’s virtual card operations.
How will virtual cards fare?
Given the current operational environment and current policies, Uzoma Dozie, CEO/Founder of Sparkle Nigeria, claims he does not anticipate any significant influence on the virtual card businesses in the nation. “Yet, operating costs for Naira-dominated virtual card enterprises that include a foreign exchange component may increase, which strongly depends on numerous local and global economic conditions. As there are no production, transit, storage, or delivery costs to worry about, virtual cards are already operationally more cost-effective than real cards. As we anticipate how this will unfold, it is too soon to begin guessing, he told TechCabal.
A unified exchange rate will impact virtual card operations, according to Ibrahim Toyeeb Ibitade, CEO of Leatherback, a cross-border payments platform, once Nigeria resolves its foreign currency issue. “We will experience big effects once the nation has been repositioned and reformed to enable us to produce as much foreign exchange as various economic sectors require. But for the time being, there would still be a problem with scarcity because Nigeria needs to produce more foreign exchange, he said.
The possible winners are conventional banks.
The market for virtual cards was made possible by the $20 monthly cap on overseas transactions for Naira cards. Dozie explains that there is a chance for an increase in supply if the Central Bank decides to boost the FX market by giving banks free access to purchasers. Banks might increase the FX limit on naira cards as a result of this.
Banks now have easier access to foreign exchange than they did in the past, thanks to the potential for a uniform exchange rate to expand the market further. Thus, we may anticipate increased card restrictions from banks and other suppliers, whether they be real or virtual, as well as a more competitive operating environment,” he continued.
Expert in digital payments, Charles Odogwu, holds a similar perspective. “Banks will be open and will urge clients to utilise their naira cards. Due to the availability of Currency and the uniformity of rates, banks may not have a spending cap. On the other hand, if the banks place a cap on their cards, virtual dollar cards will still exist and continue to be the majority of people’s preferred options, he said over the phone to TechCabal.
According to a TechCabal user who requested anonymity, banks are more effective at processing payments than fintechs when it comes to card services. “Despite banks having infrastructure inefficiencies, they have a better propensity to thrive than fintechs. Rarely would a typical bank announce a disruption in its card services, the speaker added.
What happens to fintechs now?
An increase in the limit on naira cards could damage the business of fintechs who provide virtual card services. Although more Nigerians are becoming accustomed to virtual cards, concerns about trust and security may lead them to return to naira cards.
Although onboarding is considerably simpler for fintechs than it is for traditional banks, according to Odogwu, the latter still enjoys a higher level of confidence. In response to the CBN withdrawing the licences of 250 microfinance banks, some of which are fintech, he remarked, “You might have noticed what happened recently. People are shifting their money from fintechs—even those unaffected.”
Yet, according to Dozie, very few businesses have created their entire business models around offering virtual cards. Instead, they are frequently offered as a part of financial services. We anticipate that there will always be a market and a need for virtual cards, and I do not see how a uniform exchange rate will have an adverse effect on or pose a danger to companies that provide or accept virtual cards, he told TechCabal.
According to Damilola Robert, a growth marketing manager at Bitnob, an African fintech that offers services for virtual dollar cards, the topic is actually about what additional services fintechs can supply. So, since they [fintechs] are now competing on product quality and price, it follows that their customer support infrastructure needs to be strengthened. Customers now have options; therefore, how long a company remains in business will depend on their capacity to make a good impression.
