A CASE STUDY ON CRYPTOCURRENCY PAYMENT IN NIGERIA

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Case study in Nigeria

Case Study Goal

Validating cryptocurrency as a viable alternative for cross-border payments in Nigeria.

Problem Statement: Online payments can come with a lot of stress, especially regarding cross-border payments. 

Many businesses and individuals find it difficult to pay their staff or freelancers who are not in the same jurisdiction.

People need help to send remittances to their families at home or even pay for services of their choice. Issues like transaction delays, limited access, high fees, and lack of transparency are not left out of the trauma.

Market Research

According to my findings, government policies and the depreciation of the naira led to an increase in the adoption of alternative means of making payments.

A survey carried out in April 2021 by the cryptocurrency Kucoin showed that the factors driving cryptocurrency usage in Nigeria include a lack of access to traditional finance, depreciation of the naira, and inflation.

In early 2022, some commercial banks reduced limits on international transactions using naira debit cards to $20 or $50 per month. The reviewed naira card limit for international transactions is a massive cut from the initial $100 offering. 

It was yet another move to check naira shortages and help the economy. This policy drove people to use Fintech applications and Crypto cards to access dollars for payment of services. 

According to Chainalysis Nigerians’ interest in Bitcoin and stablecoins, particularly stable, was increased when the naira’s value plunged, particularly during the most extreme drops in June and July 2023.

Chain analysis showed that from July 2022 to June 2023, Nigeria witnessed a 9% year-over-year growth in cryptocurrency transactions, amounting to $56.7 billion.

Nigeria supersedes every other African country in the amount of received crypto.

 Many countries in the region have struggled with rising inflation and debt, making cryptocurrency an attractive means of storing value, preserving savings, and attaining greater financial freedom.

According to a report by Crypto.com and Worldpay, 40% of customers use or want to use cryptocurrency to pay for goods and services, but only 4% of merchants accept cryptocurrency as a payment method.

This shows a lot of demand for cryptocurrency payments, but more supply of businesses who offer them is needed. 

Five pain points according to one-on-one conversations with Nigerians on the challenges with the traditional payment system(Card payment, PayPal, and Bank transfer) 

  1. High transaction fees.
  2. High Exchange rate.
  3. Transactions taking days to settle
  4. Limited access due to jurisdictions, infrastructure and interoperability.
  5. Insufficient transparency.

Nigerians who use crypto as a means of payment would recommend it as a means of payment because of how efficient it is but they believe that more can be done to improve user experience to accommodate non-crypto-savvy users. 

Forms response chart. Question title: 
What are the main factors or criteria that influence your choice when choosing international payment platform 
. Number of responses: 50 responses.

It is important to note that cost and exchange rate are the most influential factors when it comes to the user choosing a platform to perform their transactions with convenience and reliable follow-up.

Forms response chart. Question title: What are the main challenges or pain points that you face when carrying out international payments? . Number of responses: 50 responses.

The users’ biggest pain points are the fees and exchange rates when carrying out transactions.

Forms response chart. Question title: What prompted you to use cryptocurrency for international payments?. Number of responses: 45 responses.

Fast (instant) transactions are not shocking to us as the reason why people use cryptocurrency for cross-border payment. 

Forms response chart. Question title: What are the drawbacks of using cryptocurrencies for international payments, in your opinion?
. Number of responses: 45 responses.

The greatest challenge people have with Cryptocurrency payment is acceptance followed by volatility.

User pain point and solution marching 

 Key

 Statistics: Data collected from the survey carried out

 Priority: the rate at which the pain point will be looked into

 Competition: is an assumption on how much existing solutions are trying to tackle the problem  

1. Why are transaction fees high on payment platforms?

Answer: Payment provider processing fees (which include multiple intermediaries such as banks, processors, networks, etc.) Contribute to the high transaction fees.

Possible Solution: Fees exist in a competitive market. Building a flexible 

system to enable the easy integration of cheaper payment rails as time goes on 

could mitigate this.

2. Why are exchange rates high on payment platforms?

Answer: Utilizing market-maker services contributes to high exchange rates.

Possible Solution: Exchange rates are determined by a competitive market. 

Building a flexible system to enable the easy integration of cheaper payment 

rails could address this issue.

3. Why are payment platforms inconvenient for users (not easy to use and inaccessible)?

Answer: Payment platforms may lack a specific target audience, leading to unnecessary or excessive features. Additionally, poor planning of the user experience exacerbates the issue.

Possible Solution: Identifying specific user segments (e.g., businesses, individuals) and customizing features accordingly can enhance usability. Prioritizing streamlined navigation, minimizing checkout processes/form fields, employing responsive designs, and facilitating clear communication and feedback channels are key.

4. Why are payment platforms unreliable (inconsistency in service and failures or errors)?

Answer: Payment platforms may face challenges complying with various regulations and laws governing the payment industry, as well as technical glitches such as network failures, system errors, or service outages.

Possible Solution: Staying informed about industry regulations and compliance standards, and communicating compliance efforts to users, can build trust. 

Planning maintenance windows during off-peak hours and providing alternative payment methods can minimize disruptions.

5. Why do international payment platforms not carry out instant deposits?

Answer: Interoperability issues with payment rails, involving multiple intermediaries such as banks, processors, and networks, contribute to the lack of instant deposits.

Additionally, compliance with various regulations and laws can further complicate instant deposit processes.

Possible Solution: The use of cryptocurrency provides instant deposit regardless of location because of its peer-to-peer technology.  

6. Why are crypto assets volatile?

Answer: Utilizing tokens that fluctuate in price for transactions contributes to the volatility of crypto assets.

Possible Solution: Utilizing only stablecoins as the means of payment can mitigate volatility.

7. Why are crypto payment platforms only being used by crypto-savvy users?

Answer: Product designers prioritize crypto ecosystem norms and users. There is a reluctance to deviate from established practices contributes to the exclusivity of crypto payment platforms.

Possible Solution: Developing a product that is user-centric and innovative can broaden accessibility beyond crypto-savvy users.

8. Why are there low merchant and recipient acceptance towards the crypto payment platform?

Answer: Businesses may hesitate to adopt crypto as a currency due to its technical complexities and difficulties integrating it into existing systems.

Possible Solution: Acknowledging the technical nature of crypto payments and addressing integration challenges with existing systems can increase merchant and recipient acceptance.

Conclusion

Nigerians have been excluded from global platforms like PayPal for years and other alternatives are not up to the standard of the users because of the high fees, instability in infrastructure due to regulations, exchange rates, slow transaction speed, and product interoperability across jurisdictions.

Cryptocurrency specifically stablecoins are viable alternatives because of their speed, low transaction fees, and interoperability across jurisdictions.

Lastly, its peer-to-peer system has led users to person-to-person transactions regardless of regulations. It has also created a favourable market for price discovery leading to a good exchange rate.

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