eNaira — Not Another Payment Feature

It’s been about 15 months since the CBN launched the eNaira in October, 2021 and adoption rate is almost non-existent… It just didn’t catch on, on all fronts too; grassroot (projected to foster financial inclusion for the majorly unbanked and non-tech savvy) and the working class.

Personally, I can’t say I expected different, especially considering that a lot of people are apprehensive of the CBN and its policies in recent times. It just feels like a monitoring tool for the Nigerians who are smart enough to use the app and just another government initiative with no future for the Nigerians targeted at the grassroot level… but really, is it?

The Central Bank of Nigeria promised a blockchain e-currency to Nigerians just some months after “criminalizing” the use of crypto currency through the traditional banking systems (Understandably so, as you don’t expect the banks to promote a movement that at its core aims to change banking as we know it… will be difficult for you to ask someone to be a proponent to their own death now wouldn’t it?)

Hate it if you will, love it if you will, I believe the CBN may be on to something here, considering the reasons it put forward as the benefits of this new Naira medium, like;

• eNaira greatly reducing the costs of handling cash, from minting all the way to destruction, the Federal government saves cost
• Reducing cash handling costs and more transparent taxing systems, eNaira makes more funds available for development projects such as better feeder roads, affordable education, and more equipped health facilities
• With eNaira, tax evasion is history because eNaira ensures the traceability of taxable assets and enforces transparency in the taxation systems thereby increasing government revenue (Not everyone will be happy with this one 😜)
• Easy access to financial services at remote areas that have suffered financial exclusion for years
• eNaira facilitates instant cross-border foreign exchange which boosts the economic growth of the nation (This is the hill I choose to die on)
• eNaira greatly reduces the operating cost of notes, from minting all the way to destruction, the Federal government saves cost
• eNaira minimizes fraudulent activities and shady deals such as money laundering, and illegal money deals because of the trackable unique ID of each eNaira (We may very well be on our way to a central identity db finally)

Personally, I just want them to take this movement pan-african, just imagine trading currencies on Central Bank exchanges like Crypto is traded on your favourite Crypto Exchanges. Anyone who travels frequently around Africa will explain to you the possibilities this will afford us and the opportunities it could open up for private sector players — that’s where my head is at, so I say fire on CBN!

While, like most people I too was first apprehensive to the eNaira till I did some research and put my bias aside. Most people just haven’t even given it a chance or even begged to ask what the actual bananas is the eNaira.

Could be because of their hate for Meffy (again, understandable) or just straight up aversion to change (yes, you! that hates every consultant that your company employs to help improve company processes, I am talking to you 🙃 )

But before you throw stones at this mysterious Bride, let’s open up her veil and see what it is eNaira is and why we all should join hands to drive its adoption. In this study, I’d try to explain complex terms in plain words and let’s see if we can reach a similar understanding, starting from an explanation of the what the eNaira is

What exactly is an eNaira?

According to the CBN, the eNaira is a central bank digital currency (CBDC) backed by law, the full sovereignty of Nigeria, issued by the Central Bank of Nigeria as a legal tender. It is the digital form of the Naira and is used just like cash.

So the eNaira is money but not cash, and just like the NGNT which is a crypto currency stablecoin pegged 1:1 on the Naira, the eNaira is a digital currency identical to the regular Naira in value and most especially, backed by Nigerian law.

Additionally, a wallet is needed to receive, hold or exchange this currency, just like with crypto, and for this, the CBN provided the eNaira Speed Wallet, available on Google Playstore and Apple App Store and also guess what? USSD! ladies and gentlemen using *997# on every network. With the Speed Wallet or USSD, you can create a wallet id, which can be used manage your eNaira easily from your mobile devices.

Furthermore, it's important to note that every wallet ID is firmly coupled to a unique NIN profile, hence, you need an NIN or phone number to create one; consequently, the expectation is one wallet id per person

What is the difference between Naira and eNaria

eNaira is actually Naira but promises to be a cheaper alternative to the cash Naira and while some people have described the eNaira as “A digital version of the physical Naira” this is so far from the truth; the eNaira is basically a type of Naira just like the physical Naira, so in essence, both eNaira minted and Cash Naira minted together will add up total Naira in the economy.

Furthermore, unlike conventional digital banking which involves customers transacting with bank money, it is actual money earned and maintained by customers in their e-wallets. The eNaira has since 2021 complemented the traditional Naira as a less costly, more efficient, safe and trusted means of payment

What is the difference between Digital Naira and eNaria

Here’s where people get confused the most, comparing eNaira to regular online banking… I mean, I see how it could be confused, so let’s look at how it is different — Firstly, it’s important to note that online banking is basically using digital tools/online banking to manage your physical cash, which was either deposited at the bank, or transfered to it. Hence, for every transaction made into a bank or from it, digitally or through other means, there is a logistical implication for the physical cash involved.

Digital Banking Example

If I transfer N100,000 from my GTBank Account to my friend’s (not my girlfriend) Zenith Bank Account via my GT Mobile App, let’s assume there are no delays and it is instant (shots fired), the moment the money hits their account, the expectation is that GTB will move N100,000 in cash to Zenith Bank (This is the expectation in principle, doesn’t necessarily happen in literal sense as Banks have treasuries with the CBN and there’s a lot of interbank transacting that happens in one day/month so they typical keep an iou balance of a sort, but you should understand the idea)

eNaira Transfer Example

If I send N100,000 from my eNaira Speed Wallet to my friend’s (again not my girlfriend) Wallet Account, firstly, this will be instant (well, expected, as transaction is happening on the same system like in same bank transfers), the moment the money hits their wallet, that’s the end of the transaction as that “is” the money, since it’s a digital currency, no need for iou’s no need for moving physical cash; but let’s even take it as far as payment to a merchant or withdrawing the money to an actual bank account or POS withdrawal, transaction still ends at the point of digital money switching ownership

As you’d expect, some of the differences will include the following;

• No physical currency representation of your eNaira funds in your wallet as opposed to cash liabilities in your bank’s savings account
• No logistics required for funds transfers on the eNaira in comparison to bank’s cash transfer
• No interest for saving eNaira in comparison to cash bank savings — this may change in coming times as more players may begin to setup additional initiatives for saving eNaira
• Multiple bank accounts for digital banking as opposed to single wallet system on the eNaira

Blockchain but not Crypto? Make It Make Sense

Blockchain is the technology that enables the existence of cryptocurrency (among other things) A blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without a need for a central clearing authority. While a cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses cryptographic techniques and it’s protocol to verify the transfer of funds and control the creation of monetary units.

Personally, I’d say the eNaira is being distributed on a Blockchain Network like Ethereum but is not classified as a cryptocurrency majorly because it is backed by Nigerian law. Part of the reasons it exists in a closed Network — If the eNaira’s network was made open, this will make it tradeable on exchanges running its network as well (this could become exciting 😜 )

Not So Decentralized, Not So Distributed, Not So BlockChain

Image from Vitalik’s “The Meaning of Decentralization”

A blockchain can be either centralized or decentralized. It is important, however, that decentralized not be confused with distributed. While a blockchain is inherently distributed (meaning that many parties hold copies of the ledger), it is not inherently decentralized.

According to the CBN, the eNaira wallet is a digital storage that holds the eNaira. It is held and managed on a distributed ledger, and an eNaira wallet is required to access, hold and use eNaira. The CBN on October 24, 2021 released the eNaira design White paper titled “Design Paper For The eNaira” which breaks down the objectives, principles, and the eNaira design plan and here’s what we can note;

• The eNaira is based on Hyperledger Fabric variant of the DLT — this will allow the CBN to manage wallets while financial institutions and regulated market players will act as nodes on the network.
• Financial institutions shall keep a treasury eNaira wallet for securing and administering eNaira on the DCMS.

Now here’s my problem with the eNaira… If all accredited banks hold a treasury wallet from where they disburse eNaira to customers’ wallet when it is exchanged for Naira on customers’ bank app, then can we really say it is a distributed ledger as CBN’s DCMS (Digital Currency Management System) still plays a role in the exchange/issuance of every ledger? Hence transaction records are held in a central location and… let’s not dive further into my disappointment 🥲

Sadly, I don’t think we can classify the financial institutions and regulated market players as nodes; On the most basic level, a node is simply a device running the software of a specific blockchain. They all have different functions to play in maintaining the operations of the blockchain ecosystem; which these guys don’t play apart from issuance 😤

Additionally, the eNaira is managed, disbursed and distributed within a closed network, while this network may be made available to other Central Banks, the chances that it will be available on your regular Crypto Exchanges is slim — But I may be wrong in the future, so fingers crossed.

Gas Fees?

Gas fees because the fee required to successfully conduct a transaction or execute a contract on the blockchain platform. Usually this Gas is used to pay validators for the resources needed to conduct transactions in a decentralized network where nodes are needed. In this case, there are no gas fees as all transactions start and terminate on the CBN’s DCMS — it’s the CBN’s world we are just participating; unlike other decentralised Block Network’s where validators and their resources are needed, the CBN bears sole responsibility for validating and executing contracts themselves. For now, there are no gas fees associated with peer to peer transacting, while this may not be the case for merchant as they may bear some charges as applicable by the eNaira processor/gateway.

How does one even use the eNaira? What are the utilities?

I mean, let’s consider the problems that successful adoption will solved;

• The CBN has for a long time battled with scarcity of smaller denomination of bank notes in circulation, and according to their analysis, this is not a printing problem, rather, people are actually hoarding a lot of smaller currency outside the banking system. (So for every time you needed change from a bus conductor or fruit seller, look within yourself to see if you are to blame 😅)
• The CBN has also received reports from Nigerians complaining about the lack of availability of new notes in circulation, to which CBN has stated that this is also owing to the fact that a large and increasing proportion of the Nigerian currency outside the commercial banking system (COB) is held by the general public who hoard a lot of the new banknotes. (Now I understand how people buy new notes to spray at weddings lol)
• Unavailability of banking services to Nigerians in not so developed areas
• Financial Government Aids gets straight to you. eNaira knocks the middle men out the way and you can claim funds directly. (Readers from developed countries may be a bit confused as to why this should be a problem in the first place, but trust me, this is actually a game changer )

And just like any bank app or payment app you download, direct customers have the basic functions really, nothing special

• Send and Receive money using QR code or wallet id
• Merchant Payment
• Fund your wallet
• Withdraw to your bank account

In the advent of adoption, you’d be able to make payment to regular sellers and merchants in local markets and mega stores as well.

You can access these features on;

• eNaira Speed Wallet (Merchant and Individual)
  - Transfer funds to other wallets
  - Collect Payments
  - Fund your wallet

and all these can be done using the USSD code as well, accounting for grassroot usage and for the unforeseen times your phone gives up on you and you have to use a feature phone.

• Other Payment Solutions like Remita
  - Fund your eNaira wallet
  - Pay Bills with eNaira
  - Transfer Funds to Traditional Banks from your eNaira Balance

Financial Inclusion? Or Just another “Sub Saharan Fintech Story-type” Founder Pitch Deck

“Our focus is financial inclusivity in Sub Saharan Africa, we want to empower the masses” says every tech founder with just another payment solution like paystack — don’t you just love hearing this? (shots on shots)

Personally, I think USSD alone is not just enough to classify a solution as financially inclusive — there has to be some thought and distinction to the rollout and introduction to customers.

Just like the banks over the years, played a major role in the sensitization and cultivation of the current online payment market that we techies are all enjoying now, the CBN sadly has to drive adoption itself and pump all the needed resources into educating and cultivating the “Financially Excluded”— since the NIN mandate is in full effect, the main requirement has already been mostly cleared, all that’s left is to incentivize the use of the eNaira in rural areas.

Introducing eNaira to a Cash-Heavy Economy Nigeria

You may be wondering how the CBN would infuse the eNaira, well, the methods would be quite similar to how new notes are induced into the economy. Below are some of the devices to be considered

• Civil Service and the MDAs — whether it is CBN or government initiatives for farmers, SMEs and so on where loans and grants are disbursed/issued or just basic salary, gratuity and the likes being paid to civil servants, all these can be done with the eNaira directly to the beneficiaries wallets
• Infrastructural Projects — one of the major ways new money is introduced, eNaira can take the foremost position as money used to embark on new projects during the implementation of budgetary elements
• Incentives, Incentives, Incentives — ranging from discounts to bonuses and commisions, these are one of the biggest drivers of adoption for most initiatives in Nigeria

Risks & Pitfalls — eNaira as a single point of failure

There are some of the possible challenges CBN faces in the floating the eNaira while I’d go ahead and list some below, personally, my fear is the threat of single point of failure that the CBN’s Digital Currency Management System poses, especially considering FG’s track record over the years. But let’s put that aside in good faith, and look at these ones below;

• Trust & Financial Integrity — FG doesn’t have a good track record (especially as regards records 😂) they have to put in a lot of work to make sure customers’ the feel safe and trust the system, myself included
• Monetary Policy Implementation
• Cyber Security
• Operational Resilience and Stability
• Competition with Traditional Banks — the question you’d ask if you’ve thought about this hard enough is “How do you get the banks to help drive adoption when adoption moves the customer from the bank to the wallet?” Why help your competition? While the CBN claims this is not the case, it evidently is

eNaira, As Much of a Risk to Traditional Banking System as Crypto Currency

You said it not me!

This is actually crypto all over again, whether we want to admit it. We are at a pivotal point in banking right now, and traditional banks are scared as these innovations threaten the current way we interact with Banks and do banking — especially as they are being mandated to implement eNaira funding points on all their bank apps and channels, driving adoption for a possible competition.

As of today, out of bank transactions account for the largest chunk of banking revenue, imagine all that being diverted into wallet to wallet transactions alone wreaks of doom!

I am actually curious as to how this will play out

Why should I bother using the eNaira?

Do you know what you stand to lose by using eNaira? Nothing! on the contrary, you stand to save yourself a lot in terms of mental stress and transaction fees. Think about it this way, with eNaira, the CBN attains the position of “One Bank” and all transactions are now intra-bank transactions, hence;

• Faster transaction time; just like same bank transfers, everything happens within the same network
• No transfer fees, no gas fees; just like, guess what? yes! same bank transfers, your transfer to another wallet comes at no charge at all
• You help the government drive adoption
• You help the economy by promoting financial transparency
• Isn’t it fun trying new things out?

Okay, Okay, So What Do We Really Have in the eNaira

CBN has come a long way in improving the solution since it first launched in 2021 — from stripping the need for a bank account for registration, improving server speed and response time, to updating the app to a better interface, I am actually impressed.

Image from PWC’s “Making sense of bitcoin, cryptocurrency and blockchain”

In conclusion, the eNaira is not a digital version of the physical Naira, is not a government monitoring tool and is not a cryptocurrency — personally, I still can’t really agree that the eNaira is powered by blockchain technology though, as all the nodes are centralized and not allowing for foreign nodes to put it’s algorithm’s verification prowess to the test

However, maybe it is, I mean it could be, and there’s a possibility of this “test” happening with the increased the adoption of the digital currency by other African central banks; we may be looking at a revolution in the way FX is transacted especially within Africa… For that I am pumped. What we can all agree on is, without adoption, the eNaira will become another failed concept and we won’t be able to see the full extent of the possibilities this innovation will afford us — so… use the eNaira today!

This article was written with intention to enlighten and break down complex concepts, I am very open to making improvements on this piece and learning more from professionals in the banking space so please leave your comments let’s collaborate 💪🏼