• The CBDC mobile app has been upgraded with Near Field Communication (NFC) technology.
• This enhancement allows mobile devices and payment terminals to interact in close proximity, facilitating seamless and contactless eNaira payments.
• eNaira adoption rates fell below expectations, leading the central bank to explore various options to drive usage.

The central bank of Nigeria (CBN) has underscored the significance of integrating NFC technology to boost the adoption of the eNaira CBDC. This enhancement will allow mobile devices and payment terminals to interact in close proximity, paving the way for convenient and contactless eNaira payments. The move comes as the Central Bank of Nigeria (CBN) remains committed to its central bank digital currency (CBDC) project, even after the ousting of its former governor two months ago. NFC payments and transactions are hoped to boost the eNaira adoption rate.

How NFC payments work

NFC (Near Field Communication) payments are a type of contactless payment method that allows users to make transactions by simply tapping their NFC-enabled device, such as a smartphone or a contactless card, near a compatible payment terminal. Here’s a step-by-step explanation of how NFC payments work:

NFC-enabled device

To use NFC payments, you need a device equipped with an NFC chip. This can be a smartphone, smartwatch, or a contactless card with an embedded NFC chip.

Setup

Before making NFC payments, you typically need to set up a payment method on your device. This involves linking a credit card, debit card, or a mobile payment service (like Apple Pay, Google Pay, Samsung Pay, etc.) to your device’s NFC feature. Some devices may require you to enter a PIN or use biometric authentication (fingerprint, face recognition) to secure the payment method.

Payment initiation

When you want to make a payment at a store or any other NFC-enabled payment terminal, you bring your NFC-enabled device close to the terminal.

Communication

The NFC technology allows your device and the payment terminal to establish a communication link when they come into close proximity (usually within a few centimeters). The devices exchange encrypted data through this secure channel.

Tokenization

For security purposes, NFC payments use a process called tokenization. Instead of transmitting your actual card details to the payment terminal, a unique token is generated for each transaction. This token is a one-time-use representation of your card information.

Authorization

The payment terminal sends the token along with the transaction details to the payment processor or the card issuer’s network. The network then verifies the token’s authenticity and checks if there are sufficient funds available in the associated account.

Approval

Payment complete

The payment terminal displays a confirmation message on its screen, and you may also receive a notification on your device confirming the transaction.

Adding appeal to the eNaira

NFC payments offer a convenient and secure way to make contactless transactions. The close proximity required for communication minimizes the risk of accidental payments, and the tokenization process helps to protect your sensitive card information from exposure during the transaction.

Despite previous versions of the app incorporating QR codes, the CBN believes that the addition of NFC technology will be instrumental in driving higher adoption rates for the CBDC. Joseph Angaye, the deputy director of the CBN’s risk management department, disclosed that the regulator is dedicated to leveraging innovative technology to enhance user experience.

eNaira will also be programmable

Angaye further explained that the CBDC will have programmability features that enable it to allocate funds exclusively to designated government programs, minimizing the risk of fraud. This approach ensures that funds transferred into eNaira wallets are non-divertible for unrelated purposes, maintaining their intended use.

Central Bank Digital Currency (CBDC) programmability allows the digital currency itself to embed certain conditions or rules. These rules may enable the automated execution of specific actions when certain conditions are met. While programmability offers various potential benefits, it also raises concerns that policymakers need to carefully address. Some of the worries associated with CBDC programmability include:

Privacy and Surveillance

If CBDCs are programmable, it could enable central authorities or other parties to track and monitor individuals’ transactions in real time. This could raise serious privacy concerns and potentially lead to mass surveillance.

Financial Stability and Risk

Programmable CBDCs could allow for automated actions such as negative interest rates or expiration dates on currency holdings. While such features can influence spending behaviour and stimulate the economy, they may also introduce additional complexities and risks to the financial system.

Cybersecurity Risks

Introducing programmability to a digital currency could open up new attack vectors for cybercriminals. Potential attackers could exploit bugs or vulnerabilities in the programmable features to cause financial disruptions or manipulate the currency’s value.

Monetary Policy and Control

Programmable features might lead to a loss of control over monetary policy. If users can program the currency to behave in specific ways, it could undermine the central bank’s ability to regulate the economy effectively.

Legal and Regulatory Concerns

Introducing programmable elements to CBDCs could raise legal questions about the enforceability of smart contracts and the responsibilities of parties involved in transactions.

Financial Inclusion

The design of the programmable features may risk excluding or disadvantaging some individuals or communities who may not fully understand or be able to navigate complex rules.

Angaye also highlighted the CBDC’s numerous advantages for retail users, including mitigating settlement risks and facilitating rapid transaction processing.

The eNaira aims to address financial inclusion concerns. Nigeria’s pioneering role in adopting CBDCs offers valuable insights for other economic players and entities to learn from.

Still, a long way to go

In 2021, Nigeria introduced its eNaira to join the exclusive group of countries with a CBDC offering. However, adoption rates fell below expectations, leading the central bank to explore various options to drive usage. The inclusion of use cases in the transport sector and USSD functionality in the offering were part of these efforts. Former CBN Governor Godwin Emefiele attributed the lower adoption rates to commercial banks prioritizing their profitability over the growth of eNaira.