TL;DR,

• Nigeria’s Central Bank introduces NFC payment technology to the eNaira CBDC app, aiming to boost adoption rates after the digital currency’s disappointing performance since its 2021 launch.
• The CBN’s new NFC integration allows contactless payments through proximity-based transactions, featuring tokenization security and programmable restrictions to prevent fraud.
• Despite privacy concerns and cybersecurity risks associated with programmable money, Nigeria continues developing its CBDC infrastructure through advanced payment technologies.

The Central Bank of Nigeria (CBN) has stressed the significance of the NFC payment app to urge more people to use the eNaira CBDC. This improvement narrows the gap between mobile devices and payment terminals.

The CBN is still working on its CBDC project, even though its former governor was fired two months ago. Given its slow adoption rate, the government hopes the digital currency app will revive its eNaira interest.

How NFC Payments Work with the eNaira CBDC

NFC (Near Field Communication) payments are a type of contactless payment that lets people make purchases by tapping their NFC-enabled device, like a smartphone or a contactless card, near a payment terminal.

Here’s how NFC payments work, step by step:

The Hardware: An NFC-Enabled Device

You need a device with a specialized chip(NFC-chip) to access payments. The embedded chip also works on smartphones, smartwatches, and contactless cards.

The Setup: Securing Your Payment Method

Most of the time, you need to set up a payment method on your device before you can make NFC payments. This means connecting a credit card, debit card, or mobile payment service (like Apple Pay, Google Pay, Samsung Pay, etc.) to the NFC feature on your device. Some devices may require a PIN or use biometric authentication (such as a fingerprint or face recognition) to protect the payment method.

Initiating the Transaction: The “Hover-and-Go”

The specialized digital currency app utilizes proximity, meaning you hover your NFC-enabled device over the terminal.

The NFC payment focus on contactless payment.[Photo: Built-In-Africa]

Secure Communication and Tokenization

When your device and the payment terminal are close enough (usually within a few centimeters), the NFC technology lets them talk to each other. The safe channel creates a tunnel for encrypted data to move between the device and terminal safely.

To safeguard communication, the digital currency app uses a unique token for each transaction instead of sending your real card information to the terminal. Leveraging tokenization provides a one-time-use version for your card information.

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Authorization and Completion

The payment terminal sends the token and the details of the transaction to the payment processor or the network of the card issuer. The network then checks the token’s validity and whether there are enough funds in the account linked to it.

If the payment processor agrees to the transaction, they send a confirmation signal back to the payment terminal. The payment terminal responds via a message on its screen, which is also reflected on your device.

Beyond QR Codes: NFC as a Catalyst for eNaira CBDC Growth

NFC payments are a safe and easy way to make payments without touching anything. The close distance needed for communication lowers the chance of errors while paying, while the tokenization process keeps your private card information safe during the transaction.

The CBN thinks that adding NFC technology to the app will help more people use the CBDC, even though earlier versions of the app already had QR codes. Joseph Angaye, the deputy director of the CBN’s risk management department, said that the regulator is committed to using new technology to make the user experience better.

The Double-Edged Sword of Programmability

Angaye clarified that the eNaira CBDC will have programmability features limiting the number of services that can receive the digital asset, which lowers the risk of fraud. This method makes sure that money sent to eNaira wallets can’t be used for anything else, keeping their intended use.

Programmability typically dictates certain rules or conditions before accessing the services. When these criteria are met, most processes are automated.

The Achilles heel of programmable money comes with regulation, cooling with policymakers. Some concerns over the eNaira CBDC include:

Privacy and Surveillance Risks

If CBDCs can be programmed, it might be possible for central authorities or other groups to keep an eye on and track people’s transactions in real time. This could make privacy a big issue and lead to widespread spying.

Photo: NFCW

Financial Stability and Complexity

Programmable CBDCs could make it possible for automatic actions like negative interest rates or expiration dates on currency holdings. These kinds of features can change how people spend money and boost the economy, but they can also make the financial system more complicated and risky.

Increased Cybersecurity Threats

Adding technical layers also increases the attack margin for hackers. Blockchain isn’t foolproof; any slight error in the original code opens new doors for hackers to gain access and potentially crash the system.

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Potential for Financial Exclusion

Some of the benefits of NFC in digital currency are providing a wide range of users to gain financial access. The focus here is on the “wide”, meaning there will still be a select few Nigerians who are kicked out of the loop.

Typical, how NFC payments work with eNaira is lowering the entry barrier rather than educating a group of individuals. This factor is still speculative, with Angaye pointing out how Nigeria’s expansive mobile ecosystem provides ample ground for many adopters.

A Rocky Road to Adoption:  The eNaira’s Uphill Battle

Nigeria added its eNaira CBDC in 2021 to the small group of countries that have a CBDC. However, adoption rates were lower than expected, so the central bank looked into different ways to get people to use it. Adding use cases for the transport sector and USSD functionality to the offering were two of these efforts. Godwin Emefiele, who used to be the governor of the CBN, said that the lower adoption rates were because commercial banks put their own profits ahead of the growth of eNaira.