In August 2021, the Central Bank of Nigeria (CBN) announced a technical partner for its CBDC, also known as the e-Naira. In this report, the CBN revealed a five-category plan for CBDC implementation, taking a top-down approach for widespread usage throughout Nigeria. A supplemental report highlighted that the CBN is seeking to implement a speed wallet for transactions, with the use of this speed wallet helping to bridge the need for a payments mechanism while the e-Naira is being developed. The use of a speed wallet and its proposed nationwide availability is relatively unique within the CBDC ecosystem, with the closet similar product merely being CBDC pilots in specific cities, as is the case recent of e-yuan in Shanghai as of June 2021.
The use of such a product within the domain of CBDCs must be recognized by other central banks, especially as interest in CBDCs continues to grow. While most central banks are primarily focusing on developing an entire digital fiat ecosystem, the utilization of a speed wallet offers a temporary solution on the path to true CBDC implementation, allowing users the benefits of a CBDC-style system while enabling governments to conduct tests on their CBDCs.
Key Features of the Speed Wallet Concept
While current information on the speed wallet remains limited, the CBN did release several key facts, chief among them that users will have to validate their account on the wallet by using some sort of documentation, with indications of a combination of a phone number, National Identity number, passport photo and/or bank verification number being among the top contenders for access verification. Following this process, users will then be able to utilize their wallets to process transactions. The emphasis on compliance with CBN anti-money laundering (AML) legislation and Know-Your-Customer (KYC) laws is particularly important given the speed wallet’s laying of a framework for the e-Naira CBDC.
The speed wallet will also purportedly have three specific tiers, with the first-tier being for Nigerians without bank accounts, who will be able to transact up to $120 every day and have a cumulative daily balance of approximately $700 dollars. Second-tier users must already possess an account with an existing bank, while third-tier users will have increased daily transaction limits and higher cumulative balances. Users at the second tier will be able to transact up to $400 daily with a cumulative balance of $1,000, while third-tier users can transact up to $2,000 and have a daily balance of $10,000.
Although not explicitly stated, the speed wallet will also undoubtedly have a focus on maintaining consumer data privacy. The CBN has already deemed the e-Naira as a National Critical Infrastructure (NCI), resulting in the August 2021 statement that “all data and personally identifiable information (PII) will be kept off the ledger and will not be stored on the ledger.”
Though an explicit statement from the CBN detailing that speed wallets would have similar focuses on data privacy would help solidify this inference, a focus on data privacy for speed wallets is certainly implied and cannot be ignored. This emphasis on privacy is particularly important to note as other CBDCs move forward in their development processes.
What’s Next for the Speed Wallet Concept?
Despite a significant amount of good information released on speed wallets, Nigerians still await any type of initial speed wallet prototype debut. An equally concerning factor for speed wallet, and therefore, e-Naira development, is the fact that the CBN only recently announced their e-Naira guidelines and partnership with Bitt Inc. in August 2021. This raises obvious questions about the level of blockchain technology implementation in a speed wallet, particularly if CBN expects to implement the e-Naira by December 2021.
More specifically, it remains unclear how wallet transfers to/from bank accounts and cash withdrawals from wallets will occur, with no specific guidance being issued for these cost centers.
Additionally, it will be interesting to see how speed wallets affect small-medium businesses (SMB), particularly as speed wallets seem uniquely focused on enabling consumer-to-consumer transactions, as opposed to higher volume and value SMB cash flows. While there is some guidance within the fourth stage of the five-category e-Naira plan for merchants, speed wallet usage and availability may force the CBN to accelerate or push back their implementation timeline for Nigeria’s CBDC.
What Other Banks Can Take Away
Despite questions about implementation and technological value, the CBN’s ideation of a speed wallet shows its commitment to implementing CBDCs within Nigeria. The speed wallet is a critical concept that other central banks must consider prior to their full-blown implementations of CBDCs, enabling consumers to provide valuable user feedback to the CBDC product ideation and development processes.
This opens significant opportunities for startups and other companies to participate within any country’s given CBDC ecosystem, particularly if these organizations can help provide a blockchain framework for speed wallet implementation. Additionally, speed wallets can help central bank economists and technologists better understand digital cash flows from the consumer perspective, which has further implications on CBDC development and scale.
Conclusion
The Central Bank of Nigeria’s e-Naira is certainly on a clear path to development, with the CBN’s plans for implementation in its proposed five-category rollout highlighting a desire to create a fully encompassing CBDC ecosystem. Additionally, the utilization of a speed wallet to prepare consumers for the e-Naira CBDC is a notable one, thereby allowing consumers to become familiar with the e-Naira as early as possible.
The concept of a speed wallet is something that other central banks must examine, particularly if a speed wallet runs on a blockchain backbone. Therefore, speed wallets have the potential to help demonstrate and enable sizeable CBDC tests prior to official implementation, allowing governments to preview their CBDCs nationwide and not just in specific cities or regions.