Sunday, October 17, 2021/ 08:37 PM/ By Adaeze Nwachukwu & Abdulqudus Isiaka, Proshare Research/Header Image Credit: Access / Ecographics
With cross border payments and settlements becoming increasingly important given the African Continental Free Trade Area Agreement (AfCFTA) commencing in January 2021, Access Bankrecently introduced a travel debit card that its customers could use in accessing foreign exchange outside Nigeria.
Besides the AfCFTA, the card was created in response to the Central Bank of Nigeria's (CBN's) instruction that all deposit money banks (DMBs) fulfil legitimate FX requests for personal travel allowance (PTA) and business travel allowance (BTA). According to managers of the bank, all legitimate and approved PTAs or BTAs would be credited to the Travel Debit Card for use outside Nigeria effective from October 18, 2021.
The retail bank in a recent press release stated the following benefits of the new Debit Card:
According to the bank it has always demonstrated preparedness to contend for the top spot in Nigeria's banking sector. Following two successful Eurobond issues and the completion of a major continental acquisition (the purchase of BancABC in Mozambique), and the recent launch of its latest product- the Access Travel debit card, the bank may have seized the thunder from its local tier 1 rivals.
A Travel Card and its Difference
Executives of Access Bank observed that the Travel Debit Card is slightly different from the bank's credit card which has different classes and different daily limits. The major difference is that, unlike the credit cards which can be used on POS and the Web excluded ATMs, which are not eligible for international transactions, the travel debit card, however, could be used on all three platforms (POS, Web, and ATM).
Although the introduction of a travel debit card seems new to the banking public, its features are not far from international debit cards issued by other commercial banks.
The likes of FCMB, Zenith Bank, GTCO, and First Bank of Nigeria (FBN) have both virtual and physical cards that are used for international transactions outside conventional domiciliary account transactions (see illustration 1 below).
Illustration 1: Nigerian's Tier 1 Bank's International Debit Cards
Understanding the Gains of International Debit Cards
Before the CBN decided to stop the sale of foreign exchange (FX) to bureau de changes (BDCs), there was a revolving a door between commercial banks and BDCs, market analysts speculated that banks preferred to sell FX through affiliated BDCs to increase overall business margins. Business observers, therefore, expressed scepticism about the effectiveness of the new CBN directive, nevertheless, banks have since stepped up to the plate and established multiple FX teller points at their branches.
In a mail sent to customers, Access bank said that it had "...created an easier process to access FX via the Access Travel Debit Card".
On its face value, the new travel card does not speed up the process, as it does not exactly introduce automation to the submission of Form A and other documents. Nevertheless, by allowing customers to retain unused FX in their accounts, the newly introduced card could potentially reduce the number of applications. A widely held belief is that the FX application process is cumbersome and time-wasting for which customers part with more Naira for fewer dollars for the immediacy offered at BDCs. The convenience factor explains the large number of FX buyers that throng BDC and thus the Travel Debit card provides a convenience bonus.
With the Travel debit card, travellers do not have to carry physical dollars around. The travel cards are designed to allow the holder to access the allocated PTA from ATMs outside of the country ensures that funds are safer. If the card is stolen the cardholder could contact the bank instructing that the card be barred.
Cashless Policy & COVID- 19
The cashless policy of the CBN had always aimed at minimizing the amount of physical cash circulating within the economy and as an alternative encouraging electronic payment. Analysts argue that the new travel card was supportive of CBN's digital initiative. Furthermore, with the reduction in circulation of cash dollar bills, the potential rate of transmission of communicable diseases such as COVID-19 would be reduced.
Easy access to international transactions via POS, ATM, and WEB
Similar to existing domiciliary account linked cards, Access Bank's travel card allows holders to access their funds through Automated Teller Machines as well as POS machines and on the Web.
Who Gains from The New Access Travel Debit Card?
Nigerians have groaned in pain from the rapidly declining Naira. A furious CBN Governor had threatened to take legal steps against certain BDC information platform owners for quoting FX platform for what Governor Emefiele referred to as market manipulation. Since then, the Naira has continued to slide in the parallel market. For instance, as of 15th October, word on the street has it that BDC sold the Naira at N570 for US$, making the parallel premium around N160.
The statement of Vice President Yemi Osibanjo recently triggered a further depreciation of the domestic currency at the Importers and Exporters FX Window (I & E FX). According to Prof Yemi Osibanjo, the current demand management strategy of the CBN encouraged profiteering from arbitrage and served as a disincentive for business activity and discouraged foreign investment (see chart 1 below).
Chart 1: Week-on-Week Movement of The Naira/US$ at the I&E FX Window Rate
Source: FMDQ, Proshare Research
Analysts have lauded the introduction of the Travel debit card; business observers believe that if the CBN were to adopt the travel card as the only medium for the allocation of PTA/BTA life would be snuffed out of rent seekers.
Travelers have expressed optimism about Access Banks debit card. The new travel card would allow eligible customers to obtain dollars in a dedicated FX account from which withdrawals could be made only outside of the country.
Foreign exchange watchers believe that the debit card would provide an incentive to travellers and importers who bemoan the delay and relative difficulty associated with obtaining FX through banks.
The important questions that Access bank and its stakeholders need to answer are strategic. For instance, does Access bank envisage a greater share of the PTA/BTA FX transactions? would holding the new debit card be strong enough a proposition to sway customers? If holders only need to renew their cards after three years, would it be a fee-free card or are there going to be foreign transaction fees?
The CBN adopting a policy of only card transactions for PTA/BTA, school fees, and medicals which could only be accessed outside the country would have beneficial impact on the FX position of the country.