Card payments

How card payments work in Nigeria


Kingsley Okure

How Card Payments Work in Nigeria

Table of Contents

  • Introduction
  • What are card payments?
  • Why use card payments in Nigeria?
  • How do card payments work?
  • Conclusion

The behind the scenes of the card payment process


You have probably used a card to pay for an item at a store or restaurant, but do you know how they work? In this article, you will learn why card payments have increasingly become part of the Nigerian economy as a form of payment and how they work.

What are card payments?

According to Statista, debit cards and cash payments are the most common form of payment methods in Nigeria. Credit card payments are still struggling to keep up. Card payments are forms of payment whereby a person uses a credit or debit card to purchase items, goods, or services. When a person uses a credit card, the amount is charged at a later date, but when they pay with a debit card, they are charged immediately from their checkout account; customers and merchants usually find this process to be faster and more convenient.

Why use card payments in Nigeria?

Nigeria has the largest economy in Africa, with a GDP of $477.38 billion as of 2023. Card payments increase the purchasing power of Nigerian citizens. There is a drive to increase financial inclusion and “bank the unbanked” in Nigeria.

With the growth of the Nigerian economy, many individuals make purchases involving large amounts of money and paying for such purchases with cash is not feasible. Another advantage of using card payments is that it makes it easier for merchants and customers to detect fraud. Many credit and debit cards come with fraud detection software, which protects businesses from scammers and other fraudulent persons. A card is also convenient to carry around for customers. You do not have to carry around bundles of cash to make purchases, especially in a country where the security situation is deplorable.

How do Card Payments Work?

A card transaction involves six key parties: the cardholder, the merchant, the acquiring bank, the payment processor, the payment brand or card network, and the issuing bank/cardholder’s bank.

  • The cardholder The cardholder is responsible for initiating the transaction by inserting his card into a POS machine or entering his details into an online payment gateway.

  • The merchant The merchant is the owner of the business that the cardholder is initiating the transaction with. So if you go into a store or restaurant to get an item, the restaurant or store is the merchant. The merchant accepts payments from credit cards or debit cards(Visa/Mastercard) but he can also accept other forms of payment such as cash.

  • The acquiring bank The acquiring bank is the merchant's bank. The acquirer offers credit/debit card processing services to the merchant. The acquirer sends card transactions and authorization details to the card associations or payment banks for processing.

  • The payment processor In some cases, a merchant's bank may also serve as the payment processor. The payment processor acts as a middleman between the acquiring bank and the issuing bank. They send and receive transaction details which they then relay to the merchant or bank respectively.

  • The payment brand Payment brands are also known as card associations. Examples are Visa, Mastercard, and Maestro. In Nigeria, Visa and Mastercard are more popular. The card association usually gets authorization details from the merchant’s bank and sends them to the issuing bank for approval.

  • The Card Network Card networks are also known as card associations. Examples are Visa, Mastercard, and Maestro etc. In Nigeria, Visa and Mastercard are more popular. The card association usually gets authorization details from the merchant’s bank and sends them to the issuing bank for approval.

  • The issuing bank The issuing bank is the cardholder’s bank. The issuing bank is responsible for receiving authorization requests from the acquiring bank, card association, or payment processor and then relays a response to the merchant. The response can be an accept or decline. The issuing bank also issues the card to the cardholder which is then used to initiate any transaction. Some examples of banks or fintechs that issue cards include Allawee which is a spend management platform for businesses and individuals.

Now that you have an idea of the parties involved in a card payment transaction, it is important to have a basic idea of how the process for a card payment works.

When the cardholder uses his card to initiate a transaction whether through a POS or online, the merchant gets the cardholder’s information through a payment gateway. This payment gateway then transmits this information to the acquiring bank. This is usually the authorization phase. It is essential to note that if authorization fails, the card is automatically declined. The merchant’s payment gateway usually consists of software for screening the purchase and ensuring that it is valid and that there is no fraud involved.

Once authorization has been granted by the issuing bank, the merchant then bundles their authorized transactions and sends them to the payment processor who will then forward it to the issuing bank. This stage is known as batching.

The next stage is the clearing and settlement phase. This is where the acquiring bank receives the transactions from the processor or if it is the processor, it simply forwards the transactions to the appropriate card association(Visa, Mastercard) which will then distribute the transaction to the issuing bank. The issuing bank charges the cardholder’s account for the amount of the transaction and routes the payment back to the acquiring bank through the card associations.

The last phase is where the acquiring bank, having received the funds from the issuing bank, deposits them into the merchant’s account. The processes involved in a card payment may seem complex but as a cardholder, you do not need to worry about it. It all happens behind the scenes and it is very fast. Also, there are usually fees charged at certain stages of the card transaction process. It may be flat rate fees or transaction fees.


In conclusion, card payments provide Nigerians with a rapid and secure means for transactions, eliminating the need for cumbersome cash handling and sustaining the implementation of cashless policy in Nigeria. You have learned in this article how card payments are processed and the parties involved in this process. It is also important to spend wisely so placing a limit on your expenses is also a very good way to manage your finances. You can use reliable financial platforms such as Allawee to help manage your expenses with your card.

Bank accounts are provided by Providus Bank PLC - licensed and regulated by the CBN & money is duly insured by NDIC.
Debit cards are issued by Providus Bank PLC pursuant to license from Verve & Mastercard International.
Credit lines are provided under state Money Lenders License.
Allawee is not a bank but provides a spend management technology platform.