By Elcee McEdwards |
With the Central Bank of Nigeria introducing the cashless policy to the remaining 30 states of the Nigerian federation on July 1, this year, having successfully completed phases 1 and 2 of the policy in six pilot states of Abia, Anambra, Lagos, Ogun, Kano and Rivers, as well as the Federal Capital Territory (FCT), in the last two years, it seems like the Nigerian society is moving closer and closer to joining the league of countries in the world whose economies could be regarded as cashless, where electronic payments underpin the most of consumerism and commerce.
Before now, the apex bank has constantly reaffirmed its commitment to see the initiative successfully executed in the country. “We have a road map, which is being followed and we are fully prepared,” a CBN spokesperson once said, pointing to the banking regulator’s resolve to meticulously follow a plan designed to help it achieve the target of fully implementing a cashless system of monetary transactions in Nigeria.
In the first and second phases of the implementation of the cash-less policy, the banking regulator chose Lagos, the Federal Capital Territory (FCT) and the other five states, which are said to control about 90 per cent of cash transactions in Nigeria,because of the large volume of cash transactions in their major cities, with the implementation expected to raise the value of electronic funds transfer in the country to about N160 billion per day, a view equally shared by the Chief Executive Officer, Electronic Payment Providers Association of Nigeria (E-PPAN), Mrs. Onajite Regha. The E-PPAN boss, speaking in Lagos just before the commencement of the second phase of the cash-less policy implementation, said the value of electronic fund transfers, then put at N80 billion per day, would likely double because there would be a lot of changes in the system once the initiative takes off in the other states.
It would be recalled that the cashless policy, whose implementation commenced in Lagos in 2012, is aimed at reducing the amount of physical cash (coins and notes) circulating in the economy and encouraging more electronic-based transactions.The policy specifies penal charges for individuals and corporate organisations that may want to withdraw or lodge cash above the prescribed limits. Expected to come along with the policy are the many benefits to the government, citizens and the national economy, which go hand-in-hand with more electronic payments. These include more transparency, less corruption (especially in government payments) and lower transaction costs, which may lead, in the course of time, to higher economic growth.
With an increasing number of countries adopting the policy to accelerate the use of electronic channels and reduce the use of cash, it would be said that the motivations for the policy vary from country to country. While some are primarily concerned with reducing tax evasion, some others adopt the policy for fighting crime, with a few explicitly linking it to financial inclusion – though the latter link is not necessarily immediately nor automatically achieved.
In Nigeria, the Central Bank of Nigeria (CBN) announced its Cash-less policy in 2011 and commenced a pilot of the policy in Lagos State in April 2012. The policy, intended to downplay the use of cash, is aimed at driving the development and modernisation of the payment system in line with Vision 2020, reducing the cost of banking services and driving financial inclusion by providing more efficient transaction options and greater reach, improving the effectiveness of monetary policyin managing inflation and driving economic growth. Under the policy, the CBN pegged the daily cumulative cash withdrawal or deposit limit for individual accounts at N500, 000 per day, and at N3 million per day for corporate accounts.
It is interestingly to note that in Lagos State, and in some of the other states where this policy earlier took effect, more and more commercial outlets are putting POS terminals in place and are accepting credit cards as payment. The BRT buses in Lagos, for some time now, have readily offered the POS terminal option for ticket payments inside the buses. Indeed, many people now consciously do not carry cash when moving from place to place, and rely purely on plastic payments using POS terminals, on mobile wallet accounts which is still gaining momentum in Nigeria or, at least, on the ATM machines scattered around. Though ATM transactions are largely still cash withdrawals, the rising trend signals Nigerians’ growing comfort with the use of cards. This, perhaps, might be a sign that Nigerians are inching towards living in a less-cash society.
In places like London, many commuters use pre-paid travel cards such as the Oyster Card to swipe themselves swiftly through the barriers and, with pre-paid credit cards becoming an increasingly popular payment method for many shoppers, some predictions estimate that cash may be close to obsolete within the next five years. In such a society, the future of paper and coin payments does look bleak when you consider that credit cards are compulsory in many retail circles. Car hire outlets, for example, will only rent cars to drivers who can secure the vehicle with a credit card. Furthermore, when checking in to a hotel, a credit card will often be requested as a form of security on the room, essentially protecting the hotel against people leaving without paying. In some other advanced societies, the story is not much different. It is hoped that this can be effectively achieved in Nigeria.
To give more impetus to the cash-less policy, the Central Bank of Nigeria threw more spanners in the works by introducing yet another plank of cash-less banking, called Cheque Truncating. The pilot scheme of the Cheque Truncation Policy which took off at the Lagos Clearing House in August, 2012, essentially converts physical cheques into the electronic form, thus eliminating physical presentation of cheques, reducing cash transactions and clearing period from four days to three days, and also saving costs. Special mandates — like requirements for company seals, cheque embossment, thumb print or colours of pen other than black — shall no longer be required during clearing sessions. And, apart from losing the privilege for physical cheque confirmations, account holders must forward confirmations to their banks and ensure that their accounts are funded before giving cheques to third parties. So, without knowing it, they are already operating cash-less.
In all these, what many Nigerians, both the unbanked and the banked, need to know are the advantages that accrue from the cash-less policy scheme, considering that, as at December 2011, close to 99 per cent of economic transactions in Nigeria were done in cash.
Local traders in most open markets in Nigeria must be thinking real hard about how they are going to haul their huge daily cash receipts to the bank, and learn how to sign or make a thumbprint on their cheques, in this virtual economic maze. But there is no doubt that a switch to the cash-less system has many advantages, the first being that the CBN will be reducing cash management costs by as much as N192bn per annum – that’s more money for Nigerians. The CBN claims that cash handling is responsible for at least one-third of infrastructural and labour costs in the banking sector. The apex bank argues that considerable reduction of cash transactions should lower the rate of cash related vices like robbery, cost of processing borne by every entity in the transaction chain, revenue leakages arising from significant cash handling and inefficient treasury management due to nature of cash processing.
According to the CBN, the financial system in Nigeria, which, before now, was largely characterized by cash dominant and weak electronic payment platforms, is witnessing greater speed in financial transactions, hugely attributable to the evolution of Information Technology, a key component of this transformation in the Payments System.
However, despite the virtues of a cash-less system, which include checking of money laundering (since more funds must pass through the formal banking system), reduction in the cost of transactions and the potential of expanding cash (through expansion of credits), there are still reservations towards the success of the scheme in the face of epileptic electricity supply, low level of knowledge and use of ICT by Nigerians and the evident incapability of telecommunications and Internet service providers to provide stable services, which is sine qua non for a successful cash-less system. Increasingly, customers will no longer have to physically go to the bank, but make use of the internet to check their account balances, make payments to third parties and transfer funds between their accounts. They will also make use of Point-of-Sale channels — at supermarkets and other commercial outlets — to pay for purchases. If the supporting services are not efficient, like is presently the case in many instances, it will pose a heavy clog in the wheel of the success of the cashless policy scheme.
In addition, though migration from cash transactions to cash-less banking may reduce physical loss of money, there is the fear of increased electronic fraud, which is why the CBN has directed financial institutions to upgrade their security systems in order to address fraud risks associated with electronic payment channels. It is hoped that this too can be sufficiently addressed.
While cash, in the time being, still has a very significant role to play in the retail world, especially in a country like Nigeria – with its prevalent illiteracy level, there is every reason to move towards a cashless or, at least, less-cash society, as it promises to put more money, in a holistic way though, into our pockets.