NIGERIA WILL BE BETTER OFF WITH CASHLESS POLICY- ELEGBE

Business/Finance | 5 March 2012By NBF News

Elegbe
 
Last year, the Central Bank of Nigeria (CBN) came up with the idea of cashless economy, saying that high dependence on cash for settlements has resulted in the inefficient allocation of resources and a low depth of financial intermediation. The CBN also frowned at the high usage of cash for settlements, which it said results in high costs for banks and other stakeholders. 

The policy is to begin as from June 2012, however, a pilot implementation was slated for Lagos, code-named 'Cash-less Lagos', which eventually took off last month.

The highpoints of the cashless banking policy is the pegging of daily withdrawals or deposits to a maximum of N150,000 per individual customer and N1 million for a corporate client. 


To ensure the effectiveness of the CBN Policy, banks are to deploy electronic channels such as Automated Teller Machines (ATMs), Point of Sales (PoS) terminals and other electronic payment modes. 

Looking at the benefits of this new initiative, particularly from investment view point, Mr Mitchell Elegbe, the managing director of Interswitch Limited, a front-runner in the electronic funds transfer industry, said the electronic transaction (e-Transaction) industry in Nigeria holds numerous potentials for investors.

According to him, the market is there with a population estimated at over 140 million, and the fiscal and monetary regulator, the Central Bank of Nigeria, is moving the economy into one devoid of so much cash in circulation. 

'There are so many potentials for e-Transaction investment in Nigeria,' Elegbe said in an interview with Daily Sun. 'Investors stand a lot to benefit as the government is interested in ensuring Nigerians utilize e-Transactions, and the society goes cashless.' Elegbe said prospective investors had fallowed opportunities to harness in POS and ATM deployment and management - card personalization and printing, ATM branding, mobile payment platform, and several other electronic payment solutions absent in the country. 

He acknowledged that it was necessary for all stakeholders in the industry to assist the CBN and banks ensure compliance to the cashless policy initiative but, however, maintained that it would be futile to expect all Nigerians to hook up and utilize e-Payment and allied technology.'Those that will utilize e-Payment solutions will do so, and those that won't use the cards will always be there. You can't really force everybody to operate a cashless policy,' Elegbe said. 

'Even in the developed countries where everything is done to move the entire society or citizens to use e-Payment, they have not achieved 100 per cent e-Utilisation success. There is a psychology in going about with cash. It shows you have money, and people work hard for money. Therefore, to those set of people with such mindset, they will still prefer cash and they will resist going electronic,' he submitted.

He also spoke on the company's investments in boosting e-Payment utilization in Nigeria.

Excerpts: 
Merits of a cashless economy
The way I will like to look at this cashless policy is very clear. Cash is expensive. It is expensive to print and move about from one location to another. It is also risky to carry about, even in short distances, because you become vulnerable to attacks or robbery. Cash is inefficient. Cash has a lot of problems. So, as a country, it is important that we have to reduce our dependence on cash. Our society will be better-off with a cashless policy in place. 

Each bank would have looked at its own cost of managing cash before coming to the conclusion. We have to promote usage of electronic products. I want to create multiple card products. I want to create a debit card. I want to create a credit card. I want to create a recharge card. I want to create a chip and PIN card. The merits of a cashless economy are endless. And you will only appreciate all these merits when all these products are launched into the market and the majority of people are utilizing it. 

Nigeria has what it takes to operate cashless economy

A lot has been said about electronic payments but perhaps the most important things we must realize is that a robust electronic payments system enhances the commercial reputation of any country, improves the investment climate, strengthens the image of the banking sector and provides the much needed vehicle for increasing economic growth, and improving welfare. We are committed to seeing Africa excel in the global payments landscape. We have the ability, as a country, to operate a cashless economy, but the government has to provide the enabling environment. 

I am not in the bankers committee but I know that we did have interactions with the CBN, and that included all stakeholders, on how to make a success of the cashless policy. If you look at the way organisations are run, and let me apply this to the whole country, given this cashless policy initiative. At the board level you come up with a broad strategic direction for the organisation, and the management is left to execute it. The management includes the managing director and other top staff. There is a room for management to interpret that policy in a way that enables them meet the target of the board. The way I like to look at this cashless policy, the direction is very clear on the part of the CBN. Cash is expensive, cash is inefficient, and cash has a lot of problems and we need to reduce its circulation in our economy. 

We need to reduce our dependence on cash. That discussion was taken, I think, to the bankers committee and they were all presented with the cost of managing cash. It is left, therefore, for each bank to go back and look at its own cost of managing cash and come to the conclusion of what it should take away or retain. So, based on that, each bank would have come up with its own policy, based on its uniqueness. 

I know there is a penalty set by the CBN. But what should be common to all the banks should not be the penalty. So, if the banks are not interpret ting the penalty differently, then there is a problem. Because one bank can decide to look at the penalty as a way of attracting customers. Another bank can decide to create multiple products to attract customers to e-transactions. They can create a debit card, a credit card, a charge card and prepared can to boost usage of electronic products. I may decide adopt four cards to withdraw money as much as I want. And I won't be wrong. I will say that the issues we are seeing now are issues around the interpretation of the policy. 

The CBN has done nothing wrong by coming up with a broad framework because no two banks like i said have the same customer base, and customer profile. So, if you try to force everyone into the same profile there may be problems. Those that will utilize e-Payment solutions will do so and those that won't use the cards will always be there. You can't really force everybody to operate a cashless policy. 

Even in the developed countries where everything is done to move the entire society or citizens to use e-Payment, they have not achieved 100 per cent e-Utilisation success. There is a psychology in going about with cash. It shows you have money and people work hard for money. Therefore, to those set of people with such mindset, they will still prefer cash and they will resist going electronic. 

Whether Nigeria is ripe to go cashless
There are policies that if you want to take you can decide to defer it. There are policies that we have taken in the industry that we have to meet and you don't want to rock the boat, its a moving train, we should not just change things anyhow, and sometimes it just don't work out that way. And there are policies that are very major and we decide to say by tomorrow it must happen like that and it happens that way. 

It will appear that in Nigeria, 'let it happen tomorrow' makes a lot of sense. It creates more tension. We are in Uganda. And in that country, we have a regulator, who doesn't force anything on operators. And the market moves at that rate. But in Nigeria we are unique. We have to make things move faster in terms of policy. And the market also moves faster in response. I can say that the handwriting that Nigeria will go cashless was always on the wall. So, it's not a new thing for people to complain that they are being made to go electronic in payments and other deals in the banks. 

Nigerians always ignore the early warning signs and afterwards they are just left with no option than to be rushing when the deadline approaches. What does it take for a customer to go to a bank and say I need a card because I now realise that I will be charged if I have to withdraw cash?

So, in this particular case of the April deadline, I think we have had enough time. It takes little or nothing for all of us to beat that deadline. While there are certain policies like bank or insurance consolidation that you require a lot of time because it has to do with people going about looking for money, in a cash like going cashless honestly you don't need to say you require so much time. You don't need to give six month notice for that to happen. 

The thing is that by the time the grace period expires and people begin to get penalties for not going cashless, a lot of those who are showing apathy towards the policy will begin to rush to hook up to it. And there will be no excuse about being ignorant about it. The day you go to the bank and they refuse to give you cash, you have to go get a card. It is as simple as that. But it will be better for the integration of the over 79 per cent of the unbanked Nigerians into the financial community for the new Central Bank of Nigeria cash-less policy to succeed. 

While over 20 million Nigerians now have bank accounts, there are still more bank accounts than the number of payment cards, a situation he described as not too good to drive the new cash policy in the country.

In fact there is need for the CBN and other players in the country's financial sector to increase awareness on the cashless policy. Elegbe said over 100 million interbank transactions were processed on the electronic platforms of Interswitch in 2011, a figure that represents 70 per cent of the total electronic transactions in Nigeria.

Moving into other African countries. 
We are expanding into East and West Africa. However, we realised that Interswitch has typically been viewed as a card company and the primary driver of the growth in Automated Teller Machines, and Point of Sale terminal usage in Nigeria, but we do far more than that. We can serve organisations and governments across Africa. The repositioning of our business has given us an opportunity to develop consumer associations in line with our business offering, and create an awareness of our products and services in existing and new markets. We had wanted to expand into Africa a while ago. 

I can only say perhaps the time was not right, however recently we bought controlling shares in Bankom, Uganda's only licensed inter-bank switch and partnered with Helios Investment partners; our new shareholders, who have a similar vision and have already made significant investments in East Africa; Gambia, Sierra Leone and Uganda are some of this market. For us at Interswitch, the opportunities Africa brings forth will push the payments frontier faster and further than ever before. And we are here to work alongside you to bring this potential and these dreams to life. 

Products to boost cashless economy
We had to launch products to support the Cashless policy, an initiative of the Central Bank of Nigeria (CBN) and the 24 deposit money banks, aimed at encouraging electronic-based transactions and reducing the amount of physical cash in circulation in the country. The products include e-payment solutions such as Paydirect, Autopay, Direct Debit, Verve Card, Quickteller, Webpay and Smartgov. 

The solutions are in tune with the policy and direction of the CBN, and would assist individual, corporate organizations, government agencies, merchants, manufacturers and suppliers meet their electronic payment needs under the Cashless Scheme. 

As it stands now, with Verve payment cards, and others like MasterCard, Visa, Genesis and Freedom Card, issued by the banks, individuals can perform electronic payment transactions such as cash withdrawal from the ATMs, fund transfer via ATM, web and Point of Sales (PoS), top up their mobile phones virtually via ATMs, web and PoS, make payments for pay TV such as DSTV, Startimes, HiTV and others via ATMs, web and PoS; and make payments for purchase of goods and services at stores, supermarkets and several merchant locations across the country. 

Autopay, the country's Funds Disbursement solution, is a secure web-based online real-time payment solution, which enables corporate organizations as well as government ministries, agencies and departments (MDAs) make payments from their corporate accounts to staff, vendors and supplier accounts domiciled in any of the 24 banks in Nigeria. In fact there are close to a 100 businesses, government ministries, departments and agencies, religious bodies on the Autopay platform. 

In the same vein, Interswitch has Funds Collection solution called Paydirect, also a web-based, multi-channel solution that enables organizations receive immediate value for payments made into their accounts from any bank branch across the country. He also explained that; Paydirect is not restricted to bank branches alone; payments can be made to an account through a Website, ATM, Mobile phone, Point-of-Sales terminals. The solution automates the entire collection process as it solves the problem of cash movement, tracking and monitoring of payments made to the company by distributors or customers. 

Corporate organizations and billers also have the opportunity to leverage the Direct Debit solution, a web-based application that connects to all the banks on the Interswitch network. The solution automates recurring payments directly from the bank account of the customers for services rendered. We have also recently achieved interoperability with other switches and payment card schemes so other cards are now accepted on our network. 

Commenting on the bank charges on cash limit, which would be effective from April this year and the impact on individuals and corporate, Elegbe said Interswitch was thinking about the customers during the e-payment solutions. 'The solutions would make electronic payment easy for government, corporate organizations and individuals,' he said. 

About Mitchell Elegbe
Elegbe studied Electrical/Electronics Engineering at the University of Benin. He started his career with CSA (Computer Systems Association, Lagos) and was activelt involved in the team that implemented software solutions that enable Nigerian Banks connect to the society for Worldwide Inter-bank Financial Telecommunication (SWIFT). His career also extended to ITECO Limited (Lagos) as a Network Engineer and Schlumberger Wire line & Testing (Scotland) as a field Engineer.

He joined TELNET in 1997 and was responsible for Business Development, Corporate Sales, Solution Selling, Customer & Supplier Relationship Management, as well as the conceptualization and implementation of new products. 

Mr. Elegbe has significant exposure to switching software and switching companies both in South Africa and Europe over the past five years. He has an in-depth knowledge of the industry, both local and international; technical knowledge and incomparable passion for business. 

About Interswitch
Interswitch Limited is an integrated payment and transaction processing company that provides technology integration, advisory services, transaction processing and payment infrastructure to government, banks and corporate organizations. ?Interswitch, through its Super Switch? provides online, real-time transaction switching that enable businesses and individuals have access to their funds across the 24 banks in Nigeria and across a variety of payment channels such as Automated Teller Machines (ATMS), Point of Sale (PoS) terminals, Mobile Phones, Kiosks, Web and Bank Branches. 

He is the pioneer Managing Director of Inter-Switch Limited since December 2002. Before joining Inter-Switch, he was the head, Group Marketing and Business Solutions of TELNET (Nig) Ltd., where he conceived the idea of building a nationwide switch in early 2001.