Cashless Policy: A Burden or Relief?

ATM Cards

 
The cashless economy policy of the Central Bank of Nigeria (CBN) was designed to provide mobile payment services, break down the traditional barriers hindering financial inclusion of millions of Nigerians and bring low-cost, secure and convenient financial services to urban, semi-urban and rural areas across the country. It has, however, become an albatross to some elites, the poor, uneducated and traders. Eromosele Abiodun and Obina Chima write
 
As at today, Nigeria occupies the unenviable position of number one country in Africa with largest number of people with no access to financial services. According to data compiled by Microfinance Information Exchange (MIX) last year, Nigeria and the Democratic Republic of Congo were found to have the largest gaps between populations living in poverty and those with access to financial services–80 million in Nigeria and 48 million in the Congo. Besides, managing the few that have access to the banks is said to cost banks a huge amount of money with cash management taken a large chunk of the expenses.

Also, the cost of printing new banks notes as a result frequently handling is said to cost the Central Bank of Nigeria (CBN) terrifying amount annually. To address this and many other issues facing the banks and the nation’s economy, the CBN, last year, introduced the cashless economy policy.

The highpoints of the cashless banking policy was the decision to peg customer’s daily withdrawal or deposits to a maximum of N150, 000 per individual customer and N1million for corporate clients (now N500,000 for individual and N3, 000, 000 for corporate).
Giving details of the policy objectives, the CBN Governor Sanusi Lamido Sanusi, said the limit did not stop customers from withdrawing or depositing beyond the limit set by the apex bank, but such a customer should be ready to pay a penal fee of about N100  per 1000 in bank charges to enjoy his desires.

At the dawn of January 1, 2012, the pilot scheme of mobile money, one of the financial services introduced by the CBN to achieve a cashless economy took off in Lagos. Other financial services under this payment platform are consumer accounts information and updates, alerts, which have been in existence but not widely subscribed to by account holders. Payment of bills, person-to-person transactions and remittances in different forms also form part of the cashless economy drive.

The mobile money platform is a technology driven payment system that will open up several other business opportunities in the economy. Essentially, mobile money payment system allows users make payments with their GSM phones. It is a savings and transfer system that turns GSM phones into a savings account platform, allowing the owner save money in it and from which withdrawals or transfers could be made.

Under the payment system, customers can do their normal basic financial transactions on a daily basis by making payments for goods and services or by engaging in person-to-person transfer directly on their GSM phones. For instance, the system also allows for payment to be made through a mobile phone after purchases have been made at a grocery store. The shop owner in turn, receives instant payment electronically.
 
Benefits to Economy
Through the system, users can also pay utility bills, school fees, hotel bookings, and house rents, among other transactions, using a mobile phone device. One important thing about mobile money is the fact that it thrives on agency network, thereby taking traditional banking and its cumbersome processes in the cities to the streets in sub-urban areas where accredited mobile money agents also operate.

The regulatory framework for mobile payment services released by the CBN imposes some restrictions on the volume of transactions a customer can do in a day.

For the unbanked, for instance, who requires only his name and phone number to carry out transactions, the maximum limit of N3,000 and daily limit of N30,000 are stipulated. The semi-unbanked has a maximum transaction limit of N10,000 and daily limit of N100,000. However, in line with the CBN's Know Your Customer (KYC) policy, the customer will be required to present his phone number, name, photograph and biometrics.

The third level, which requires the customer to have a full bank account, allows a maximum transaction limit of N100,000 and daily limit of N1,000,000. For the customer to be able to access his mobile money account there is a personal identification numbers, PIN that his mobile money operator requires him to enter just like the ATM card.

Sanusi had at the Lagos forum said the cashless policy will among other things save the banking system the cost of printing, distributing and handling large volume of cash.

“It is estimated that over 70 per cent of cash in circulation in the Nigerian economy exists outside the formal banking system. This has cost implications for the economy. Physical cash has life span; it gets destroyed easily. This means government spends a lot of money replacing cash with new ones. If cash is not in the formal system, it can't be used for lending, but if you know an aggregate, that is, how much money is available to kick-start the economy, it makes lending and production easier.

“The cost of fund is also said to be high because the amount in circulation is not captured in a synthesised manner. Part of the reason the CBN is introducing the policy is to reduce the cost of funds by making sure that a significant amount of the capital around is captured in the formal system,” he said.

With this, the CBN said, when the law of demand and supply set in, there would be enough cash to lend to individuals, corporate bodies as well as small and medium enterprises.
 
Banks and CBN Rules
The cashless policy is believed to be a step towards curbing money laundering in the financial system. But has that been the case? Are banks complimenting the CBN effort to usher in the cashless policy? The recent pension fund scandal, in which several banks were indicted shows that these banks are merely profit-oriented.

Also, several bank customers have had one problem or the other with their banks. For instance, an editor with a major newspaper in the country recently sent his brother to a new generation bank to withdraw N500,000 and he was told that he could not do so without attracting charges despite the fact that the CBN has shifted the date for the withdrawal limit to January1, 2013.

Against his wish, he was only allowed to withdraw N150,000 earlier set by the CBN.
Several banks customers and businessmen who spoke to THISDAY have their tales to tell.

A customer of another new generation told THISDAY that he went to his branch in Apapa to withdraw money for the weekend last week and was told that the bank no longer allow its customers to use withdrawal slip because they have been told that every customer must possess an ATM card.

The bewildered customer who said he had no ATM card was asked to come back this Monday for his ATM card.

Churches and petty traders also have their stories to tell. A pastor in one of the fastest growing Pentecostal church told THISDAY that his parish have had to pay charges to deposit money despite the new date set by the CBN.

According to him, “The banks don’t see you as a church because according to them, they deal with money and not names. When you remind them that the CBN has moved the date to next year they will tell you to deposit the amount you will not be charged for.”

Another pastor in one of the Orthodox Church said the church have had issues with their bank but stated that his church see the situation as obeying authority, which the bible preaches.

An in Imam in a local mosque in Mushin told THISDAY that monies realised from Zakat were not large enough to attract charges adding however that he had had issues with banks as regards charges and applying rules set by the CBN. Apart from arbitrary charges and other complaints, ATM card frauds have been on the increase.

Recently, a journalist with Vanguard newspaper received alert from his bank debiting him N1,000,000 and the cash was withdrawn at his bank’s Nnewi branch in Anambra State.

The journalist who resides in Lagos and has not travelled to the east for months rushed to his Lagos branch but was told that he had giving out his pin online.

Investigative latter revealed that the bank’s staff collaborated with criminals to rob the man of his money-he was thereafter refunded his money.
 
Complaints Galore
A banker in one of the old generation banks blamed the situation on education stressing that that teller staff and customers alike are yet to be  adequately enlightened. The banker, who does not want his name mentioned said there is need for considerable education for bankers and customers on various aspects and issues of electronic payment transactions.

Also, a customer, who prefers anonymity, said no adequate enlightenment was done before the take-off of the policy in Lagos.
Another bank customer, Mr. Okhiria Ogiemouyi, bemoaned the policy and its adverse effect on his business, pointing out that the CBN policy will discourage customers from patronising him.

Ogiemouyi said his trade was cash-intensive and required cash transactions before goods would be offered out to them.

He argued: “My business involves using money before I can give out my goods. If a customer should call me that he wants his goods immediately, I can’t wait till he transfers the money into my account. Sometimes customers buy goods worth more than N300, 000 and none of them will be willing to pay that much in interest as extra charges because we don’t make much profit like those who deal in oil and gas sector,” he explained.

But a currency trader in Lagos, Mr. Sunday Ojo, said the cashless banking would have a valuable effect on businesses in the economy, urging the CBN to put adequate infrastructure to support the system. He also called for more enlightenment for the banking public, stressing that such requirement should have been made available before the policy took off.

“As a new happening in Nigeria, if the operational hitches are not taken care of, the objective will be defeated. These problems ranges from infrastructure because we lack it and not everybody even the educated ones in the society have good understanding of how it works talk less of the market woman out there, ” he said.

Conversely, another customer who prefers not to be attributed lamented that the policy cannot work in Nigeria as the system lacks the right infrastructure to implement it.

Ojo added: “The cashless policy, I doubt if it will succeed in Nigeria. If you visit some of the ATMs in banks sometimes, they are either unable to dispense cash or have network failure. This is so alarming and frustrating. I went to the bank some weeks ago, but was alarmed that, due to network failure, my bank’s ATM could not work.

He also said: “It might have been an infrastructural problem, and the banks expect everyone to understand this. So, why are we being forced to depend on ATMs or point of sale terminals that might just refuse to work when we need them? The PoS terminals are used only by few merchants, and because of the additional transaction charges, the bulk of retailers would rather opt for cash for their sales. This is aside from the problems those terminals might be down with. It is the consumers that bear the brunt of all the infrastructural problems as well as suffer from CBN’s policies. I don’t think this is a fair policy.”

Similarly a trader at Yaba market expressed dissatisfaction with the new policy, which he described as a calculated attempt by the banks in connivance with the CBN to extort money from depositors.

“Truthfully, I must say that the introduction of the policy is another avenue to rob the poor people in the society. Another major problem is that the CBN will have to look into the excessive charges of the banks on transactions withdrawal charges, ” he added.
 
Reaction from Operators in Lagos
To a trader at Alaba market, Lagos, Mr. Onyeka Ononibaku, a lot of his customers have refused to make use of PoS machines because they are not familiar with the device. As a result of this, his firm is still faced with the challenge of handling cash daily.

“So we are in a difficult situation where we receive payments above the limits and so because we don’t want to pay for these charges, in most cases, we are forced to share the money among different banks. For example, we may pay N3 million in bank A, N4 million in bank B, N4 million in bank C, and so on, just to avoid the charges. 

“I think it is not fair to charge interest on lodgements. Lodgement of cash ought not to attract any interest, but withdrawal,” he said in an interview with THISDAY.

Similarly, Mr. Anayo Ogbonna, who sells furniture at same Alaba market, argued that the policy was affecting his business negatively, adding that there was still confusion over the interpretation of the policy.

According to him, officials of his bank do not even have a clear understanding of the policy.

Citing an example of the recent public holiday to mark the Easter celebration, Mr. Segun Akinmayowa, a wholesaler of household goods, urged the CBN to review the policy. He also expressed concern that his account is being debited whenever customers pay in cash above the limit.

He explained: “A lot of people are not conversant with the Pos and those who are conversant with it, some of them don’t want to use it. Now, when you are in a place where you are in a place where you receive payments from small customers and you have the situation we just passed through (the two-day public holiday (Friday and Monday) declared to commemorate the Easter celebration), the CBN and banks did not take that into consideration.

“Now, the Tuesday of that week, that was a working day, the money that accumulated during the holidays, would be lodged into the bank and they would definitely be above the limit. Therefore, the customers would be charged above the limits.

“What we are asking is why should we pay for the sins we did not commit as the CBN failed to recognise that public holidays are when most traders sell more. If there is a public holiday, I recommend that the following day should be free of charges so that people can pay in cash that had accumulated within that period.”
 
CBN’s Response
In response to public outcry over the daily ceiling on cash withdrawals and deposits, the banking sector watchdog had last month, raised the limits. The CBN had increased the daily cumulative cash withdrawal/ deposit limit for individual accounts from the previously announced N150,000 per day to N500,000.
Similarly, the limit for corporate accounts was also raised to N3 million per day, from the N1 million earlier announced.

However, the applicable charges for those that wish to transact business with cash became effective from since April 1 in Lagos.
Deputy Governor, Operations, CBN, Mr. Tunde Lemo, had explained: “If it is withdrawal, for individuals it will be three per cent above the N500,000 threshold and for corporate bodies, it will be five per cent above the N3 million threshold. And for cash deposit, it would be two per cent if an individual is depositing above N500,000 and three per cent if corporate bodies are depositing above N3 million.”

According to Lemo, the apex bank has since commenced aggressive campaign on the policy in Lagos through newspapers and television advertisements, as well as radio jingles in English, Pidgin English and vernacular.

These adverts, he said, was targeted at the market women.
The pilot phase of the policy commenced in Lagos last January and is expected to be extended to the Abuja, Port Harcourt, Kano and Aba by January 2013.

The CBN has also granted partial exemption to revenue collection ministries, departments and agencies (MDAs) of the federal and state governments on lodgements for accounts operated by them, for the purpose of revenue collections only.

Similarly, the regulator had exempted all donor agencies and embassies in the country from penalties and charges on cash withdrawal and deposits with regards to the cash-less policy project.

In explaining its decision on the embassies, the CBN said that it took the decision because Nigeria was signatory to several treaties which exempts such specialised international institutions from all fees and charges in the host country.

Lemo sighted the absence of a unique national identity system in the country as a major challenge that may affect the policy.

“Part of what we are doing with electronic banking is also to eliminate corruption, terrorism. In Kenya, an average Kenyan is identified. There is a national identification for everybody, which is linked to your bank account and every other thing, including your international passport. But in Nigeria, that doesn’t exist yet, that is why you can rob Peter to pay Paul. You can dupe one bank today and reappear in another area under another name and then life continues.

“But what we intend to do with the Nigerian Identity Management System (NIMS) is that we will have every Nigerian registered with a unique identification that will be linked to your bank account, your voter card and every other thing you do, such that there will be a robust data bank that every bank can use.

“And when that happens, the benefit is that you will have a credit history. You can go to any bank and request for loan and at the press of the button, all the details of your commercial transactions will be screened and so the bank can take an informed decision on whether you are credit worthy or not. And that is what is used to unleash the opportunity in consumer credit all around the world,” he had explained
 
Alternative Payment System
Acting Managing Director/Chief Executive Officer, Nigeria Inter-bank Settlement System (NIBSS) –an organisation jointly owned by the CBN and all the deposit money banks (DMBs), Mr. Niyi Ajao, listed some of the alternative payment system to include: cheques, the NIBSS- National Electronic Fund Transfer (NEFT), NIBSS instant payment, internet banking, standing order, direct debit; use of Point of Sale machines (PoS), ATMs or mobile payment, which is used for micro payments.

“The payment system in any country is an important national infrastructure, just like infrastructure, electricity and telecommunications. Today, the global economy is so complex such that if you don’t put the necessary infrastructure in place, the economy will not move forward.

“That is why if you go to countries across the world today, there are deliberate projects that had been set up to improve the payment system of their economies,” he argued
 
Analysts View
But the President, Renaissance Shareholders’ Association of Nigeria, Mr. Olufemi Timothy, said the policy could further dampen the savings culture in the economy.

Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, has said the policy would result in an increase in the velocity of circulation, which measures the rate at which money changes hands.

Rewane said: “The velocity is expected to increase as transactions are carried out electronically and therefore have a one-day value date as against three days from the original norm. As money changes hands at a faster rate, its price will also increase.”

Managing Director, Ecobank Nigeria, Mr. Jibril Aku, explained that the apex bank decided to raise the limits after gathering feedback from various categories of bank customers, saying that the policy would help transform the Nigerian payment system.

On his part, finance expert and funding partner of Huntingfield Capital Limited, Mr. Oye Onwuka, described the cashless policy as a desirable policy noting that the policy it will reduce the cost of minting and transporting of cash around the country.

The policy, he added, will help forestall the risk inherit in dealing with cash such as armed robbery, theft, bribery and corruption.
Specifically, he said, “Today people are becoming very conversant with their ATM cards and other e-payment medium. All they need to do is to carry a plastic card, although somebody may come out and say there are Internet frauds.”

He nonetheless admitted that the CBIN did not make adequate preparation in terms of enlightenment of the public before launching the scheme, adding that what was needed at the moment was to fine tune aspects of the policy to make it work better.
But according to the Managing Director of Emerging Capital Limited, Mr. Chidi Agbapu, the CBN’s strategies for marketing the project fell short of expectations hence the not-too-impressive outcome since January.

While he admitted the apex bank did much to market the scheme, its effort was not good enough to market what could be termed a hard sale to Nigerian business community.

Agbapu faulted the timing and sequencing for both the policy and the penalty, which he described as too stiff for Nigerians who have a strong habit of using cash for most of their transactions.

He also stated: “What we are talking about at this point borders on habit and habit don’t die easily. Another problem is the penalty which I consider too stiff for the people. Consider for instance how much that operators of the Lekki tollgate generate daily and if have to penalize them for depositing more than N1million daily while will the excess go since banks are not allowed to pick cash from such institutions anymore.”

According to him, the central bank would need to make the equipment available to end users as the merchants seem to be having problems deploying them for efficient service delivery.

While advocating a gradual implementation of the cashless policy, he noted that so far, both the financial sector and customers appeared not too enthusiastic about the policy, stressing that the apex bank would need to embark on a more comprehensive enlightenment programme to deepen the message and achieve greater successes.