Assessing the Move to Cashless Economy

Obinna Chima examines Nigeria’s journey to a cashless society, which is basically aimed at reducing the use of cash in the country

Despite some hiccups suffered by the cashless policy since its introduction in Lagos State January this year, there is a general consensus that Nigeria’s transition to a cashless society is essential for the country’s economic transformation.

This, according to experts, will bring about efficiency in the payment system. The experts, who spoke at a two-day conference tagged: ‘Nigeria Transiting to a Cashless Society: Possibilities and Challenges,’ expressed optimism that the cashless policy will go a long way in bringing a lot of people into the banking system.

The conference, which took place in Lagos, was organised by De Novo (a strategy brand and media firm) and Legal Reach, a UK-based law firm, and sponsored by the Central Bank of Nigeria (CBN).

Understanding the Policy
The cashless policy is aimed at reducing the dominance of cash in the system, by promoting the use of alternative payment channels. As a result of this, the regulator had limited daily cash withdrawals/lodgment by bank customers in the country. The pilot phase commenced in Lagos in January this year. According to the CBN, the policy would be extended to some other states by next year.

The apex bank had, in response to public outcry over the previous ceiling on daily cash withdrawals/lodgment, raised the limits. The banking sector regulator 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.

Penal charges were also placed for customers that wish to withdraw/deposit above the limits. For withdrawal by individuals, three per cent above the N500,000 threshold is charged and for  a corporate organisation, five per cent above the N3 million is charged. 

Also for cash deposit, individuals would be charged two per cent for deposit above N500, 000 and three per cent for corporate accounts. However, exemptions had been granted to Ministries, Departments and Agencies (MDAs) of federal and state governments for revenue collection accounts only.

Similarly, embassies, diplomatic missions, multilateral agency, microfinance and primary mortgage institutions were also exempted from the policy. Some of the alterative channels being offered by banks and service providers include Internet banking, mobile money transfer, Point of Sale Terminals (PoS) and the use of Automated Teller Machines (ATMs).

World Bank Recommendation
Senior Payment System Expert in Payment Systems Development Group at the World Bank, Ceu Pereira, who spoke at the conference, advised the CBN and other stakeholders on the project to take issues about consumer protection very serious.

But Pereira expressed satisfaction over the recent creation of a Consumer Protection Department at the CBN. She stressed that the cashless policy has been a very effective tool used by a lot of countries to foster financial inclusion.

“More and more, central banks need to be interested in consumer protection and competition issues. I am pleased to hear that the CBN recently created a consumer protection department.

Consumer protection really needs to be fundamental in Nigeria if you want to make a positive move to cashless. I will also say that financial education is also very important. The cashless policy is a very powerful tool to bring millions of people into the financial system,” the World Bank official argued.

Commenting on infrastructure and access interoperability of ATMs/PoS globally, Pereira, in her presentation, pointed out that overall, slightly more than half of central banks indicated that both ATMs and POS terminals are fully interoperable, while number of central banks indicating full inter-operability of ATMs was 57 per cent and higher than for PoS, which was 45 per cent.

She added: “Over 60 per cent of the ATMs worldwide offer at least one non-cash payment service, which contributes to the overall efficiency of the payments system However, the difference between high income and low income countries is significant for all ATM services with the exceptions of cash withdrawals.”

She however suggested the need to encourage the use of incentives to drive the policy, saying, “The usage of a payment instrument depends on its cost. If price incentives are adopted, the cashless policy would be fast-tracked, while risk management in cheque payments should also be checked.”

Boosting Mobile Money Framework
Mobile money has been defined as money stored in a mobile phone using the SIM as identifier as opposed to an account number in conventional banking. This alternative payment channels have been predicted to overtake other forms of payment instruments within the next few years.

A survey by Gartner, had forecast that worldwide mobile payment transaction values will surpass $171.5 billion in 2012, a 61.9 per cent increase from 2011's $105.9 billion.

One of the greatest attractions of mobile money is its ability to facilitate financial inclusion for the unbanked, as a Joint research by Groupe Mobile Speciale (GSM), Consultative Group to Assist the Poor (CGAP) and McKinsey & Company estimated the unbanked to be about 1.7 billion with the potential to generate $5 billion in direct revenue by 2012, therefore, there are distinct benefits in reaching out to this market segment.

But the Director, Tele-Banking, Globacom, Mr. Tunde Kuponiyi, stressed the need for a review of the mobile money framework such that it will allow operators to have increased role in the delivery of mobile money services.

According to Kuponiyi, “mobile payment services are a Telco battle front for customer acquisition, retention and increased airtime consumption. Telcos are competing against each other, telcos bleed to advertise. Bad payment service experience may result in a telco’s loss of customer; scheme operators can be responsible for a telco’s customer loss. Greater collaboration between the telcos and the mobile money operators is required.”

He argued that the support workload of the mobile business far outstrips those of the banking sector, adding that mobile subscribers have higher expectations than bank customers.

“Scheme operators needs to transform and start thinking like mobile operators,” he added, saying that the cashless policy needs greater involvement

He further argued that the model used in driving the mobile money platform is not encouraging to telecommunication firms.

“The cashless model adopted in other climes is being driven by telecommunications firms, but the reverse is the case in Nigeria. Though mobile payment is seen as a value added service, there is need for a framework to drive greater participation of telecommunication firms in delivering the mobile money product to consumers.

“Services must be a win-win situation for telcos to fully support the cashless policy. Any mobile initiative that does not take consumption of airtime into consideration will not attract telcos,” Kuponiyi added.

Professor Emeritus, University of Strathclyde, Scotland, Howard Williams, in his presentation titled: ‘The immovable and unstoppable,’ described a cashless society as a policy conglomerate.

“There is a demand for financial services and those on low incomes are relatively sophisticated user of, albeit perhaps unconventional financial service instruments. Prices, ease of use, convenience, and trust are key determinants of demand for mobile money products,” he added.

However, Partner, Reach Legal, Henrietta Abraham, pointed out that telecommunications companies have brought unprecedented in the economies of developing countries. According to her, regulators have, generally, adopted different approaches to mobile commerce regulation.

Abraham added: “Whilst some have maintained a flexible role in order allow the market to develop, others have been more prescriptive. It seems that mobile money has flourished in jurisdictions which have adopted a flexible and cautious approach to regulation.

“In Kenya, for instance, minimal regulation coupled with close monitoring was employed to assess the risks and opportunities of the M-Pesa system as it developed. This allowed the market to evolve and accelerate, which would have been otherwise had the regulation been more prescriptive, therefore, a proportionate and effective regulatory framework is an essential part of stable mobile commerce.

“Mobile commerce has led to the convergence of the financial and telecommunications - two heavily regulated - sectors. This has raised the question of who regulates mobile money.”

She also called for a clear “national strategy and policy as well as a relevant and effective regulatory framework, which takes account of global recommended best practices, customised to our local environment.”

However, the Deputy Director, Banking and Payment System Department, CBN, Mr. Olu Adaramewa, assured that the central bank will continue to work with stakeholders to overcome infrastructural challenges in the country.

Also, Executive Director at the Nigerian Interbank Settlement System (NIBSS), Mr. Niyi Ajao, said that the cashless scheme has recorded a lot of progress since its introduction, adding that a lot of network and technology are being introduced for improved efficiency in the policy.