The Cash-less Policy: Moving On Against All Odds

Despite different views and reviews from finance experts and analysts, the Central Bank of Nigeria has continued its cash-less policy implementation with about 65,000 deployed POS terminals hitting various outlets, exceeding the initial target of 40,000.

The nations regulatory body decided to embrace a cash-less policy framework in order to reduce the cost of cash management in the country, meet vision 2020 requirements, modernise Nigeria’s payment system, reduce the cost of banking, drive financial inclusion, improve effectiveness of monetary policy, reduce high safety risks, foster transparency, and curb corruption/leakages.

This project directs that the daily cumulative limits are N500, 000 and N3 million on free cash withdrawal and lodgement by individual and corporate customer respectively.

It also states that processing fee for withdrawal above the limit for individual is three per cent while corporate is five per cent and that the processing fee for lodgement for individual is two per cent, while that of corporate is three per cent.

The objectives of the cash-less policy, the CBN further says, are to reduce (not eliminate) the amount of physical cash circulating in the economy, and encourage more electronic-based transactions.

The ‘Cash-less Lagos”, the pilot phase of the national project, is the collaborative effort for executing the payments transformation plan in Lagos state as Phase 1, with gradual extension to other states in Nigeria.

Nigeria lags behind

The CBN has stated that Nigeria lags behind its peers in Africa in the struggle to improve financial inclusion.

Tunde Lemo, CBN’s Deputy Governor Operations, in a Keynote Presentation at the AITEC Banking and Mobile Money Conference held recently, said the nation lags behind among its contemporaries, including South Africa, Kenya & Ghana in the tussle to improve financial inclusion.

“Enhancing access to financeis instrumental to inclusive growth and combating poverty. Therefore driving financial services ubiquity and acceptanceranks high in the priorities of Central Banks in developing nations,” Mr. Lemo said.

In his report, 36 per cent of adults are served by informal services, 74 per cent of Nigerians have never banked, 93 per cent of Nigerians have no access to Loan, 5 per cent of Businesses have loans, 70 per cent of Nigeria’s poor live in the rural area, Nigerian banks are concentrated in urban areas, and there is a huge gap - unavailability of financial services between urban and rural Nigeria, with a 23,000:1 Bank ratio.

According to him, the cost of financial service in Nigeria is still high mostly based on various reasons including cost of operations, infrastructure, and IT standards. However, he said a major controllable part of the high cost is the payment system.  

To push this, the regulatory body, licensed Payments Terminal Service Providers to ensure regular, support and maintenance of POS in guaranteeing availability of service. These providers are also to facilitate industry negotiation with POS manufacturers to achieve compliance with standards and obtain scale advantage. They are to license 14 mobile payments schemes and achieve interoperability of schemes through the Nigeria Central Switch managed by NIBSS Plc (a shared service platform for the banking industry).

Looking at the benefits of this initiative, particularly from investment view point, Mitchell Elegbe, the Managing Director of Interswitch Limited, a leader in the electronic funds transfer industry, in a chat with journalists recently, said the electronic transaction (e-Transaction) industry in Nigeria holds numerous potentials for investors.

“Cash is expensive” Mr. Elegbe said. “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; it 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” he said, adding that it was high time we promoted the usage of electronic products.

While the nationwide implementation has been postponed to January 2013, collection of charges by banks under the Cash-less Lagos project has already taken effect.

Bismarck Rewane, an economist, and Managing Director, Financial Derivatives Company, said cash transactions remain primary mode of transaction at 83 per cent of total payments.

“Cash-less Lagos kicks off, supermarkets groan and banks laugh to the vault,” Mr. Rewane said. However, he noted that the impact of cash-less scheme is still minimal as the percentage of cash transactions in March was 85 per cent.

According to him, technology handicap remains a major constraint impeding use of electronic payments. “Impulse needs are patronising cards. Daily and frequent needs are still mainly settled in cash,” he said, adding that the effect of cashless economy in Lagos will increase velocity of circulation and transaction volume.

The policy has however not been without its own challenges. The telecommunication network failure has been identified as a major challenge hindering the operations of the CBN’s cash-less policy. Power outages and POS not receiving some cards also remain part of challenges faced by merchants and customers.

Despite these challenges, it is believed that the implementation of the cash- less policy will increase access, convenience and service levels across the industry. It is expected to also enable greater financial inclusion and integration of financial services into the economy, facilitate the growth of electronic payments, increase availability, reliability and security of electronic channels.

Furthermore, experts are optimistic that the policy would align IT standards across the industry to improve efficiency, while driving data integrity.

While the Central Bank is devising means of addressing these challenges, such as getting POS available that would accept all cards, among others, it is expected that as enlightenment continues and sanctions are meted out appropriately, individuals, private and public organisations would embrace the new directives.

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