In 2012, the Central Bank of Nigeria (CBN), Nigeria’s Apex Bank and regulator, introduced a national cashless policy aimed at reducing the usage of cash and increasing the use of alternatives to cash due to its negative consequences.
As the apex bank had explained, the cashless policy was aimed at “scaling up financial inclusion and reducing cases of armed robbery, kidnapping, terrorism financing, advance fee fraud, graft, ransom payment, extortion and other crimes.”
The policy, which took effect on January 1, 2012 in Lagos as pilot, and subsequently nationwide implementation from June 1, 2012, did not restrict the amount of cash that an individual can withdraw or deposit. It only stated that they will have to pay service fees on the excess cash.
When the implementation started, cashing of third-party cheques across the counter was stopped. Customers were charged 3% for individuals and 5% for corporates over the limit withdrawn, while there was a 2% for individuals and 5% for corporates over the amount deposited.
At inception, the cashless policy was facilitated by 900,000 POS terminals, 14,000 ATMs across the country and 1.4 million agents nationwide. It was equally impressive to observe that Nigerians were beginning to embrace the CBN’s cashless policy, considering the way electronic transactions began to grow over the years.
From N48 billion in POS transactions in 2012, Nigeria as at December 2022 processed N6 trillion transactions. Similarly, electronic transfer also grew from N3 trillion in 2012 to N300 trillion as at October 2022. The cashless policy is further complemented by mobile phone penetration in Nigeria, which stood at 222,225,300 as at December 2022, according to the Nigerian Communications Commission (NCC).
Operational Challenges
Despite gaining momentum, and acceptance after the initial skepticism by bank customers, there were pockets of apathy, which came about due to reports of failed transactions, transaction reversal time lag, among others.
However, another major concern was on the transaction charges instituted by CBN and the banks, which most people saw as deterrents to adoption of cashless and epayment channels by financial service customers.
Tech Challenge
The 2020 global lockdown, occasioned by the Covid-19 pandemic, was a major test of the systems enabling epayment in Nigeria, which, to a very large extent held its ground. Although there were the usual glitches, financial service customers were not utterly disappointed during the period.
However, the recent currency redesign, which brought about a whole new policy and rules in cash withdrawal, causing a nationwide cash crunch, has proven to be the albatross that has exposed the weakness of the epayment and cashless drive in the financial system.
Over the short period, banks’ payment channels broke down. Most bank customers could not successfully make transfers, nor conduct any meaningful transactions through POS, internet banking, mobile transfer, and USSD transfers.
Eventually, traders stopped accepting bank transfers from customers, insisting on cash or no sales stand. But then, cash was scarce. Also, those that accepted transfers would first make a verbal agreement with the customer to sit and wait for as long as it will take the banks to confirm receipt of such funds, which may never come. Today, a lot of people have transactions that are pending, which either had been debited to the payer but not credited to the recipient.
Also very noticeable, and quite appalling, was the fact that a lot of traders do not use any form of epayment option aside ATM/PoS services. This means that banks need more incentives to draw these groups of people into the epayment service space.
To make matters worse, despite the CBN directive that minimal amount of cash be allowed at ATM points, the need for cash drove mammots of bank customers to ATMs, which sadly did not have cash to dispense. At a bank branch that has a gallery of up to 13 ATMs, only one was dispensing. And it only dispensed for a few hours, and a maximum of N2000 per withdrawal.
Many bank customers were stranded and opted for other epayment alternatives, which included alternative channels like PoS, Unstructured Supplementary Service Data (USSD), third-party App payment channel, Mobile Banking, Online and Internet Banking, among others for financial transactions. This cause heavy traffics, and pressure on the banks’ systems and servers.
During this period, the less popular banks, mostly the new digital banks, Kuda, OPay, Palm Pay, and others, were seen to have smooth and effective transactions, probably due to their seeming smaller customer base. This warranted many financial service consumers to migrate to these banks, and most traders encouraged their customers to use these services if they wanted to make easy payments for goods and services.
Going Forward
It is therefore expedient for financial institutions, especially Deposit Money Banks (DMBs), at the supervision of the CBN, to ensure they use this opportunity to upgrade their existing epayment infrastructure to be able to handle high traffic, and develop a robust architecture in payment services.
If the cashless policy and drive will work effectively, DNBs need to cater effectively for their customers, and ensure they attract trust from their customers, and grant assurance of security to them.
Also, the regulatory body, the CBN should critically look into transaction charges from these banks, because that has been a major deterrent to the use of alternative digital channels of payment.
When the CBN ordered that banks stopped collecting Stamp Duty charge, the banks reverted to what they called FG Electronic Money Transfer Levy, a levy imposed on customers’ withdrawals and savings, which banks insists go 100% into CBN coffers. Some banks like Stanbic IBTC also charge tax and withholding tax on deposits and withdrawals on Savings Account. Other discouraging charges include, Card Maintenance fee, which is aside the payment for Card Issuance; charges for mobile transfers; ATM withdrawal charges; SMS Alert charge; account maintenance charge; and sundry charges.
These charges have led to some bank customers opting out of SMS alerts, refusing to accept ATM cards, insisting on cash payments, and not easily ready to make transactions from other bank ATMs, thereby retarding the essence of the Cashless Policy.
The CBN needs to act. The financial burden of saving money in banks is becoming heavy on bank customers. If the Cashless Policy will work smoothly, with willing participation from consumers, CBN must act!
