Cash-less Economy Operation: the Challenges, the Prospects

Script by: ADEPETUN AND FEMI ADEKOYA on Apr 12, 2012 in Features | 4239 views

Many Lagosians will go to their banks today and find out that they cannot transact banking business as they did before because the Central Banks cash-less economy has taken off. ADEYEMI ADEPETUN and FEMI ADEKOYA examine the problems and the concerns.

THE cash-less policy of the Central Bank of Nigeria (CBN) will be put to the litmus test from today in Lagos. The policy, touted to encourage Nigerians to do their businesses with less cash, will kick off in Lagos from today. Actually, it kicked off yesterday, Sunday, a non-business day.

The CBN plans that the success of the pilot scheme in Lagos will help it to implement it in all parts of the country from January 1, 2013.

But the questions that are beginning for answers on what will happen to the illiterate and semiliterate Lagosian who is used to carrying wads of notes to buy and sell, are legion.

For instance, the rice seller in Daleko Market Iyano Isolo, or car dealer at Berger, Mile 2Coconut Expressway, who sells in millions of naira daily but does not have a bank account, what happens from today? How does the payment and receipt of cash affect him? How is he or she expected to get paid by single buyer of a bag of rice of N15,000 or a car of N1.5 million? Even if the sellers have bank accounts, how are they who sell in the open market, expected to use the POS termini the banks were expected to issue to traders? And many more questions.

The apex bank had since last year, been touting the implementation of the cash-lite policy until it fixed the take off date for January 1 this year but later shifted it to April 1 for Lagosions.

After introspection, the CBN raised the daily cash deposit/withdrawal limit for individuals from N150,000 to N500,000 while for corporate organisations from N1 million to N3 million.

According to the apex banks spokesman, M. M. Abdullahi, the processing fee for withdrawals above the limit for individual customers has been reviewed downwards from 10 per cent to three per cent, while the processing fee for withdrawals above the limit for corporate bodies has also been reviewed downwards from 20 per cent to five per cent.

The processing fee for lodgments above the limit for individual customers has been reviewed downwards from 10 per cent to two per cent, while the processing fee for lodgments above the limit for corporate bodies has also been reviewed downwards from 20 per cent to three per cent.

The apex bank also said exemptions have been granted to Ministries, Departments and Agencies (MDAs) of the Federal and state governments on lodgments for accounts operated by them, for the purpose of revenue collections only.

The CBN explained that, the cash-less policy applies to transactions conducted in branches of banks situated in Lagos State only for now. It however, stressed that the charges are subject to review every six months.

Meanwhile, based on the review, the pilot programme in Lagos State has now been extended to December 31, 2012 in order to create more awareness and aid the adoption of the new initiative. As such, the rollout of the programme in other states of the federation has been deferred till January 1, 2013.

Aside the exemptions granted the MDAs, the apex bank also excluded specialised international institutions from penalties on withdrawal and deposit limits.

A circular by the apex bank signed by the Acting Director, Banking and Payments System Department, Mr. Gaius Emokpae, listed the specialised international institutions as embassies, diplomatic missions, as well as multilateral and aid donor agencies.

The statement reads in part, Nigeria is a signatory to several treaties, which exempt institutions from all fees and charges in the host country. As a matter of international practice, sovereign states do not impose financial penalties on other sovereign states; it has become necessary, therefore, to extend the exemption on cash withdrawal/deposit to these institutions.

The CBN had earlier waived penalties on the cash limit for primary mortgage institutions and microfinance banks.

For advocates of the cash-less policy, it has been observed that cash dependency has been a major headache for the CBN governors, both past and present. Prof. Chukwuma Soludo (the immediate past governor) tried to reduce the quantity of cash (not necessarily amount) that people log around in Ghana-Must-Go bags by trying to revalue the naira. The idea did not stuck, due to political bickering under the late President Umaru Musa YarAdua.

Current CBN governor, Sanusi Lamido Sanusi wants to tackle the same issue by imposing withdrawal limits through the cash-less policy.

According to the CBN, the nation as at December 2011 had 24 deposit money banks with 5,789 branches and 816 microfinance banks bringing the total bank branches to 6,605.

Further investigations showed that the number of unbanked in the country is very high. Figures from EFInA showed that over 70 million of Nigerias 150 million Nigerians are presently unbanked and this poses a great risk to the effective implementation of the policy. According to EFInA, more Nigerians have mobile phones than those that own bank accounts.

The cash-less policy, as explained by the CBN will ultimately empower the previously unbanked populace to open accounts and perform e-transactions across the nation without having to visit their bank branches.

But there have been divergent views over the implementation of the scheme, as well as, the readiness of Nigerians to embrace it.

While some have expressed doubt about the effectiveness of the sensitisation campaign exercise, as well as protecting the interests of merchants and people in the informal sector, some have decided to render the Point-of-Sale (PoS) terminals useless, while others have cited the need for the apex bank to be proactive in addressing the security and technological challenges associated with e-transactions.

Analysts believe that the CBN policy is one in the right direction, especially to mitigate the pangs of corruption in the country. But they expressed fears over its success, citing many challenges to its realisation.

The implementation of any new policy, especially those that demand attitudinal change from the public, is an inherently complex endeavour that involves multiple players and multiple systems. Whereas a discrete body of decision makers adopts most policies, they are implemented by a much wider group of actors.

Although, the ultimate end of the apex banks move has been identified in the realm of tackling corruption in the long run, the ripple effect of the move is yet to simmer down with the common man who perceives such move as a threat to social and financial practices.

The new policy has since sparked off rounds of controversy in all the sectors of the economy, from banking to telecommunications, even the manufacturing sectors are not left out.

According to financial experts, the move is too idealistic in a country like Nigeria, with larger percentage of the population residing in the informal sector. However, they believe that as much as the apex bank hopes to enhance the countrys payment system, it needs to understand that the failure of past regimes to achieve this objective is not as a result of the inadequacy in their plans or policies, but their inability to effectively locate the relationships in the systems as one holistic entity.

Analysts believe that one of the reasons why cash-less economy may look gloomy is that for remote payment to work there is a need for a huge base of infrastructure, which needs to be put in place in the form of magnetic card readers and the technology that makes them work.

Similarly, they believe that while security concerns remain in many financial transactions, the need to reduce the number of unbanked in the country is also necessary to achieve a cash-less economy.

For instance, some of the reasons adduced as to why there is still a large number of unbanked in the country is communication problem and the issue of bank charges which are not properly communicated to the customer during the account opening process.

To address this, many financial institutions would be required to devise innovative channels to harvest the large volumes of cash said to be untapped in the informal sector.

This would further strengthen the banks and their capacity to drive the revolution in the payment system. The CBN has also been advised to collaborate with other agencies of government to encourage businesses to insist on the use of cheques or other non-cash payment methods by their customers or dealers.

As at today, there are only about 10,000 ATMs and 14,000 PoS that are functional in the country, which are on the platform of Interswitch, West Africas leading transaction switching and e-payment network which connects all the banks, financial, cable broadcasting and telecommunications operators. But the Bankers Committee claimed to have ordered 100,000 and received 70,000 PoS machines so far.

Besides, electronic commerce points like the new Ikeja Shopping Mall controlled Shoprite still lacks sufficient PoS terminals for commercial transactions.

Besides a few ATMs, which hardly have cash, all the shops including Shoprite at the mall are yet to be connected to PoS platform.

While the shopping malls in Lagos, are yet to get it right on PoS and ATMs functionality, some religious denominations, it was learnt have started the use of PoS for offerings, and tithe takings.

A member of the Deeper Life Bible church confirmed this to The Guardian.

Some shopping malls around Ajose Adeogun, Victoria Island, Lagos, are yet to have PoS Terminals.

Speaking at a seminar in Lagos, CBN deputy governor in charge of Operations, Tunde Lemo, said the high dependence on cash for settlements has resulted in the inefficient allocation of resources and a low depth of financial intermediation with downside effects on monetary operations and monetary policy management.

Continuing, Lemo said strengthening currently available modes of electronic payments; further deployment of ATMs is being encouraged, although to drive more cash-less transactions as opposed to its traditional cash dispensing functions.

According to him, the CBN has a target of deploying 150,000 PoS machines by December 2012, which would be scaled up to 375,000 by the end of 2015 when it hoped to have attained benchmark PoS penetration of 2,247 PoS per 100,000 adult population as obtainable currently in Brazil.

But he pointed out that the tariff structure imposed by the Nigerian Customs Service on the importation of PoS is on the high side.

According to the CBN deputy governor, many of the PoS terminals ordered by the 23 banks are being held up at the ports due to a 20 per cent import tariff.

But The Guardian learnt that the bickering between the CBN and the Nigerian Customs over tariff charges may not be over soon.

A senior customs officer, who prefer anonymity, said until there is a workable agreement between the apex bank and the Customs, especially on tariff and other port charges, importation of PoS terminals may remain a tall order for the take of the scheme.

Some other identifiable challenges include: Power; IT infrastructure; publicity/awareness; massive need for education; security; cyber-crime and theft; high level of illiteracy, job losses among others.

According to the President of the Institute of Software Practitioners of Nigeria (ISPON), Chris Uwaje, the apex bank should not be in a great hurry to introduce the policy taking into cognisance the peculiarities of the country.

According to him, no country in the world today is cash-less, and care must be taken in applying and using that phrase. Any transaction is a process and it is strategically imperative that Nigeria focuses on the process of the transaction rather than the transaction output called cash.

There are many challenges ranging from broadband infrastructure, tested and accredited application software, trust economy, legislation, human skill capacities, call-centre backbone, consumers profile data, data protection as well as credible regulations security and that need to be put in place.

On the issue of security, Uwaje stated that the consequences would be monumental to 70 per cent of the population who live in the rural areas; moreover, viewed on a longer term, e-pay without a national database system is rather suicidal to a nation with almost zero landline and predominantly mobile wireless -ICT model. He also listed many more steps missing for a seamless operation of the policy.

Also, the E-Payment Providers Association of Nigeria (E-PPAN) believe that if the apex bank must have any headway in the cash-less project, it is imperative for the National Assembly to pass into law the national payment systems bill.

EPPAN said that there is a lacuna between government policy and the preparedness of the country to embrace the change in financial transactions in the country.

The body said a research conducted revealed that 68 per cent of consumers and 59 per cent of merchants surveyed, thought Nigeria was not ready for a cash-less economy.

Besides, the association noted that for the 58 per cent of consumers who used electronic payment system in the last six months, 48 per cent of them used it only for withdrawing cash, while only 10 per cent used it for actual purchase and bills payments.

E-PPAN urged the CBN to set up modalities to liaise with the Nigerian Communications Commission to compel telecommunication outfits comply with their existing agreed service level agreement and requisite support for e-transaction and apply stiff sanctions for non-compliance.

Already, Credit Awareness Nigeria, a financial non-governmental organisation has begun its campaign on financial literacy and responsible borrowing in the informal sector.

With more than 79 per cent of Nigerians, comprising mostly those at the lower strata in the society who do not properly understand the workings of the financial sector, the firm has concluded plans to penetrate the informal sector of the economy through its financial literacy campaign.

Speaking at the start of the pilot scheme of its financial literacy exercise in Lagos recently, the Executive Director, Credit Awareness, Ladi Smith said that with the emergence of new financial policies by the CBN and financial institutions, there is a need to enlighten and reach the unbanked population.

On his part, the Vice Chairman, Mobolorunduro Frozen Foods Market, Bola Ajibola, while speaking on the implementation of the cash-less initiative, urged government to consider the plight of people in the informal sector in the development and implementation of policies, noting that the informal sector is often times excluded in some of the policies and this most times, affect their businesses and further widen the poverty line.

On the availability of PoS terminals, he noted that most of the market women are still not enlightened about the operations of the terminals as a result of their low literacy level and lack of sensitisation on the operations of the terminals. He however expressed optimism about adoption of the cash-less policy.

A visit to various bank branches in Lagos at the weekend showed that customers might end up paying for their banks inefficiency, as some of the banks could not meet up with customers demands for ATM cards and effective mobile banking applications.

While some customers said that their requests for ATM cards and Internet banking facilities had not been treated for months, others who possessed ATM cards, mobile and online banking applications said poor services and long queues at ATM points had discouraged them from using the services.

A customer, who identified himself as Alaba Kajopaiye, bemoaned the lack of preparedness by the banks, saying, theres no way people wont be charged unjustly if the charges start as stated by the CBN.

They want us to go cash-less and they have not provided enough facilities to make the system smooth. The e-payment system is terrible; sometimes you are charged without getting the services you require. When you use the ATM, sometimes it deducts and refuses to dispense cash and when you complain at the bank, they will tell you to write letters that they wont process.

Another customer of a first generation bank, Barr. Chukwu Okey, lamented the dearth of quality services in the banks.

He said there was the need for the big banks to build more branches and employ more hands to improve their services.

Speaking to The Guardian recently, the Divisional Head, E-Banking, UBA Plc, Luqman Balogun, said, we are more than ready in UBA for the roll out of the problem any time.

Furthermore, visits by The Guardian to some of the retail markets within Surulere, still reflects a low level of adoption of the cash-less policy, with some of the merchants citing the unavailability of PoS terminals as a major excuse.

The mobile phone market at Lawanson and some other major retail stores within Surulere reveal the low adoption of the cash-less policy, with many of the merchants expressing optimism of government extending again the take off date in Lagos.

But, according to a financial expert, Seye Sokunbi, said the major loophole that may hinder the effectiveness of the policy is that there is no limit to the number of bank accounts that can be operated in one or more banks as well as lack of central database to monitor daily cumulative lodgments into, withdrawals from, more than one bank accounts by individual or entity.

He said hence, many people may decide to open more bank accounts to circumvent limit to cash they can withdraw at once so as to make up for their daily cash need. Or it would be that people would result to keeping cash in the house, which would increase M1 (money outside the banking system) and reduce M2, (money within the banking system) thereby reducing the velocity of circulation. Sokunbi said cash deposits in the banks would reduce, impacting on the ability of the bank to lend out money, and the money in circulation will slump.