Cashless policy: Addressing hiccups ahead April deadline

Customers at a Bank's ATM

The desire to drive development of the payment systems in the country as well as improve effectiveness of monetary policy informed the introduction of the cash-lite policy by the Central Bank of Nigeria (CBN). This policy has however been greeted with several bottlenecks, even as the April deadline for full compliance hots up, writes Alexander Chiejina.

As global financial systems become more connected, economies around the world gradually shift to the use of electronic system of payments to quicken the delivery of financial services. This is however prominent in developed economies and ‘The Asian Tigers’ where the use of technological devices have become ubiquitous.

While several countries have continued to make giant strides in this direction and as a result, boosted trade and other economic activities, Nigeria and indeed several African countries have lagged behind as most businesses are conducted in heavy cash transactions.

In its effort to reposition the nation's economy and make it relevant to the global financial environment, the Central Bank of Nigeria (CBN) have continued to reform the financial sector aimed at encouraging electronic payments and electronic commerce (e-payment and e-commerce). In order to achieve these goals, the apex bank recently introduced a new programme called ‘Cash-lite Policy’.

The cash-lite policy, an initiative of the Bankers’ Committee, comprising the CBN, Nigeria Deposit Insurance Corporation (NDIC), discount houses and the 24 deposit money banks, is aimed at encouraging more electronic-based transactions and reducing the amount of physical cash circulating in the economy.

According to the new CBN retail cash policy, which commenced in Lagos, January 1, 2012, over-the-counter cash transactions above N150, 000 and N1, 000, 000 for individuals and corporate organizations respectively will attract a penalty fee of N100 per extra N1,000 and N200 per N1,000 imposed on individual and corporate defaulters respectively.

With the date set for penalty fee to take effective April this year, the policy implementation is expected to be in phases covering Port Harcourt, Kano, Aba and the Federal Capital Territory (FCT) later.

In the CBN document released in 2011, the bank clearly annunciated the major objectives of the policy “The desire to drive development and modernization of the payment systems in Nigeria; reducing the cost of banking services (which include the cost of credit), delivering financial services; and also improving the effectiveness of monetary policy, managing inflation and encouraging economic growth.”

The apex bank further posited that ‘high cash usage enables corruption, leakages and money laundering’ among other cash-related fraudulent activities.

Making her submission, Eyitope Matthew-Daniel, CBN's Head, Shared Services Department, disclosed that the primary purpose of the policy is to reduce the spiraling cash management cost, which include bank charges and lending rates as a result of the country’s cash dominant economy, cost of banking operations and enhance quick payment system.

Available reports had it that the CBN in 2009, spent N114.5billion on cash management services alone and projected that the cost would rise to about N192 billion by 2012 if Nigeria did not move away from cash transactions.

Matthew-Daniel maintained that the cost of lending would reduce significantly if the banks save the N192 billion that would be used to manage cash by adopting the use of e-payment platforms, pointing out that 99 percent of current banking activities were cash-based rather than electronic transactions as obtained in other economies.

She however expressed the hope that with the introduction of cash-less economy, the cost of banking would be reduced by 30 percent in the first instance and reduced even more going forward.

While a major derivative of this policy - mobile money services – appears to have taken off too with the launch of the service by a number of institutions. Their efforts are expected to make the policy a success.

As laudable as the prospects of this initiative may appear, stakeholders have continued to express divergent opinion over the practical implementation of this new policy, given the country's level of economic development. While those who endorsed the initiative see it as part of CBN's strategy to achieve Nigeria's goals of Vision 20: 2020, others criticize the policy as premature and hasty.

In the meantime, recent investigation by BusinessDay reveal that 73 percent of adult Nigerians have no formal or informal access to finance and therefore are excluded from access to credit facilities. According to the apex bank, the unbanked money in the informal sector is estimated at a staggering N1.2 trillion.

The Lagos situation

Making an electronic transaction

 

The commencement of the policy in Lagos State has continued to generate varied reactions. While some residents of the state welcome the initiative, most people argued that the banking sector regulator seemed not to be fully prepared for the implementation of the initiative, as they insisted that the alternative electronic payment channels expected to drive the policy, are yet to be fully installed in most parts of the state.

Findings by BusinessDay reveal that while shopping malls, and other social centres in Victoria lsland, Lekki and Victoria, had witnessed increase in Point of Sale (PoS) machines deployment, which is largely expected to drive the process, most residents in other parts of the state are not even aware of the take-off of the policy.

Meanwhile, banks in the state have stepped-up the level of awareness on the policy. BusinessDay learnt that while some banks rejected cash lodgement/withdrawals above N150, 000 and N1 million for corporate organisations, those who collected such amount sensitised such customers to embrace other alternative payment/lodgement channels.

Some banks had to communicate to their customers through text messages, e-mail and even telephone calls, to advise them on the new policy, its implication and the expected benefits.

Challenges of current policy

For opponents of the policy, the crippling impact of epileptic electricity supply remains an albatross in Nigeria’s quest for development. They believe that the Automated Teller Machines (ATMs), Point of Sales (PoS) machines, and computers require electricity as source of energy.

“How would the bank customer transfer fund; make payments or conduct other electronic transactions when these technological devices cannot work all the time as a result of epileptic electricity supply? The ATMs and PoS are yet to attain the desired efficiency necessary to drive a cashless economy. The needed technology to maintain a working network and constant connectivity have not been adequately addressed,” argued Olise Jude, an IT expert working in Lagos.

He maintained that the policy must take cognisance of the low level of computer literacy level of the banking public, especially rural dwellers, most of whom remain largely unbanked, but also contribute some measurable quota to the nation's GDP.

“How would the market women and other small business owners who are long accustomed to cash transactions, suddenly and smoothly make a transition to the new policy. For an economy where cash is the main financial instrument for conducting businesses, especially for the informal sector, such restrictions may cause customer stampede and a run on the banks, if only to beat the policy implementation deadline,” he concluded.

Mobile money: a veritable tool?

Point of Sale (PoS) terminal

 As mobile banking involves person-to-person payment through the mobile phone or the use of mobile phones to conduct financial transactions, this latest electronic banking innovation is gradually changing the lives of millions across the globe.

This mechanism requires delivery of mobile payment to the banking and non-banking community, with the overriding vision of achieving a nationally utilised and internationally recognised payment systems.

Currently, First Bank of Nigeria, UBA/Afripay, GTBank, MobileMoney, Stanbic IBTC, and Ecobank has licenses to partner telecommunications companies to bring about the desired mobile banking. Others are   

Fortis MFB,  Pagatech, Paycom, Chams, E-Tranzact, FET (Funds Electronic Transfer), Monitiz, Parkway,  Corporeti Services, Eartholeum, and  M-Kudi.

Their efforts are expected to expand and deepen formal banking in Nigeria by drawing the unbanked or under-banked into the formal financial services sector, while enabling the economy to shift to more efficient and reliable modes of financial transactions.

Electronic payment cards

 For a country with an estimated population of over 150 million and which has less than 22 million bank accounts, the development impacts negatively on the country’s economic growth and development as access to financial services, and overall financial development remains crucial to economic growth and poverty reduction.

Furthermore, lack of access to formal financial services limits market exchanges, increases risk and limits opportunities to save. Without formal financial services, households have to rely on informal services that are associated with high transaction costs. Thus, increasing access to formal financial services to the majority of households remains an important policy goal, not just in Nigeria, but in all emerging markets.

Even as Nigerians continue to express doubts over the country’s readiness for a cashless economy due to the unavailability of requisite infrastructure and low literacy levels, others have also argued that ongoing reforms have generated ample momentum to leverage on all forms of e-payment, especially mobile payment to enhance financial inclusion and facilitate Nigeria’s transformation from cash-based to a cashless economy.

Mitchell Elegbe, Interswitch Group’s CEO and managing director, disclosed that there is no alternative to cashless policy if the economy is to achieve its desired aim of being among the top 20 economies by the year 2020.

Elegbe reiterated that the high unbanked situation poses a challenge to the policy, while calling for democratisation of the policy to enable majority of Nigerians use it, particularly mobile banking. The need for different types of cards either for debit or credit, according to him, is necessary for the success of the policy.

Obinna Abajue, Head, Personal and Business Banking, Stanbic IBTC Bank, during a recent Mobile Money 

Roundtable, argued that the adoption of mobile money services in Nigeria would enhance economic planning by unraveling the country’s actual Gross Domestic Product (GDP) matrix, with a reduction in the cost of cash handling as well as cost of funds, besides being convenient and secure.

Abajue stated that “Government and banks have been at the forefront of efforts seeking to channel the huge funds in the informal sector through the formal banking system to bolster economic development. Mobile money will fast track this harmonisation and identify economically active people previously in the shadows of the huge informal cash economy, enabling them to have access to credit facilities.”

“Mobile money,” he stressed, “will bring about transparency, improved remittances and economic activities across various sectors of the economy, both in urban and rural areas. To achieve this, it is imperative for the regulators, licensed operators and other stakeholders to embark on an awareness campaign to educate Nigerians about the benefits of mobile money. This will drive its acceptance, and subsequently unravel its enormous benefits to the economy.”

Across Africa, mobile banking is projected to become a $22 billion industry by 2015, according to Juniper Research, a consultancy outfit, buoyed by soaring cell-phone use and growing financial services demand. Meanwhile, mobile network operators is expected to earn $7.8billion in direct and indirect revenues from serving a projected 364 million low income, unbanked people in about 147 countries who are projected to use financial services by 2012.

Valentine Obi, managing director, E-Transact International Limited, disclosed that Nigeria should take a cue from Europe if the country hopes to maximise benefits derivable from e-payment, while anchoring his position on the enormous opportunities embedded in the huge customer base which a cashless economy engenders.

“It reduces cost of operation; it increases customer satisfaction because you can render personalised services. When transactions are electronic, they are easier to track and document. For government, it helps in the area of taxation, budgeting, planning, accountability and improved government services. All payments are made easier with mobile payment system.

“For instance, you can pay your utility bills through your mobile phone. With PHCN top up system of electricity payment, it is going to be a lot easier in a couple of months when you can actually pick up your mobile phone and pay for electricity bills especially for those using top up meter,” he stated.

Other services to be powered through this platform include accounts information and updates, alerts, bill payments, person-to-person transactions and remittances. In addition, even people without formal identification documents are availed basic services just by providing a name and a phone number.

At the moment, Africa boasts of the world’s most successful mobile payment system. Though mobile money 

was first introduced in the Philippines in 2001, Kenya’s M-Pesa continues to be the most successful mobile money deployment globally with over 700 million domestic and international money transfer transactions, accounting for $130 million revenues in 2010 financial year. A joint venture between Vodafone and Safaricom, M-Pesa transformed Kenya’s entire economic system. Its pervasiveness and wide acceptance has made Safaricom the biggest mobile money operator in East Africa.

Today, the service provides mobile banking facilities to more than 70percent of the country’s adult population (14 million people) that use their mobile phones to pay taxi fares, wages of field workers, utility bills, get money out of ATMs without owning an ATM card or a traditional bank account.

Nigeria, with an estimated population of over 150 million people, over 20 million bank accounts and almost 90 million mobile phone subscribers is on the threshold of deploying mobile money with the potential to become Africa’s biggest mobile money market, in spite of late adoption of mobile business.

No doubt, financial inclusion and cashless settlements in all transactions will definitely play a significant role in shaping Nigeria’s economy in the near future.

Making cashless policy succeed

Sanusi Lamido Sanusi, CBN Governor

 Against the backdrop of flaws so far identified in the policy, stakeholders believe the apex bank must build a sound financial technology and infrastructure as well as seek the assistance of the government to address the intractable problem of electricity. They however believe that a sound technology will solve the problems of network connectivity and the frequent "not-in-service" signs on the ATMs.

“ATMs must be deployed across the country in areas that are accessible, to reduce the long queues usually seen within bank premises. A good implementation framework will also forestall or reduce cases of fraud at the ATMs, identity theft and other cyber crimes which are serious issues of concern to the bank customer.

“Education of the public remains an important step in the new programme implementation. The CBN will have to carry out a vigorous public enlightenment campaign to sensitize the populace on the workability and benefits of the cashless initiative; build confidence in the people that their financial transactions are safe and secure,” Chukwuma Nonso, a banker with one of the leading financial institutions in the country.

While Nigerians expect banks to partner with industry stakeholders to build and equip computer learning centers nationwide where local people, market women, senior citizens and indigent students can learn the use of computer technology at little or no cost, the knowledge would make this segment of the population more receptive of challenges posed by technology-induced banking policies.

For Uchenna Agba, an IT expert at Sidmach Technologies, “As the CBN prepares Nigeria for a transition into a cashless economy, power must be improved dramatically to accommodate for smooth operations of financial activities. The financial infrastructure in Nigeria is not adequate to carry the load of a cashless society as ATM's, PoS systems, mobile banking and other mediums have to dramatically expand to touch at least 40 percent of the whole economy before any meaningful effect can be achieved

“The CBN should be ready to invest heavily to make this transition possible. Technology is ever changing at a very fast pace as investments in infrastructure, training, security, maintaining it networks, etc will have to be made with collaboration of efforts by all invested parties. The apex bank may also consider forming public/private partnership within and outside Nigeria, which may create massive capital injection and expertise into building the needed technology. This will solve the problems of interoperability of payments and tackle other security issues,” Agba concluded.

Proper and accurate identification of account holders must be maintain and shared when necessary by all financial institutions; also CBN must collaborate with all other government and private agency responsible for collection of Identification of individuals in Nigeria for reconciliation of any identification.

For now, what is desirable will be to allow the present cash system to exist side by side with the E- transactions. Overtime, the cashless policy will gain penetration as people will begin to develop faith in the benefits it offers. This will also enable the CBN to deepen and fine-tune the supporting technological structures and the economy will ultimately transit from the present cash system to the envisioned cashless regime.

Fraud prevention

The apex bank recently established an ATM Fraud Prevention Committee to address risks associated with the use of alternative e-payment channels. The members of the committee include banks, the Economic and Financial Crimes Commission (EFCC), National Identity Management Commission (NIMC) and InterSwith and ValuCard. They are however to meet monthly to make e-payment more secure for bank customers.

A statement from the Bankers’ Committee said setting up the committee has become imperative to address card frauds, especially the ones associated with the use of ATMs and PoS terminals. It noted that ATM fraud was prevalent when magnetic strip cards were in use but currently all Nigerian banks have migrated their cards to chip and Personal Identification (PIN) technology, which is more secured and has drastically reduced the fraud level in the industry.

“In terms of security of platforms, ATM fraud was prevalent when Nigeria was using magnetic stripe cards. But last year, Nigeria migrated, all their cards to chip and PIN, which is more secure, and drastically reduced the fraud level. With chip and PIN, the chances of fraud are reduced provided a customer keeps his PIN secret,” the Committee said.

In terms of infrastructure, the committee noted that the apex bank was working with the Nigeria Communications Commission (NCC) and telecommunications operators to ensure there are dedicated communication links for the POS system in the country. 

It added that if the PoS or mobile phone were stolen, the money for the user would be safe as the devices do not hold the money. To make the platforms secured and reliable, the Committee said that all PoS must have a minimum of two SIMs from telecommunication operators, even as there is minimum of 24 hours battery life, and sometimes, car chargers are attached.

The Committee disclosed that the literacy required in operating the PoS was minimal as many Nigerians can use a mobile phone needed to make mobile payments. Besides, biometrics were being installed in some ATMs and POS to further check fraud in the industry.

While proper foundations have to be established as the CBN courageously transform the modes of operation of the Nigeria economy, the road to the stars is rough.