Apprehension as cashless policy goes full blown

John Abana (not real name), a businessman who lived in Port Harcourt, Rivers State, traded in men’s shoes and women’s wears. He often made regular trips to Onitsha in Anambra State, the commercial hub of the South-East Nigeria, where he purchased all his wares for sale to the final consumer. Onitsha was particularly appealing to him because there were many importers in the popular Main Market, who would be ready to sell the products cheaper than what anyone could obtain even in Lagos then. At least, that afforded him the opportunity of making huge gains from big spenders in the city.

In July 2011, John made one of these regular trips to the commercial city. Usually, owing to the nature of the transactions, he often withdrew money from his bank once he got to the city and would then mount a bike straight to the market. Though he had been doing so for the past two years, he was not lucky this Thursday, after withdrawing N2.5 million from one of the new generation banks.  

The lady cashier that regularly attended to him, had wrapped the cash in two black polythene bags and waved him goodbye. But not until John parted with N1000. But neither knew what would happen next.

John left the bank, waved down a bike and mounted it. Unknown to him, three young men, armed to the teeth, who often loitered around major banks at New Market road, were handy. They trailed him close down to Bata/Venn Road South, where two of them brought out pistols and pointed them at him. As John was trying to figure what was going on, one of them pulled the trigger. John lost his money and, of course, his life.

 Could cashless policy have saved John?

 These are some of the gory tales told on a daily basis in some of the cities in the country. In order to end the era of carrying about huge sums of money, the Central Bank of Nigeria (CBN) introduced ‘Cashless Nigeria’ in January 2012, using Lagos State as a pilot.

The policy took effect in Rivers, Anambra, Abia, Kano, Ogun and the Federal Capital Territory (FCT) on the July 1, 2013. On July 1 2014, banks will begin nationwide implementation of this policy.

Cashless Nigeria is a policy on cash-based transactions stipulating a cash handling charge on daily cash withdrawals or cash deposits that exceed N500,000 for Individuals and N3,000,000 for corporate bodies. This means that an individual who withdraws or deposits more than N500,000 will  have to pay some amount of money to their bank as charge, while a corporate body withdrawing or depositing more than N3,000,000 will face the same situation. This policy excludes microfinance banks (MFBs) and primary mortgage institutions (PMIs). The country’s apex bank believes that the new policy is not aimed  at eliminating the amount of physical cash (coins and notes) in circulation in the economy, rather it is meant to reduce it, while encouraging more electronic-based transactions (payments for goods, services, transfers, etc).

One of the thrusts of this policy is therefore to eliminate incidences of robbery, theft and cash-related crimes, like the incident involving John, which was earlier cited. Again, there have been cases where huge sums of money were lost to fire or flood. Ask those who were hit hard by the flood that engulfed the country in 2012 and they will tell you.

Again, the policy is meant to reduce high cost of cash along the value chain – from the CBN and   the banks, to corporations and traders. Experts have always said that handling large cash costs everyone something. Apart from explicit costs which can easily be calculated in monetary terms, there are other implicit and opportunity costs that can be borne by people along the chain.

For instance, consider a situation where a building contractor, who pays workers and artisans by cash, loses N2 million meant to pay wages. The situation does not just mean a loss for him; it also means that his workers will not get their wages. Worse still, money has been taken from someone who makes higher contribution to the economy to some other person who makes less. Even though the robber may spend the money on leisure, still in the economy, he may not create employment like the contractor.

 Again, much of the money may go to the informal economy, which is part of the economy that is not taxed, monitored by any form of government or included in any gross domestic product (GDP).        

Moreover, the CBN analysis has shown that only 10 percent of daily banking transactions are above N150, 000. Incidentally, the 10 percent accounts for majority of the high value transactions, meaning that the entire banking population subsidises the costs that the tiny minority 10 percent incurs in terms of high cash usage. This policy will thus eliminate it.

There have been stories of politicians and those who control the commonwealth of ordinary Nigerians laundering huge sums of money. There have also been cases of advanced fee fraudsters rushing to the bank to withdraw money obtained from swindling their victims. Cashless policy has the capacity to reduce all these to a minimum.

In essence, the policy will drive development and modernisation of Nigeria’s payment system while reducing the cost of banking services (including cost of credit) and driving financial inclusion by providing more efficient transaction options and greater reach.

Again, it will eliminate high cash usage outside the formal economy, which is a common phenomenon. This has the capacity to improve the effectiveness of monetary policy in managing inflation and driving economic growth.

 Impediments

Anthony Odiette lives in Lagos, South-West Nigeria. Since ‘Cashless Lagos’ began, he could not withdraw more than N500,000 and often resorted to the Automated Teller Machine (ATM) to make up.

He had withdrawn the money at exactly 3.55 pm, leaving him with just five minutes to do his transactions.  

Having withdrawn N500, 000 this Monday, he needed extra N100, 000 and had to rush to an ATM machine. He slotted his card and the machine read, ‘Your financial institution is not available.’ It was a battle as all the nearby ATM machines did not give him money.

“The financial infrastructure in Nigeria is not adequate to carry the load of a cashless society; ATM’s, Point of Sales system, 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,’’ said Ernest Simeon Odior and Fadiya Bamidele Banuso, lecturers at the University of Lagos, in their article entitled, ‘Cashless Banking In Nigeria: Challenges, Benefits And Policy Implication.’

“What happens to electronic fraud?,’’ queried Chukwunonso Iheonu, an economist.

“How many people who lost money to ATM fraud cases have recovered same? In a country where laws are not strong, where it is difficult to trace fraudsters and thieves, it is clear that e-fraudsters will gear up as they know that much more transactions will now be done online,’’ he added.

“It is an excellent policy, but what measures will be put in place to check fraud?’’ he asked.

Chinedu E. (surname withheld) wanted to leave the country for the United Kingdom. Two days to his departure, he received bank’s alerts. His N150,000 and N120,000 had been withdrawn on a Saturday and banks do not work on weekends. By Sunday, the N410,000 in the account had gone to the wind. On Monday, he complained to his bank. The branch manager promised to ‘do something about it.’

Two years on, nothing has been done.

The CBN is well in the know of the situation, having mandated all deposit money banks (DMBs) to install anti-skimming devices on all their ATMs terminals in order to check fraud.

The apex bank has in addition to the existing guidelines on card related frauds  mandated all banks to comply with the provisions of 3.2 “ATM Operations” and 3.4 “ATM Security” of the Standards and Guidelines on ATM operations in Nigeria, while also installing risk mitigating devices on their ATM terminals.

“But Nigerian fraudsters are smart. Once it begins, they will look for a way of making a living out of it. They know, for instance, that many customers who complained of ATM or online fraud to their banks only get blamed,’’ said Uster Eniele, a social critic.

“Another major concern would be the risk involved, because if the process is rushed and the economy losses confidence in the system due to high level of fraudulent activities, it will be devastating to the Nigerian economy,’’ said Ernest Simeon Odior and Fadiya Bamidele Banuso.

 “But this cannot work when there is constant power outage. This cannot work when the internet in banks are often down. I wonder the volume of transactions that will be left undone when this policy begins,’’ says Ibikunle Odiokor, a financial expert in the United Kingdom, who had a telephone chat with BD Sunday.

Other experts have added that high level of illiteracy could hamper the successful execution of this policy. Literacy level, especially in the North, is still low, meaning that business men might still prefer to keep their money in their own vaults rather than in banks as they will feel better with such than go through technology hassles.

 CBN, others allay fears

 Kingsley Moghalu, deputy governor, Financial Services Stability, Central Bank of Nigeria (CBN), recently disclosed that in readiness for the full implementation of the cash-lite policy nationwide, that  the “POS deployment has increased geometrically from just over 5000 in 2010 to 153,167 as at April, 2014. POS transactions recorded were 1,624,564 valued at N24,098,036 transactions in the month  of April 2014 compared to a mere  3,197 transactions valued at N99,657,191 in January 2012. Fourteen (14) mobile money operators out of the 20 licensed operators have gone commercial and account for 28,090 transactions valued at N596,173,990 in April, 2014 more payment terminal service providers (PTSPs) have been licensed to facilitate the provisioning of POS’s for merchants who have indicated interests in their banks.”

Moghalu said that the Central Bank was encouraged to move on with the full implementation of the policy because, “Given the experiences gained from the pilot in Lagos and the ensuing acceptance of the policy in the states under Phase 2 of the policy, we have every reason to be optimistic. We received cooperation and support from the political leadership of the states under the policy with records of improved revenue generation after embracing the e-culture.”

According to him, “The issue of infrastructure lag is being addressed and collaboration with NIGCOMSAT in leveraging on cloud technology is being pursued in this regard.”

Caroline Anyanwu, deputy managing director, Diamond Bank Plc also toes the same path, saying that whatever challenges that are currently being encountered are teething problems which are also surmountable.

Although she recalled that there are complaints over inconclusive transactions arising from system failures, or what she called telecommunication challenges, she noted that such disappointments are not frequent.

“It is true that the major challenge is telecommunications because it is not in place, you do transaction and it hangs (inconclusive). But then, what I say to people is that it happens once in a thousand transactions. It is not so significant as to discredit the policy. Today, we have a lot more people doing internet-based transactions than we had some two, three years back.

 Piece of advice

Mark Smith, Business Development Director (Africa), Travelex Group; at a recent seminar, urged the CBN not to be in a haste to go full blown with the policy.

According to him, “a mixed purse is the best solution and the percentage of cash to card transactions will change with time.”

According to him, “a cashless society does sound appealing; however, for personal and business travelers, let’s not get ahead of ourselves… Cash is, and will remain trusted as central banks all over the world continue to produce new banknotes with features such as multi-layered holograms, new inks and new materials.”

 

ZEBULON AGOMUO AND ODINAKA ANUDU