Last week, a video of a bus conductor pasting a flier at the back of a bus urging would-be commuters to pay with the ‘Cowry card’ may be one of the major signals that Nigeria’s push for a cashless economy is finally getting to the grassroots.
The video which has now gone viral shows the conductor demonstrating how the card is used. A commuter hands over a Cowry card – a debit card developed by a company known as Cowry, to the conductor who takes it and proceeds to scan the card on a PoS terminal. In less than 30 seconds the transaction is recorded on the terminal. The conductor hands over the card and collects another card to go through the same routine.
The entire transaction process looks seamless and makes for a picture-perfect story of success in moving Nigerians to cashless platforms only if everyone had similar experiences using electronic payment channels or deploying electronic payment solutions. But another viral video of Nigerians in a long queue fighting each other to use an ATM says otherwise.
Going cashless is an ambition of the Central Bank of Nigeria (CBN) that goes back to 2012 when the apex bank moved to implement its first policy in Lagos. The CBN views the cashless policy as a means to reduce the amount of physical cash in circulation thereby encouraging the use of electronic platforms for settlement or payment for goods and services.
Nigerians love to use their physical naira. According to different reports, about 90 percent of transactions are still carried out in cash despite the introduction of various electronic modes of payments, including banking agents, Universal Supplementary System Data (USSD), Point of Sale (PoS), mobile bank transfers, mobile money, and QR codes.
“We believe that a lot of electronic channels have been put in place that will aid people in conducting banking and financial service transactions in Nigeria,” Godwin Emefiele, the governor of the central bank said in November after a meeting with President Muhammadu Buhari on the plan to introduce new naira notes.
“I think it is important for me to say that the cashless policy started in 2012: but on almost three to four occasions we had to step down the policy because we felt that there is a need for us to prepare ourselves and deepen our payment system infrastructure in Nigeria.”
Policies introduced by the CBN include pegging individual withdrawals at N500,000 and corporate withdrawals at N3 million in 2012. The processing fee for withdrawals above the limit for individual customers was put at three percent while corporate was at five percent. However, last year, the CBN reviewed the withdrawal for both individuals and corporates downward. An individual can only withdraw N20,000 daily and a maximum of N500,000 while corporate organisations are restricted to N3 million cash withdrawals.
The CBN cashless policy has led to the expansion of various payment channels across the country. For example, the number of Automated Teller Machines (ATMs) rose from 10,865 in 2011 to 19,355 in 2021. The number of PoS terminals rose from around 155,000 to 1.1 million as of April 2022. And the number of active banking agents is over 1.9 million according to data from SANEF.
The expansion is also expected to grow with the latest policy of redesigned naira notes, a situation that has led to the volume of cash in the market dropping drastically, affecting many small businesses and individuals that depend on cash for transactions. With the new naira notes unavailable, many more people are turning to electronic payment to conduct their transactions.
Nevertheless, Nigerians do not always have it as easy as the bus conductor in the video in terms of conducting transactions via the channels.
“It took a roulette of three cards and three PoS terminals, four declined transactions that I was debited for, and an eventual transfer to buy one cup of coffee,” said Ismaila Sanusi, founder of Colab, Kaduna’s first innovation hub.
Entrepreneurs with ideas to improve the cashless drive are not also finding it easy. Surayyah Ahmad, the founder of YDS, an online store based in Abuja, said she and her team had started a payment app, similar to Cowry, meant to allow merchants to use a device that looks like Square – the US-based payment app – to get simple transactions done, but it did not work.
“The terminal owner policy at NIBBS and the CBN at the time made it extremely frustrating and we left it,” she said.
It is not only a case of payment channels not working efficiently or a tough business environment for technopreneurs. Banks are also not living up to consumers’ expectations. Last weekend, Umar Ganduje, governor of Kano State, in trying to explain his decision to cancel a planned visit of President Muhammadu Buhari to commission some projects in the state said there was no bank presence in 24 local governments in the state. There are 44 local governments in Kano State. In other words, over half of the states do not have banks.
The number of bank branches across the country reduced from 5,392 in 2019 to 5158 branches in 2020. Not much has changed as of 2022 given the economic meltdown the country has been facing and the banks investing more in their digital banking platforms. This often implies that customer complaints are not easily resolved. This leaves greater pressure on the payment channels. Bank ATMs are malfunctioning more frequently than they do in the past due to the increased demand for their services.
“It’s not e-banking; it’s cashless. The problem is everyone equates only banks with cash, thus cashless must relate to banks,” says Kalu Aja, a personal finance expert. “Every NIN-enabled phone today in Nigeria is a no-fee “bank”. It can send and receive cash, with SMS, no need for the internet.”
Most of the traffic is moving to point-of-sale transactions. Unfortunately, the infrastructure is not evenly distributed. Between 2017 and 2022, the number of PoS terminals in Nigeria grew significantly, from around 155,000 to 1.1 million as of April 2022. About 60 percent of those terminals are domiciled in Lagos which also has the largest concentration of banking agents at over 281,631. It is also the state with the highest agent per 100,000 adults at 3,412 agents per 100,000 adults. On the other hand, Yobe State with largely rural dwellers has the lowest number of agents at 8,194 while Jigawa has the lowest number of agents per 100,000 at 330.
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Apart from the banking agents not being everywhere as expected, cases of PoS transactions declining or not completed are rising.
Zebulon Chike, a trader who recently tried to make payment through a PoS terminal was left stranded when the N20,000 he transacted declined, and the merchant could only advise him to go to his bank for reversal. Bank reversals now take up to 10 days or more.
Charles Omole, a national security policy reform expert, said that the CBN cannot run ahead of the infrastructure limitations of Nigeria. To achieve a cashless policy, the apex bank needs to ensure the expansion of the banks’ physical infrastructure. He recommends one bank for every local government area, the number of base stations needs to at least double, and reversal of declined but debited transactions should be within 48 hours
The number of base stations in the country stood at 53,460 in 2020. In December 2022, President Buhari said the country grew the number of 4G base stations from 13,823 in August 2019 to 36,751.
“When all these are in place; Nigerians will embrace cashless transactions without any problem,” Omole said.
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