The cashless policy (and the new directive on charges on cash withdrawals and deposits) is not a new initiative. It was introduced in 2011 and was already being implemented in Lagos by 2012.
According to the plan, Rivers, Abia, Kano, Ogun, FCT, and Anambra would go on trial in 2013 in preparation for actual takeoff in 2014. Like everything Nigerian, that plan experienced some setbacks. The objective is to achieve 70% cashless transactions by 2020, a target that’s now impossible to attain.
In preparation for that, the Federal Government set some targets for expansion in automated payment infrastructure and platforms. This includes achieving 203.6 ATM units and 856 POS units per 100,000 adult population by 2020 among other targets.
Today, with barely a year to the 2020 deadline, the number of ATM units per 100,000 adult population is around 20, far below the set target of 203.6 ATM units. That’s where the problem lies.
The Federal Government has obviously not fulfilled its own part of the bargain which is ensuring the expansion of cashless service outlets by mandating banks and financial institutions to invest in expanding their cashless infrastructure and service outlets to accommodate the rapidly rising needs of financial consumers.
The Central Bank of Nigeria has also failed in advocacy, leading to low-level financial literacy and low acceptance and patronage of cash-less financial service platforms among consumers.
In 2018, 53% of all POS transactions occurred in Lagos, followed by Abuja, Ogun, Rivers (7% each) and Delta (4%) according to a report by NIBSS. Simply put, 5 Nigerian states account for 78% of all POS transactions in a country that wants to achieve significant financial inclusion by 2020.
The quality of service is also another cause for concern, which is directly attributed to the robustness of the payment infrastructure, financial literacy among consumers and the regulatory effectiveness of CBN.
In 2018, 15% of POS transactions failed, casting doubts on the integrity of the payment system. Even though this failure rate will drop to 5% if we discount customer error, it still presents a major challenge to the Nigerian Inter-Bank Payment Settlement System (NIBSS) which is the body that ensures the success of online transactions between two parties.
There is no doubt that our economy stands to benefit a lot from cashless transactions. The CBN spends a lot of money printing new currency and destroying old ones.
The cashless policy will help reduce that burden, provide an electronic trail for all transactions and therefore reduce money laundering and corruption.
It will also help shrink the informal economy, making monetary policy even more effective and help widen the tax net fiscally.
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Contrary to popular misconception, the policy will actually serve the poor if properly implemented. Only 10% of all daily bank transactions in Nigeria are above N150,000 (in a country where about 88 million people live on $1.25 USD or N450 per day and far below the 500,000 naira CBN imposed limit).
However, that 10% account for over 90% of the total value of all transactions. The cost of handling such cash is borne by all consumers, meaning, we have the 90% non-high-transacting majority subsidizing the 10% high-transacting minority.
With the new policy, the cost of handling wholly transfers to the high-transacting 10%. And for those benefits to truly materialize, the CBN should provide the enabling environment and engage in sustained advocacy for a smooth takeoff.
Because as long as our banks are still deliberately refusing to invest in and expand their automated payment platforms, any enforcement of the cashless policy, like the one we are having now, is indirectly transferring the burden of inconvenience to the Nigerian consumer. This will require a great deal more than official press releases to convince the average Nigerian that this is not another policy to further strangulate them economically.
By Ahmed Musa Hussaini
