News Column

Cashless Policy - Nigeria Goes Full Throttle to Recover Lost Ground

June 9, 2014

The recent recalibration of Nigeria's Gross Domestic Product (GDP), which has catapulted the nation's economy to the prime position in Africa, has brought to the fore the dire need for the country to put its shoulders to the wheel in order to address yawning gaps in its development process. This imperative hardly requires further emphasis because as Business Editor, ANDY NSSIEN, reports, South Africa, which is now playing the second fiddle as the largest economy in Africa, is still head and shoulders above Nigeria in economic development matrices.

Last week, the cashless policy introduced by Central Bank of Nigeria (CBN), took off nationwide after the pilot scheme commenced in Lagos in 2012 and in five states and the country's capital city, Abuja, last year.

In a display of the age-long aphorism that it is better late than never, the policy is being implemented in Nigeria after South Africa has made an imprint in an effort to achieve a cashless economy.

South Africa and Kenya are the countries that have most significantly adopted cashless payments systems in Africa.

According to The Cashless Journey report, 43 per cent of South Africans and 27 per cent of Kenyans had wholly adopted the cashless system for settling bills, buying goods and paying for various services at restaurants, among others, with the number rising sharply due to reliable mobile phone cash transactions.

The report, produced by MasterCard Advisors, covered 33 countries across the world.

At the global level the survey identified Belgium (where an estimated 93% of the value of consumer spend was cashless), France (92%), Canada (90%), the UK (89%), Sweden (89%), Australia (86%) and the Netherlands (85%) as countries where cashless payments are nearly ubiquitous, and attributed the broad movement away from cash to the uptake of new cashless payment technologies such as mobile, contactless and EMV Chip and a modern payments infrastructure.

Countries such as the United States (where an estimated 80% of the value of consumer spend was cashless) and Singapore (69%) are approaching the "tipping point" to becoming nearly cashless, and remaining cash use is largely a product of consumer habit.

Conversely, emerging economies such as Indonesia (31%), Russia (31%) and Egypt (7%) are just embarking on their cashless journey, but are in many cases changing cash share of payments at a much faster pace than developed nations.

However, in Nigeria, although the exercise took off late, a measure of success has been recorded in the areas where the ,pilot schemes were implemented.

Speaking after a decision was reached to implement the scheme nationwide, the Head, Shared Services, Central Bank of Nigeria (CBN), Chidi Umeano, said the move was made as a result of the success recorded in states where the policy had been implemented.

Umeano expatiated more on the rationale for nationwide implementation:

"A decision was reached today that the cashless initiative would now be deployed nationwide. From the success we have recorded in those areas, we have now decided as an industry to move it to other states in the country.

"In other words, by July 1, we are going live in all the states of the federation. As you well know, this is a critical part of the payment system modernisation and the success registered so far has been very impressive."

While stating that there has been a significant improvement in electronic banking channels, he reached out for the statistics.

He put the value of daily transactions on the Nigerian Electronic Fund Transfer at N123 billion and N50 million for Point of Sale (PoS).

However, the scheme did not start off without teething problems.

Customers had complained that banks were not pro-active enough to tackle the problems associated with the use of ATM.

For instance, the rate at which accounts were debited when cash was not dispensed by the ATM) was on the increase. More worrisome was the fact that in some cases, customers had to complain several times before such transactions were reversed. Worst hit by this lapses were customers that did not operate alert services who might never be able to ascertain if such reversals were effected or not.

There was the problem of non-deployment of ATMs to areas where ordinary people were living to enable them transact businesses that involve cash. The machines were also lacking in some airports where customers could use to transact business.

Added to these were doubts on availability of the required technology to support the policy as well as the right enlightened populace to use them for their business transactions. For many customers in Lagos, where the pilot stage took off, while the policy may have brought some convenience, the technological hitches and security of funds had remained a major source of concern.

However, the CBN believed that the policy had been a success at the pilot stage and then decided to go ahead with the propagation of the cashless policy in the Federal Capital Territory (FCT) and other states of the country such as Abia and Ogun.

According to the initial timeline released by the CBN, the policy was to be extended to other parts of the country in June 2012, before it was postponed to January 1, 2013, and again to July 1, 2013.

However, the then CBN governor, Lamido Sanusi, affirmed that the policy was not being pushed forward, but only the charges as was done when it commenced in Lagos State.

According to him, "We have not pushed forward cashless policy. If your remember when we started in Lagos, for the first three months, we suspended the penalty, we wanted to give an opportunity for customers to be enlightened, for people to understand what it is, even for people to understand the implications.

"So, if you are a heavy cash user, you have three months in which your bank tells you that if you continue taking cash at this rate every day this is what the charge will be to your account. Or if you continue depositing so much in cash, this is how much you would be losing", he added.

Sanusi said in order to widen the scope of operation, the CBN had licensed some Mobile Scheme Operators who operated mobile payment transactions with the view to bringing the unbanked or the financially excluded into the banking culture and shore up their access to credit facilities.

As part of efforts to improve security of transactions, the CBN plans to introduce biometric authentication of bank customers in 2015 using Point of Sale (POS) and Automated Teller Machines (ATMs).

Sanusi said that the introduction of biometric authentication was to address the safety of customers' funds and avoid losses through compromise of Personal Identification Numbers (PIN).

According to him, Biometric authentication for POS and ATMs to address safety of customers funds and avoid losses through compromise of PIN is being considered and to be implemented by 2015.

Sanusi said the bank was aware of the problems being faced by Nigerians since the introduction of the cash-less policy and assured that the Apex bank was doing all it could to mitigate them.

"No doubt, with the introduction of cashless society, there would be prevalent use of credit card to perform transactions on ATM, POS and internet banking, and these transactions would have to pass thought the public infrastructure which are prone to cyber threats as being experienced in developed economy of the world. Case of debit and credit cards cloning are other vulnerable areas that need urgent attention for the country to reap the benefits of cashless society , he said.

However, unlike Belgium , France and Canada where the level of cashless spending was 90 per cent and above, Nigeria's cashless policy is not intended to eliminate the use of physical cash for payment but to reduce it.

Former acting governor of CBN, Sarah Alade, who gave this hint said the apex bank had commenced the repositioning of the nation's financial system so as to address current challenges and transform Nigeria into a world class economy.

Alade identified robberies and cash related crimes, kidnapping, election rigging, revenue leakages, inefficient treasure management and corruption as some of the challenges associated with cash economy.

She said apart from the cashless regime meeting the Federal Government's Vision 2020 requirement, it would modernise Nigeria's payment system and reduce the cost of credit banking services.

It would also drive financial inclusion, improve effectiveness of monetary policy, reduce high security and safety risk as well as reduce high subsidy, she added.

The erstwhile acting governor said in order to make the policy effective and less stressful to Nigerians, the apex bank would enlarge the financial contact points to include areas such as the post offices, motor parts and corner shops.

The introduction of the cashless policy might be achieving some objectives as the volume of raw cash in circulation dropped by 10.7 per cent in January this year to N1.457 trillion, in contrast to an increase of 4.2 per cent at the end of December 2012. The development, according to the January Economic report of the CBN, reflected the 11.2 per cent decline in amount of currency outside banks. In February, the currency-in-circulation fell by 1.9 per cent compared with 10.6 and 12.3 per cent at the end of the preceding month and end-December 2013, respectively. This development, relative to the preceding month, largely, reflected the 5.6 per cent decline in its currency outside banks component.

The cash-less policy, first introduced in Lagos on January 1, 2012, is migration from cash-based economy to electronic payment channels.

It principally includes e-payment, using cheques, Point of Sale (PoS) and Automated Teller Machines (ATMs) and mobile money, among others.

Essentially, it is aimed at breaking down the traditional barriers hindering financial inclusion of millions of Nigerians and bring low-cost, secure and convenient financial services to urban, semi-urban and rural areas across the country.

Some customers of the banks told Sunday Independent that as much as the scheme is desirable, more efforts is required from the authorities to ensure its success.

A customer with one of the new generation banks, Chike Mba, said apart from sustained enlightenment programme on the policy especially at the grassroots level, deliberate attempts should be made to encourage the installation of more ATMs in rural areas to facilitate business transactions.

The issue of insecurity at the sites of some of the ATM machines, according to him, tended to discourage users who are apprehensive that they could be robbed, stressing that there was need for security operatives to keep an eye on these locations every time.

Added to this is the unreliability of these machines which at times failed to dispense money when needed by their customers on grounds of system failure. This is worsened by the fact that if there are problems associated with withdrawal errors in the ATMs, there are no immediate response or rectification especially when this happens during the weekends.

Besides, Mba said many fraudulent cases involving the ATM perpetrated by some bank staff and their outside collaborators are enough to discourage people from the use of the system and urged the CBN to introduce full proof measures to ensure safe operations.

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Source: AllAfrica

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