News Column

N65 ATM Charge - Another Forced Gift to Nigerian Banks

August 17, 2014

Marcel Mbamalu

THE Central Bank of Nigeria (CBN) last week reversed itself on Automated Teller Machine (ATM) fees, thus stirring another controversy on bank charges. The apex bank had announced N65 charge on every 'Remote-On-Us' ATM withdrawal; 'Remote-On-Us' transaction meaning those carried out on machines belonging to other banks.

The CBN and the Deposit Money Banks (DMBs) had, in December 2012, cancelled the N100 charge on ATM withdrawal from "other banks." The policy was introduced by immediate past governor, Sanusi Lamido Sanusi, less than 16 months after assuming office in 2009. The banking regulator also outlawed out-of-bank ATMs, forcing banks to dismantle machines sited at hotels and other 'outside' locations after putting up a feeble fight against the policy.

The reason for the re-introduction of the policy on Wednesday last week, according to Godwin Emefiele-led CBN, is to help banks cut their "losses" as operational costs continue to put their balance sheet in jeopardy.

The directive was contained in a circular dated August 2014 and signed by the apex bank's Director, Banking and Payment Systems Department, Mr. Dipo Fatokun. The new policy will take effect from September 1, 2014. In a preemptive move to soothe nerves, the circular pointedly stated that the first three withdrawals in the month of September on other banks' ATM would be free as the charges would actually start counting from the fourth withdrawal.

It reads in part: "The CBN hereby issues the following directives: The re-introduction of 'Remote-on-us' ATM cash withdrawal transaction fee, which will now be N65 per transaction, to cover the remuneration of switches, ATM monitoring and fit-notes processing by acquiring banks; the new charge shall apply as from the fourth 'Remote-on-us' withdrawal (in a month) by a cardholder, thereby making the first three 'Remote on us' transaction free for the cardholder, but to be paid by the issuing bank. September 1, 2014 shall be the effective date for the implementation of the new charge; banks are expected to conduct adequate sensitisation to the customers on the introduction of the new fee; all ATM cash withdrawals on the ATM of issuing banks shall be at no cost to the cardholder."

The brewing controversy around this as at yesterday centred on two major questions, the first being whether, or not, the general N65 charge on withdrawal (irrespective of the amount) would not discourage ATM use and create congestion problems for the already-troubled banking halls.

CBN's regulation of banking business has, over the years, focused on decongesting the banking halls, the purpose of which is at the very heart of its 'cashless' policy that has drawn so much hype to itself. Already being enforced in the 36 states of Nigeria -- after the pilot (cashlite) scheme that started in Lagos and moved on to Abuja, Port Harcourt and others -- the cashless policy puts specific pegs on cash transactions to encourage Cheque, mobile, internet and online fund transfers. It created cash deposit and withdrawal limits, as well as a vibrant market for point-of-sale machine (POS) and card payment system. While the policy gradually gained acceptance, the apex bank explained that the idea was to reduce costs incurred by banks in managing cash as well as decongest the banking halls. To this end, banks themselves gradually evolved internal policies to discourage cash withdrawals below certain thresholds within the banking halls, instead advising customers to "use the ATM"; some of them (banks) even place charges on "in-house" cash withdrawals below N100,000.

Since the new fee is charged on the fourth and subsequent usage of ATM per month. Basic implications may be that it will discourage the financial inclusion and cashless banking motives/agenda of the CBN.

Robert Odiachi, Chairman of SIAO agreed with this hypothesis in an electronic mail exchange last night: "It does not favour customers of banks with small branch networks. Banks are actually trying to remove the burden from themselves of the cost despite the huge billions declared as profit every year from credit interest and bank charges. And why is it fourth withdrawal every month? They should make it second withdrawal everyday. The limit has no economic meaning when there is a limit of withdrawal, which has already set customer drawing habits,' argued Odiachi.

Analysts believe that, with the N65 fee on ATM withdrawals, long queues are to be expected, a situation that could cause general dissatisfaction and greater demand for cash holdings.

"There will be more pressure at some bank ATMs, which will lead to high inefficiencies and losses to customers, including through corrupt practices by bank officials. The resulting restriction of banking to its customers, as will happen in general, will kill competition as banks can now be rest assured that a majority of their customers will be restricted in their assessments and will no longer be able to 'port'.

Already, banks make a lot from savings of customers, while paying little or no interest, he argued.

Drawing from the above analogy, another question -- even though banks would argue otherwise -- is whether, or not, this would not amount to extension of the rip-off by banks, which are already contradicting (discouraging) the very essence of the cashless policy by putting high charges on bank transfers. It should be highlighted that the cashless policy (even though the new CBN governor has placed same on suspension) allows charges on deposits and withdrawals exceeding certain thresholds for individual and corporate accounts to encourage such transfers.

But consequent upon the criticisms trailing the new N65 ATM withdrawal charge (which has the potentiality of driving traffic back to the banking halls as customers would want to avoid unnecessary withdrawal costs), the CBN made frantic moves at the weekend to explain the action; it even denied fresh introduction of new charges on ATM withdrawal.

Mr. Fatokun, the same CBN official that announced the N65 ATM charge, said it was not a reintroduction. "You have to agree with me that when the amendment was made in November 2012, it used to be a N100 for any remote-on-us withdrawal that you did. And you know that the remote-on-us is when you as a cardholder goes to the ATM of a bank other than your bank to withdraw cash. It was removed then so that people would be encouraged to go to other ATMs without paying for it," Fatokun was quoted as saying after making a presentation at the Nigeria Electronic Fraud Forum in Lagos.

"But the truth is that as we said in the circular on the introduction of Fees on Remote-On-Us ATM Withdrawal Transactions recently, that N100 included the N35 that goes to the issuing bank, which has now been completely waived. The issuing bank does not make any thing, but in going to other ATMs to make withdrawal, your bank, that is, the acquirer bank, incurs cost of N65, which they pay to the switches and the owner of the ATM that you are using."

The CBN, arguing from the viewpoint of reduction -- from N100 to N65 -- would explain that the N35 that would have gone to banks as income is not being charged this time around. The rationale for this is that it is a cost to the commercial banks, especially as some people can go there to withdraw as little as N500 many times since they bear no cost.

However, the minimum amount that can be withdrawn is set on the ATM and has been built into the operational expenses against which costs are absorbed and profitability options and possibilities worked out. Someone withdrawing N100,000, for example, will then have to be charged N325; and this is not funny. Will banking costs impoverish and add greater burden on customers?

Making a u-turn from his line of argument (helping banks to offset their ATM costs) Fatokun said cardholders abused the ATMs within the less than two-year period the N100 charge was removed, implying that the 'reintroduction' was to entrench financial discipline among cardholders.

He observed that: "Between 2012 and recently when the review was done, it was discovered that people have actually turned ATMs into their personal purses because nothing is charged. Somebody needs N500, or N1000, he will go to ATM and withdraw, he needs N2000, he will go to ATM and withdraw, so that in a day some people can patronise ATM for up to four or ten times. That has created a huge cost burden for the banks that issue the cards.

"So that is why we said, you can go to an ATM other than your bank ATM to withdraw up to three times and no charges would be imposed on you, but it is when you make the fourth withdrawal that you will pay the N65 that ordinarily your bank would have paid on your behalf. But of course, if you go to your bank's ATM, the issuer, for withdrawal, you can withdraw as many times as you like without being charged. So, it does not discourage financial inclusion."

But the banks may not celebrate yet, even as the apex bank 'markets' the new ATM charge to Nigerians. Indeed, the central bank may have helped them shoot themselves in the foot. And the reason is simple: Although cash withdrawal -- in spite of a number of innovative services being made available at many ATMs -- still remains the most accessed service, the migration of routine bank transactions like cash withdrawals and balance enquiries from teller counters to ATMs significantly raises the potential for savings in employee costs and greater employee focus on value-added revenue-enhancing activities such as selling other financial products and advisory services to customers.

Fatokun's explanation of the N65 ATM fee notwithstanding, many bank customers still think that the return of already scrapped fee on ATM withdrawals, barely two years of 'respite' from that aspect of banks' many spurious transaction charges, is nothing but an introduction of new charges. Whether, or not the banks deserve the fee, considering their huge operational costs as claimed, will continue to be a subject of controversy.

"That's the concern that I have, need to convince myself that the banks do not deserve the fee," said Mr. Moritz Abazie, the managing director of the Port Harcourt-based Strides Energy and Maritime Limited, in an SMS exchange last night.

"I really do not quarrel with economic charges," Mazi Sam Ohuabunwa, president of the Nigerian-American Chamber of Commerce and past president of the NESG, on his part, told The Guardian. "I presume that it costs money to service and maintain ATMs. So, somebody must pay for it for sustainability. In a functioning economy, there is no free lunch. The only caveat is that the CBN must watch to ensure the charges are not excessive, because the banks are notorious," he concluded.

In the same vein, Pastor Ituah Ighodalo, the Managing Partner at the SIAO, a Nigerian professional services (accounting and Auditing) firm, said there would be nothing wrong for banks to recoup costs. "To be honest, every service has a cost; there is nothing wrong cost being recouped, charges should just be appropriate and not exploitative,' Ighodalo said.

But Mr. Odiachi, he chairman of SIAO, has a different view. "Actually, the 65 naira is the amount charged by the switch. This is likely to include cost plus mark up and is actually being passed to the bank customer. If it was an efficient billing system the cost will not be variable or based on a variable process that cannot be easily verified/checked by customers," he said.

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Source: AllAfrica

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