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Nigeria’s long, tortuous road to enthroning cashless transactions

By Adeyemi Adepetun
17 March 2023   |   3:27 am
It has been a tortuous road to modernising Nigeria’s payment system. In fact, if happenings these past weeks are anything to go by, the country is still far from enthroning an efficient, cashless society owing to the near collapse of the banking system...


It has been a tortuous road to modernising Nigeria’s payment system. In fact, if happenings these past weeks are anything to go by, the country is still far from enthroning an efficient, cashless society owing to the near collapse of the banking system, because it has been over-stretched. The numerous reports of downtimes experienced by banks and Point of Sales (PoS) networks within the six weeks showed that cashless is easier said than done! Though laudable, it is another example of a poorly executed plan by the CBN.

The Guardian gathered that at super markets, grocery malls and others, electronic transactions were at their lowest ebb because of various failed transactions. Those who spoke to this newspaper said they have been spending several hours at super markets owing to the delays brought about by either slow or failed electronic transactions. Bank transfers by people never got to their destinations, yet monies were debited and no reversal done by defaulting banks.

Since CBN introduced the policy over a decade ago, the experience has not been seamlessas a result of its many challenges. It actually started in 2011 with focus on making the policy effective, help the nation to achieve its Vision 2020 targets, help modernise payments system and reduce the cost of banking services (cash handling constitutes 30 per cent of the operational costs in the financial system) as of 2011.

Other goals include, helping stop a situation where 90 per cent of the poor are subsidising the 10 per cent, who impose the huge cost of cash handling on the system, foster transparency and curb corruption/leakages; and drive financial inclusion.

ON January 1, 2012, Phase 1, the pilot scheme of mobile money, one of the financial services introduced by the Central Bank of Nigeria, via a CBN circular Ref. No. COD/DIR/GEN/CIT/05/031 dated April 20, 2011; to achieve a cashless economy took off in Lagos State with the aim of achieving an environment where a higher and increasing proportion of transactions are carried out through cheques and electronic payments in line with the global trend. The statistical evidence provided by CBN in 2012 revealed that cash-related transactions accounted for 99 per cent of customers’ activities in Nigerian banks as of December 2011.
It estimated that the total cash transaction volume through the conventional five payment channels to be 215,015,005 transactions in December 2011. Of this figure, ATM withdrawal accounted for 50.9 per cent, over-the-counter (OTC) withdrawal, 33.72 per cent and cheques 13.56 per cent, Point of Sales (POS) and web channels accounted for 0.49 per cent and 1.26 per cent respectively. Obviously, the combination of ATM and OTC withdrawals amounting to 84.96 per cent justifies the claim of the CBN that the Nigerian economy was heavily cash-based and the imperative for cashless economy.
Further, a cash-based economy also imposes some costs on the banking system, individuals, and the government. The higher the velocity of cash usage, the higher the processing cost borne by those in the value chain.  There is, for instance, the cost of printing new notes to replace the ones that are torn or worn out due to frequent handling.
CBN (2011) stated that this cost is high and also on the increase hence the attempted redenomination of the currency. It puts the direct cost of cash to the Nigerian financial system as of 2009 at a colossal amount of N114.5 billion. (The figure is based on actual data from the CBN and 17 banks in the FSI). It excludes bank cash infrastructure cost and employee costs attributable to cash logistics. This amount is broken down into: cash in transit cost N27.3 billion (24 per cent), cash processing cost N89.1billion (67 per cent), and vault management cost N18.1 billion (nine per cent).  The estimated cost of cash by the end of 2012 was put at N192 billion. Clearly, this evidence provides a platform for migration to cashless economy. The policy subsequently moved from Lagos to other parts of the country in different phases.

The banked and unbanked Nigerians
CHECKS showed that as of 2022, World Bank, in a report, listed Nigeria among the top seven countries with a sizeable part of the population unbanked.The report, titled, ‘The Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19’, revealed that about 64 million of Nigeria’s 200 million people still do not have an account with a financial institution or mobile money platform.

The report also showed that of the world’s 1.4 billion unbanked population, over half or 740 million come from seven economies, including Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.

According to the report, the number of Nigerians with accounts at regular institutions such as a bank, credit union, microfinance institution, post office or mobile money service provider increased by 16 per cent to 45 per cent in 2021.

Similarly, it found that global account ownership increased by 50 per cent from 51 per cent in 2011 to 76 per cent in 2021. Indeed, the Enhancing Financial Innovation & Access (EFInA) in Nigeria 2020 Survey showed that 51 per cent of Nigerian adults are using formal financial services, such as bank, microfinance bank, mobile money, insurance, or pension accounts, up from 49 per cent in 2018.

This has largely been driven by growth in banking, with 45 per cent of Nigerians banked in 2020, up from 40 per cent in 2018. Growth in digital financial services and agent banking highlight opportunities to drive faster progress toward financial inclusion and subsequently cashless economy, particularly, for excluded groups such as women and those in rural communities.

Although financial inclusion has grown in the past decade, Nigeria fell short of the National Financial Inclusion Strategy targets for 2020. The country had aimed to reach 70 per cent of Nigerians with formal financial services by 2020; the actual figure was 51 per cent. The strategy also set targets for overall financial inclusion, which counts Nigerians that use either formal financial services or informal financial services that are not nationally regulated, such as savings groups.

The overall financial inclusion target was 80 per cent by 2020; EFInA data showed that only 64 per cent of Nigerian adults were financially included by the end of 2020, this means that 36 per cent of Nigerian adults, or 38 million adults, remain completely financially excluded. To capture more Nigerian, EFInA called for more infrastructure roll out.

State of infrastructure for digital banking
INFRASTRUCTURE in a cashless economy refer to the type of platforms, which are available for doing virtual online economic activities between buyers and sellers, sellers and sellers, people and institutions (government, private), among others. The role of infrastructure in cashless economy is very important because it provides the virtual space for people to do their economic activities daily.

Today, the tools for cashless transactions include, the Automated Teller Machines (ATM); PoS terminals; Unstructured Supplementary Service Data (USSD); Mobile Wallets; banks Pre-paid cards; Internet banking; mobile banking; banking cards; AEPS; UPI, among others.

Indeed, in the last few years, traffic along these platforms has increased tremendously, giving wings to cashless society. While banks claimed to have invested about N100 billion on cashless infrastructure, since the introduction of the CBN’s cashless policy in 2011, ATMs have played a vital role in achieving the initiative. As of 2011, when the policy was introduced, the total number of ATMs across Nigerian banks was 10,000, but the number grew to 17,000 in 2015 and 18,000 in 2017, before reaching 22,500 across banks as of December 2022, as shown by recent statistics.

Although the growth from 10,000 in 2011 to 22,500 in December 2022 is phenomenal, the growing number of bank customers and the queues experienced at ATMs suggest that the current 22,500 ATMs are insufficient to meet the cashless policy initiative of the CBN.

On transactions, statistics from CBN showed that in 2012, a year after the introduction of the policy, the total value of ATM transactions was N1.98 trillion and PoS usage was N48 billion. In 2013, the total value of ATM transactions increased to N2.8 trillion and PoS activities also increased to N161 billion. In 2014, the total value of ATM transactions increased to N3.6 trillion, while PoS also increased to N312 billion.

In 2015, the total value of ATM transactions increased to N3.9 trillion, while PoS also increased to N448 billion. In 2016, the total value of ATM transactions increased to N4.9 trillion, while PoS increase to N758 billion. In 2017, the total value of ATM transactions increased to N6.4 trillion and PoS transactions increased to N1.4 trillion. In 2018, the total value of ATM transactions was N6.5 trillion, PoS stood at N2.4 trillion. In 2020, the total value of ATM transactions jumped to N12 trillion, with a corresponding increase in the total value of PoS transactions.

PoS terminals rose from around 155,000 to 1.1 million as of April 2022. By January, PoS transactions climbed to N807.16 billion, which was a 40.69 per cent year-on-year increase from the N573.72 billion transactions that were done in January 2022.

Data from the Nigeria Inter-Bank Settlement System (NIBSS) showed that total cashless transactions in Nigeria rose by 45.41 per cent y-o-y to N39.58 trillion in January 2023.

The NIBSS monitors cashless transactions through the Nigeria Instant Payment (NIP) system and Point of Sales terminals. Total NIP transactions for the period rose by 45.52 per cent y-o-y from N26.65tn as of January 2022 to N38.77 trillion as of January 2023.

The usage of electronic channels for transactions grew by 45.50 per cent y-o-y from 438.48 million times to 638 million times in the period under review.

Nigeria’s cashless policy is further complemented by mobile phone penetration in Nigeria. While mobile network operators (MNOs) have connected 319 million telephone lines in over two decades, according to data from the Nigerian Communications Commission (NCC), 222 million of these lines have been active. But currently, only around 10 to 20 per cent of the population is using a smartphone. As of last year, SANEF puts active banking agents at about 1.9 million.

Cash withdrawal policy stretches banking infrastructure
IT would be said that the idea conceived by the CBN when it announced the Naira redesign and Swap policies in October 2022. The bank, however, never envisaged the negative run on the banking system.

The about 21 deposit money banks in the country are expected to serve 20 million clients, working through an interlinking web of over 6,000 branches.
The CBN governor said the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain, especially, at this early stage, when its inconvenience is widespread.

“By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour. It could encourage some hitherto informal business operators to formalise the pattern of transactions and adopt more formal settlement channels.

“In addition, the short-term decline in cash holding and the increased formalisation of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net.

“This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government. In the long-term, the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance. As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increase legislative reach and coordinated fiscal and structural policies.”

Indeed, the policy tested the strength of banking system. The ATMs were without cash. PoS terminals failed to equally give out cash; those giving out were at huge cost to Nigerians. The Internet also failed to aid various banking transactions.

During this period, owing to the surge, various banks app crashed and their Unstructured Supplementary Service Data (USSD) platforms also disappointed the banking public.

A widow and mother of four with two other dependents, Madam Bona, narrating her experience, lamented that the development has denied her access to cash to buy her prescription drugs. She said the policy has denied her access to basic things such as good food and others.

“Over two weeks now, getting cash to run my life has remained an illusion. My customers no longer pay me in cash but through transfers. I have lost about N200, 000 during this period to transactions that were not completed, but which showed completed on the side of the customers. People advise that I go to the bank and complain, I am managing myself, I don’t have the energy to go and queue up at the banks. I have two grand kids with me that must enter public transport to school every day. Are they going to stay at home because they don’t have money to pay the drivers? What kind of policy is this? In states run by dictators, people’s cash is not brazenly seized,” she said.

Fintechs came to the rescue
WHILE this challenge lasted and the trust in the banking public dropped, Fintechs, including Momo, Opay, Kuda, Palmpay among others, came to the rescue of the banking public. In fact, in recognition of the difficulties Nigerians are having accessing cash, Vice President Yemi Osinbajo, urged major players in the FinTech space, to explore more possible ways of mitigating the hardships Nigerians are encountering.

Osinbanjo, who met some of the regulators, urged them and the banks to deploy more FinTechs and money agents to the hinterlands to address the worrying situation.

“You need cash to pay for transport. For instance, in Abuja, how do you take drop or use a Keke NAPEP without cash, or buy foodstuff on the road or in canteens, or even buy recharge cards?

“Parents with kids in public schools give money daily to their children for lunch, most commerce are informal, so you need cash for most things,” Osinbajo pointed out.

During the virtual interactive session with a number of FinTech investors and ecosystem players, the Vice President charged the Central Bank of Nigeria and the commercial banks to work with all FinTechs that have mobile money agents, not just some of them, to reach the farthest places in the country.

According to him, “It seems to me that banks must engage their mobile money operators – FinTechs with mobile money licenses and many of them have micro-finance bank licenses now and already have a network of mobile money agents or human banks or human ATMs (as they are sometimes called) who are responsible to them and they can supervise by themselves. They can do currency swaps and open bank accounts.”

For fintechs to do more, co-founder, eMaginationPR, Rarzack Olaegbe, in a chat with The Guardian, said fintech startups needed to invest more in building robust infrastructure that can withstand the type of stress witnessed in the past two months. Olaegbe said none of the startups would have envisaged the deluge of transactions that hit their engines.

According to him, the CBN’s policy is an encouragement for the fintech startups, adding that they cannot complain. He urged them to make the right investment and build robust infrastructure for today and tomorrow.

Cashless society in other climes
MEANWHILE, the Global System for Mobile Communications Association (GSMA), the London-based industry group that represents mobile operators worldwide, has lauded M-Pesa’s pioneering effort for demonstrating “the potential of mobile technology to transform access to financial services in emerging markets.”

Kenya, Tanzania, Uganda, Côte d’Ivoire, Egypt, Nigeria and South Africa are also bellwethers of cashless payment use in Africa, according to GSMA. Report claimed that Rwanda may be ahead of the curve in cashless commuting, but Kenya’s M-Pesa, a mobile payment service launched in 2007, is acclaimed for the revolutionary impact it has had on society. M-Pesa (a Swahili word for “mobile money”) allows people, even in rural areas, to transfer money to one another, make day-to-day purchases and pay for services such as electricity and water.

When the M-Pesa platform marked its 15 year anniversary last year, it had grown to more than 51 million customers, 465,000 businesses, 600,000 agents, and 42,000 developers across Kenya, Tanzania, Mozambique, the Democratic Republic of Congo, Lesotho, Ghana, and Egypt, as reported by Business Insider.
Head of Operations and Governance, OnePipe, Yvonne-Faith Elaigwu, recalled that Ghana, Nigeria’s neighbour, digitised its economy with Mobile Money.

She said the Bank of Ghana in its payment systems yearly report for 2021 showed that its volume of Mobile Money transactions increased to 4.25 billion in 2021, representing a 47.1 per cent growth, compared to 2020. Similarly, the total value of transactions increased to GH¢ 978.32 billion in 2021, from GH¢ 571.80 billion in 2020.

According to her, in dollar terms, the value of transactions in 2021 was $75 billion (based on current exchange rates). For perspective, Ghana’s GDP was $77.59 billion that same year. This essentially shows that mobile money transactions could cover the entire economic activities in Ghana (when currency devaluation over the past year is factored in).

Is Nigeria’ cashless economy jinxed?
A FORMER Vice President of the World Bank, Oby Ezekwesili, said Nigerian banks are not ready for the Central Bank of Nigeria (CBN)’s cashless policy yet. She said bank systems were not built to shoulder the task of conducting cashless transactions.

Ezewesili, a former Minister of Education, who was reacting to the naira redesign policy of the CBN, spoke on television programme. While lamenting the hardship caused by the policy, she said there have been system breakdowns in the banks.

Ezekwesili said: “We are using the CBN to solve a problem with the political criminals,” adding that the Federal Government could easily get the criminals without getting the CBN involved.

“I don’t even know if there are economists left at the CBN. Our central bank is compromised,” she said. The former minister lamented that the masses were suffering because of the criminals in politics, insisting that, “the victims of naira swap are the poor, not politicians.”

While commending the policy, she questioned its implementation. “They have burgled the operational plan of the policy,” she lamented. From his perspective, Olaegbe described the situation as disappointing. He said aside from the bank branches that were caught perpetrating evil such as hiding the new naira notes and denying the banking public access to their earned money; many of the banks did not respond positively to the challenges occasioned by the naira redesign policy.

“For me, the banks have failed the test. For the cashless culture to thrive, management of the banks need to do more than what they have done. I visited three of the five leading banks during this period. My experience and observation left ugly memories. For instance, it took four hours to get a reissued debit card. What was the reason tendered? Network downtime. Besides, an intra-bank transfer took two days before it was truncated.

“Most of the ATMs in mainland could not honour both on-us and not-on-us transactions. I left in utter frustration. Those who had no other means and could not fathom the reason for their inability to access their accounts or make adequate cash withdrawal resorted to thuggery. This is not the right approach,” Olaegbe stated.

Speaking on the challenges, he said lack of adequate infrastructure (POS, ATM, Internet banking); lack of a coherent policy guideline; lack of empathy from the banks and policymakers; prolonged network downtime, which led to delayed transaction cycle; lack of maintenance culture (countless POS and ATMs are malfunctioning or not functioning, and sorting machines are inadequate) and shylock middlemen – mobile banking agents, payment banks and POS operators who fleece the banking public.

Going Forward
ON its part, the Fintech Association of Nigeria (FintechNGR) said information technology (IT) is pivotal to driving the survival of the cashless policy in Nigeria. FintechNGR stated further that the cashless economy would be determined by the number of benefits provided to encourage mainstream adoption.

The association made these remarks in its FintechNGR Thought Leadership Series while reacting to the new naira policy of the CBN introduced to operate alongside the cashless policy.

FintechNGR, while commending the CBN and the federal government for the policy, quickly added, that the current hardship unleashed on Nigerians because of the timing are considered insensitivity on the part of the apex bank.

It partly read, “The drive for a cashless economy at all costs by the CBN is strategic, however, the execution and results have been described by many pundits as suicidal.

“The cash swap is being driven on steroids. This may be perceived to signal insensitivity and a lack of consideration of key stakeholders by the apex bank.

“A cashless policy should bring about greater ease and convenience of payments, but is the opposite effect materializing in Nigeria today.” Projecting its views on how the policy could thrive, FintechNGR said, “One thing is clear. When adopting a cashless policy (or any other policy for that matter), it is more important to have a customer-centric approach rather than a technical one.

“The success of a cashless policy is directly linked to the incentives offered to encourage mainstream adoption.

“For example, the Swedish government made sure that the cost of transacting with cash was more than the cost of making card payments. There is also a trust factor that needs to be considered when it comes to convincing people to go completely digital.”

Speaking on IT, FintechNGR said, “a key question needs to be asked: ‘can our current IT infrastructure handle the increase in transaction volumes if a significant chunk of the population moves towards digital payments?”

“If the answer is yes, then half of the anticipated problems are gone already. If the answer is no, then perhaps more efforts must be made to prepare a country with a large population like Nigeria to adopt a cashless policy,” it said. Elaigwu said before going cashless, alternatives should not only be in place, but be reliable too.

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