Benefits of CBN’s cashless policy
The Central Bank of Nigeria (CBN) has re-introduced charges on the deposit and withdrawals of sums above N500, 000 to promote a cashless economy. But curiously, the policy seems confusing to so many, no thanks to the paucity of civic education from the authorities that should provide that at such a time like this when monetary policies can be easily turned into political tools by sundry campaigners.
In a circular released the other day, all deposit money banks in the country were directed to charge 3% processing fees for withdrawals and 2% for deposits of amounts above N500, 000 for individual accounts.
In the same vein, corporate account holders will be charged 5% processing fees for withdrawals and 3% for deposits of amounts above N3 million. The directive is effective from Wednesday, September 18, 2019. The CBN authorities said the directive is a pilot scheme, as it would apply only to banks in Lagos, Ogun, Kano, Abia, Anambra, Rivers, and Abuja. Accordingly, it would apply to other states from March 31, 2020.
In a separate circular titled: ‘‘Review of Process for Merchants Collections on Electronic Transactions,’’ the CBN said it has approved for banks to “unbundle merchant settlement amounts and charge applicable taxes and duties on individual transactions as stipulated by regulations.”
The circular, which was signed by Sam Okojere, the director of payments system management department, also announced a downward review of the merchant service charge (MSC) from 0.75% capped at N1,200 to 0.50% capped at N1,000.
In February 2017, the apex bank had announced its intentions to introduce charges on cash transactions involving huge amounts across the country.
At the time, deposits in individual accounts ranging from N500,000 to N1 million was to attract a 1.5% charge, while withdrawals within the range would attract 2% charge.
Deposits of amounts above N1 million to N5 million were to attract 2% while withdrawals attract 3% charge. Deposits and withdrawals above N5 million were to attract 3% and 7.5% charge respectively.
In the corporate category, deposits and withdrawals between N3 million and N10 million were to attract 2% and 5% respectively, while deposits and withdrawals between N10 million and N40 million attract 3% and 7.5% respectively. Deposits and withdrawals above N40 million were to attract 5% and 10% respectively. The directive was curiously suspended in April 2017 and refunds were made to customers.
What is cashless policy? It is simply a CBN’s initiative to reduce the amount of physical cash in circulation thereby encouraging the use of electronic platforms for settlement or payment for goods and services.
So, going cashless is not supposed to be controversial in a fast growing economy such as ours. The monetary policy not only eases one’s life but also helps authenticate and formalise the transactions that are done. Besides, it helps to curb corruption and the flow of black money, which results in an increase of economic growth. The expenditure incurred in printing and transportation of currency notes is also thus reduced.
The whole country has been witnessing the effects of demonetisation since the CBN hinted at a cashless economy some years back, even as many people have been left in confusion. And that is why most rural people and lower market people still ask: how would a cashless economy be beneficial to them? This is a gap that should be filled immediately by the monetary authorities through a market-place communication strategy.
First, the point should be made that the policy is not new. It was introduced about seven years ago. The new directive by the CBN has only resuscitated and strengthened it for compliance. There is also some level of misunderstanding as the taxable deposits and withdrawals are not the stated limits as such but whatever that is in excess of the limits. The charges are not on N500, 000 for instance, but on what is in excess of N500, 000. It is to be pointed out that Nigeria cannot be moving away from the direction that the rest of the world is headed. This is part of the forces of globalisation we can’t jettison. Nowhere else in the world are transactions in voluminous cash encouraged because of the risks involved. And this should even be more so in Nigeria where security is hardly a government priority.
The world today drives on innovation and speed has become an element of development. This is what the various digital cashless platforms offer. When the new generation banks in the 1990s started the ICT innovations that consolidated deposit and withdrawal systems in banking, nobody thought that banking transactions could be made so easy and away from the tally number approach. Today, one needs only to domicile in one branch of a bank to have access to all branches of the bank. The only gap to bridge regarding the cashless policy is improvement in the accompanying technology such that incidences of failed transactions are reduced or even eliminated.
Always, a payment should succeed as long as the payment is sufficiently charged with funds and shouldn’t fail due to poor inter-connectivity. It is the reason people often carry load of smart payment cards as backup in cases of embarrassing failures. The public should understand that bank notes with all their security features are expensive to print and any policy that increases the length of time they can stay in the monetary system before they are turned over should be encouraged. Perhaps in real terms, it costs more N1000 to print N1000 note. In global context at the moment, it is smart operations as countries strive to curtail clumsiness through innovations.
The cashless transfer policy posts more benefits. Through the digital or electronic transactions people can easily pay their bills online, shop and schedule transactions and manage all the finances using their laptops or smartphones. This is already part of our financial system in the country that is hardly celebrated.
Going cashless not only eases one’s life but also helps authenticate and formalise the transactions that are done. This helps to curb corruption and the flow of black money, which results in an increase of economic growth. In a populous nation like India, cashless policy challenges are also being tackled by bridging the technology gap and lack of civic education. These are matters of concern and the government or the financial institutes are addressing them to create a strong cashless economy.
Besides, companies and governments will get efficient and they can reduce costs as they no longer need the manual accounting work to be done. The costs associated with accounting and handling cash is very high.
Business and individuals can also avoid other costs as well. Theft often leaves a big hole in one’s pocket. The risk of theft will continue until people cease carrying cash. This also leaves an impact on the government as they can then reduce the costs that it spends on nabbing the culprits. In countries like the U.S., burglary and assault have dropped by about 10% once the government shifted the payment made for social welfare to electronic transfer. The authorities, however, have to take measures to curb the online scam and identify theft incidents.
Less cash means more data. The government can use the data coming from the cashless transactions to improve and analyse their policies. By using such data, officials can predict or identify the patterns of activity and use such information for urban planning for sectors like energy management, housing and transportation.
More spending helps improved economic growth. When a nation is taking a step towards a cashless economy, a boost in the economic growth can be expected. In countries like U.S. higher card usage has contributed a consumption of about US$296 billion globally from the year 2011 to 2015, which is a 0.1% increase in the GDP. Shopping online gets easy as one can use a number of payment options; from credit and debit cards to net banking. One can observe more spontaneous buying while making cashless payments.
Countries like Singapore have also witnessed a growth of 0.1% in GDP, which accounts to about S$400 million per annum. As people spend more, companies need extra staff to handle the demand for goods and services and this, in turn, creates more jobs for the unemployed.
In addition to this, going cashless also has health benefits. With physical currency, the chance of spreading of germs is more. Reducing the amount of use of paper currency will reduce the germ transmission
In the main, the CBN needs to take the necessary steps and make some policy considerations when they are preparing for a cashless economy. The payment systems have to be protected from the cyber-attacks, which are the major threat for cashless transactions. Also, the authorities in the country should be able to serve the under-banked as well. Everyone in the society should have access to an electronic system that they can use for such transactions.
All told, there is a sense in which it can be said that going cashless provides a lot more benefits than just convenience to people, businesses and the government in particular. Nigeria should be different in this changing world. Specifically, the CBN should ignore distractions now and step up its advocacy to create awareness regarding how best people can key into the cashless transaction policy.