CBN’s cashless policy shows ‘change is possible’ in Nigeria (1)

Too many challenges confront Nigeria Africa’s richest by GDP. High unemployment with attendant poverty levels, epileptic power supply, endemic corruption, poor quality education are all major constraints to the desperately sought development, which looks almost impossible with current realities. But change is possible with necessary commitment as the cashless policy being championed by the Central Bank of Nigeria (CBN) has shown.

Today, for instance, it is no longer trendy nor convenient to carry cash about for transactions to happen whether locally or abroad. Banking transactions, including payments are now just possible with phones, PCs, tablets etc all thanks to the cashless policy which has now gone nationwide. A few years ago, the Central Bank of Nigeria (CBN) muted cashless policy that would define payment sys- tem in the country and welcome Nigeria into a glob- ally accepted system of cash transactions. An efficient and modern payment system is positively correlated with economic development and is a key en- abler for economic growth. It is with this understanding that the Central Bank of Nigeria (CBN), in conjunction with the Bankers Commit- tee, introduced the cashless policy in 2012.

The policy aims to introduce modern payment systems and thereby reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach. However, that proposal was fiercely fought initially the reasons for those resentments were founded poor infrastructure that would drive access and connectivity, wide ranging fraud, among other challenges. Sanusi Lamido Sanusi, the then CBN governor, had severally argued that it would be better to commence the cashless project and then walk through those huge challenges as things progress rather than wait, almost, endlessly for those well- rooted problems to give way before embarking on a programme that would modernise the payment system, drive financial inclusion and drive economic development. Observers believe that the CBN’s right decisions to forge ahead even in the midst of hiccups that were huge enough to discourage and frustrate every positive step had paid off so far.

The introduction of electronic banking, online trans- actions and mobile banking which obviously came with the policy has paved way for a new era of development where the use and demand for physical cash is gradually declining. Nigeria’s payment system, no doubt has since seen a rapid transformation. In 2010, cash transactions represented over 99 per- cent of customer activity in banks, according to CBN figures. Volume of Automated Teller Machine withdrawals were mere 109,592,646. Over The Counter (OTC) cash withdrawals stood at 72,499,812. CBN said its study then showed that about 86 percent of in-branch bank cash withdrawals were less than N100, 000 in value. Less than 10 percent of trans- actions were more than N100, 000. Only 10 percent of in-branch transactions were over N150, 000.

Transactions in Cheques stood at 29,159,960; Point Of Sales (POS) levelled at 1,059,069 while web-based transactions were just 2,703,516. Cost of cash to Nigeria’s financial system was high and increasing as direct costs of cash was estimated to have reached N192bn in 2012. But those numbers are changing rapidly. According to recent figures from the CBN, Value of Interbank transfers, captured through the Nigerian Interbank Settlement Sys- tem (NIBSS) jumped from N51bn monthly in January 2012 to over N1.5trn as at June 2014. In volume, NIBSS transfers rose from 87,000 trans- actions a month in January 2012 to 3.1 million monthly as at June 2014. Volume of Point Of Sale (POS) transactions increased astronomically from less than 2000 monthly as at January 2012 to 1.6 million per month in June 2014 while transactions in value moved up from 38 million per month in 2012 to N24 billion. Licensed payment terminal service providers that would increase POS terminal penetration has so far increased from 5 to 10, with over 150,000 POS terminals across the country at as last month.

The CBN said its target is to increase the POS terminals to at least 350,000 by 2015. Mobile money transactions, at the moment value up to N819 million monthly while 22 licensed mobile money operators have al- ready secured licences. Cashless economy is an environment in which money is spent without being physically carried from one person to the other. The policy aims at reducing and not totally eliminating the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.)