Nigerians Debate Pros and Cons of New Cashless Policy


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LAGOS, NIGERIA – Ibukun Emuwawon, 29, a professional songwriter and music producer, says he stopped using an ATM card after a recent experience at an ATM in Lagos, a state in southwestern Nigeria. He says the automated teller machine deducted money from his account without dispensing any money.

“I walked over to an ATM belonging to a bank different from mine, put the card in the machine, pushed the keys for the amount I needed and bingo – debited, but no money came out,” he says.

He says his card was stuck in the machine longer than usual but came out eventually. He reported the incident to his bank and filed a reclaim form. He says that everything was rectified after three days, but that his distrust of ATMs has endured.

“Since then, I stopped using ATM cards and all,” he says.

Emuwawon says this experience makes him wary of the new move by the Central Bank of Nigeria, CBN, to implement a cashless banking policy.

The CBN plans to implement the cashless banking policy in June 2012. Bank representatives say the policy will enhance convenience and savings for Nigerians and the government, as well as elevate the economy to be more competitive internationally. But many Nigerians who have had negative experiences with ATMs say the country isn’t ready to go cashless, especially as the majority of the population doesn’t yet use banks. Bank employees welcome the policy but say certain changes must precede it.

Nigeria aims to be a top-20 economy in the world by 2020, according to Nigeria Vision 20: 2020, a government plan.

Yet roughly 65 percent of adult males, 77 percent of adult females and 80 percent of Nigeria’s rural population are unbanked, according to a 2010 survey by Enhancing Financial Innovation and Access, a nonprofit organization that promotes financial sector development and financial inclusion in Nigeria. Banked denotes having access to or using a deposit money bank, in addition to having or using other financial services, such as an ATM card, credit card or savings account. Most of the banks in Nigeria are located in urban areas, excluding those in rural areas from various banking innovations.

One such innovation is the cashless banking policy recently proposed by the CBN to reduce the amount of hard cash in circulation and encourage the culture of e-payment in Nigeria.

As of June 1, 2012, commercial banks and allied service providers won’t allow cash withdrawals and deposits to exceed 150,000 nairas, $980 USD, for individuals and 1,000,000 nairas, $6,555 USD, for corporate entities. Banks also won’t cash third-party checks for more than 150,000 nairas, $980 USD, according to the CBN.

An officer at the CBN corporate communications office in Lagos, who declined to be named because only the spokesman is authorized to talk to the press, says that any transaction exceeding these amounts will be charged a fee. He says that this is to encourage e-payment transfers.

In the current system, people are allowed to withdraw cash from their bank account over the counter without any restriction or through ATMs with limited daily withdrawal, depending on the bank.

CBN will launch a pilot program for the policy in Lagos, an economic hub and the Nigerian state with the largest population – 17 million, according to Lagos state government. As part of the policy, the CBN will install 40,000 new ATMs per 100,000 residents around the state. This number will be increased with time as the policy takes effect.

“We will also procure POS [locations] that customers will use any time they visit points of sales, either at the airline or shopping mall or even hotels and airports or other public places,” said Sam Oni, CBN director of banking supervision, during a press briefing in Abuja, Nigeria’s capital.

The World Bank has endorsed CBN’s policy, which has not yet been finalized.

Olaoluwa Awojoodu, managing director of Electronic Settlement Limited, which owns CashEnvoy, one of Nigeria’s web payment platforms, says there are a lot of benefits for Nigerians going cashless.

“The benefits of a cashless society are enormous,” he says. “Electronic transactions offer convenience as it works 24 hours a day, seven days a week. It also reduces transfer/processing fees and increases processing/transaction time.”

He says it will also save Nigerians money.

“A practical example is that you can make purchases for 7.50 nairas [5 cents USD] without the seller needing to round it up to 10 nairas [7 cents USD] and still have the balance left in your account. All these little savings would eventually add up to something.”

He says the cashless banking policy will also benefit the government.

“It would also lead to easier documentation and transaction tracking,” he says. “The government will benefit from [a] cashless economy in the area of adequate budgeting and taxation, improved regulatory services, improved administrative processes, and reduced cost of currency administration and management.”

An operations manager at Guaranty Trust Bank, who declined to be named, says that the cashless policy aims to discourage the circulation of excess cash. It also strives to provide more effective e-channels and 24-hour ATMs for customers’ convenience.

A bank employee at an Access Bank branch in Lagos, who declined to give his name because he was not authorized by his employer, says the cashless policy will help Nigeria compete with other economies.

“I think it is a very good thing,” he says. “Looking at [a] developed country, we are working towards being among the top 20 econom[ies] by 2020. For us to achieve that, there is [a] need to work towards what is being done in developed economy.”

Dismissing fears that the policy will threaten jobs in the banking sector, he says it will boost employment in the information technology, IT, sector.

“When ATM came into operations, people were envisaging the possibility of job threats, but it boosted a lot of employment opportunities,” he says. “Similarly, in this case, IT sector will be developed. What might happen is a kind of redeployment from one sector to another. It won’t affect employment, but boost it.”

He says banks are aware that they need to educate people on the policy and evaluate its effects during the pilot run.

“There is [a] need to educate people on how the policy will be implemented,” he says. “It is starting next year with a pilot in Lagos. We are going to evaluate people’s attitude towards it.”

So far, many Nigerians say they are wary of the new policy, citing concerns over the current deficiencies in the banking sector, such as ATM malfunctions and poor Internet services.

Wale Osoba, a young entrepreneur in his mid-20s, is based in Lagos. He recalls a recent experience similar to Emuwawon’s while visiting First Bank, one of Nigeria’s oldest banks, to withdraw cash with his Guaranty Trust Bank debit card.

He says that he inserted his card into the ATM, and it confirmed that his transaction was completed. But no cash came out of the machine. He says he was perplexed. He later reported the incident to First Bank, which told him to file a complaint at his bank.

“It was resolved within 24 hours,” he says. 

But he says that now he is hesitant to use ATMs. When he does, he limits it to ATMs set up by his bank.

“I decided against using my GTBank ATM at any other bank,” he says.

But he says that he hasn’t had any other problems since and is a proponent of Internet banking.

“I must say my bank is awesome,” Osoba says. “I have been using their Internet banking for over a year, and I’m more comfortable with it than having to go to the bank. I do so much from my phone/laptop than I ever thought I could. I only go into the banking hall to make deposits.”

But he says that Internet banking is out of reach for many.

“There are too many illiterates who don’t even know how to use the ATMs, [much] less mobile banking or Internet banking,” he says. “Even literate people don’t want to go near Internet or mobile banking.”

Lauretta Ovadje, a student, says that the set target date for implementing the cashless policy – 2012 – is too soon.

“There are too many old[er] people who are used to doing things the old way with cash,” she says. “My dad is a prime example. He doesn’t trust banks because of all he has gone through and has sworn off ATM cards.”

Awojoodu says cash represents trust for Nigerians.

“Nigerians believe in the ‘cash-and-carry mentality,’ which was probably bred from our lack of trust for each other,” Awojoodu says. “If people can see the benefit of this policy to themselves, then they will be willing to make the effort for change. I believe it is the duty of stakeholders and also very important to properly educate people on various electronic channels that are available for making payment.”

He says others say the government needs to focus on improving services, such as the provision of constant electricity in the country, to make the cashless banking policy work.

“A lot of people are talking about constant power supply,” he says. “We can’t have that by next year. What is important right now is the provision of adequate alternative electronic channels. This will ensure that there are reliable options to choose from, sensitization, improved security on e-payment channels, and more collaboration between banks and payment providers.”

Some Nigerians say that illiteracy and security issues will also pose challenges.

“Almost every time I go to the bank, I meet people who need help to complete their transactions,” Osoba says.

A Lagos-based entrepreneur, who declined to give his name, says the policy is too hasty.

“We quickly rush to embrace stuff without putting down standards or infrastructures for them,” he says.

He says the primary focuses should be on security, proper checks and balances and sensitization of the masses before implementation.

“I think cashless is nice and all, but the country has to be ready,” he says. “We are kind of jumping the gun here implementing it before proper security is in place.”

Bukola Idowu, a former ATM manager of Intercontinental Bank, says that a few issues need to be sorted out before the implementation of the cashless banking policy.

He says the major deficiencies of the ATMs are caused by different factors, which include cash jam, insufficient funds in the cash dispenser and poor Internet services.

“Cash jam means the cash that was supposed to come out of the machine has got hooked in the process,” he says.

This occurs when the bank or the officer in charge loads bills into the machine that are mutilated, instead of fresh and crisp.

“So in the process of the machine picking the cash, since the cash are rough and have folded edges, it is impossible for the cash to go through the shutter, and then the error message comes as ‘unable to dispense cash,’” he says. “Subsequently, any other user of the ATM at that time will be unable to receive cash, but the account of such customer would have been debited.”

He says this also happens when an ATM doesn’t have sufficient funds.

Another major deficiency in the ATM is caused by poor Internet connectivity.

“The ATM works with the Internet link, and most times when the links have ‘no network,’ then the ATM is unable to dispense cash,” Idowu says.

Idowu says CBN needs to implement more consistent policies.

“When CBN says they want a cashless economy, it will be difficult to be achieved as at present vis-à-vis the ATM because CBN itself doesn’t even have a consistent policy,” he says. “There was a time CBN said that no bank should operate ATM outside their premises, but later they reversed the policy, so you wonder what they were thinking before they formulated policy. Some banks withdrew their machine from the off-site position, despite the cost implication involved in setting them up in the first place.”

Idowu also says that some of CBN’s policies don’t favor banks or customers.

“For instance, when a bank takes mutilated cash to CBN, CBN charges them for every mutilated cash brought, and most times the charges are enough to pay some salaries of the bank’s staff,” he says. “This force[s] some banks to return such mutilated cash back to customers. Some banks mix those cash together with the money that is into the ATM, which result to cash jam, thus affecting ATM services and inaccurate debiting of customers.”

For the cashless policy to be successful, he says CBN needs to remove the charges that banks pay on mutilated cash because the ripple effect of CBN’s policy will affect ATM operations. Since banks benefit from the inadequacies of ATMs, strong regulatory policies should also be put into place to ensure banks reverse inaccurate debits made by ATMs on customers’ accounts within 24 hours.

“By these, the public will have confidence in the system,” he says. “I believe the CBN has a lot of thing[s] to put in place to ensure that things work perfectly.”

The CBN officer at the Lagos corporate communications office says that customers whose accounts get debited at ATMs without receiving their money should report the incidences to their banks’ customer service units. If their money is not restored within 24 hours, he advised them to forward complaints to CBN’s customer service unit, which will take action against their banks.

Although CBN chose Lagos for the test run of the new policy, the Ministry of Finance and Economic Planning has not released any information on how the Lagos state government intends to regulate the banks regarding the cashless policy. According to the Public Relations Unit of Lagos state government, the policy will need to be approved at the federal level before Lagos state collaborates with CBN to implement it at the state level.