By Babajide Komolafe, Amaka Abayomi,  Bose Adelaja & Franklin Alli

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The ticketing counters in most airlines reflect the high usage of cash in Nigeria. In addition to the airline staff that issue tickets, there are also about two banks’ staff, collecting cash on behalf of the airline. Consequently, passengers have to go through two points. They first pay through the bank staff for the ticket, collect the teller, and then proceed to the airline staff to collect the ticket. Hence, passengers spend additional time on queues just to buy flight tickets. But this is so because the airlines choose to collect cash rather than make available alternative channels like a Point of Sale for passengers to pay for tickets.

Even where airlines have alternative channels like online purchase of ticket through the internet, passengers still choose to go through the time-consuming process of paying with cash across the counter. The Central Bank of Nigeria (CBN), however, wants to put an end or minimise such over dependence on cash as means of payment. On Thursday, April 28th it announced a policy which limits the amount of cash that individuals and corporate organisations can freely deposit or withdraw from their bank accounts. Anything above the limit attracts charges that most bank customers consider punitive.

According to the policy, from June 1st 2012, individuals that make cash withdrawal or deposit above N150,000 in their bank accounts per day would pay a charge of N100 per extra N1,000, while corporate organisations that make cash withdrawal or deposit above N1 million per day would pay a charge of N200 per extra N1,000.

It also banned encashment of third party cheques across the counter and free cash pick up services by banks for merchants. The policy, according to the apex bank, is aimed at reducing the high usage of cash in the economy. “In view of increasing dominance of cash in the economy with its implication for cost of cash management to the banking industry, security, money laundering, etc., the Central Bank of Nigeria, in collaboration with the Bankers Committee, is adopting policies to reduce the high usage of cash, moderate the cost of cash management and encourage the use of electronic payment channels,” the CBN explained in a circular titled Industry Policy on Retail Cash Collection and Lodgement. The circular was signed by Muhammad Nda, Director, Currency Operations Department.

“This arrangement shall be in force in Lagos State, F.C.T., Port Harcourt, Kano and Aba in the first instance. The arrangement shall be extended to other parts of the country at a date to be determined by the Bankers Committee,” it stated further.

To ensure compliance, the apex bank rolled out fines that would be imposed on any bank found to contravene the limits.

Good for banking, not for business

To the banking and e-payment experts, the policy is a good development .

“ The policy is a very welcomed development for the nation, especially for a country like ours where we have been crying about efficiency and transparency, the benefits of e-payment cannot be overemphasized,” said Onajite Regha, Executive Secretary/Chief Executive, E-Payment Providers Association of Nigeria (E-PPAN)

“There will never be a time when we will be ready except when we become serious about moving this country forward. Step such as this, is what we need to be prepared. The technology is already available, there may be some hiccups, but these can be identified and dealt with before the enforcement deadline. Stakeholders are certainly going to meet and iron out any fears that people might have.

“The main issues that should bother people is security. A lot of work has been done on the issue of security. Nigeria is about the only country where all our payment cards are chip and pin. Providers of electronic financial transactions are adopting global best practices. “What we must do now is to begin to raise awareness at all levels to ensure that the policy succeeds. It is not by forcing everyone but to ensure that the right priorities are put in place, we should create the enabling environment in terms of policy support and product consistency.

“An enabling environment should have laws which should give citizens the assurance that whatever happens, they are covered and as at today, there is the National Payment System (NPS) bill before the National Assembly. It sounds so harsh now, but with a little more work before the June 1st of 2012, we should be ready to really go less cash intensive,” she said. Members of the banking public especially traders, however , don’t share this enthusiasm. To them, the policy is bad for business.

“I nearly fainted when my children told me the news,” said Mrs Bammeke Omoyajowo, plastic dealer in Agege. “You see, most of my customers are not in Lagos and I have spent a lot of time to win their heart. The policy will affect many of them because they pay directly to the bank while I send the goods to them. Many of them buy goods worth N300,000 or more, it means we are not going to make profit if the CBN should go ahead with its plans. We do not enjoy surplus profit on the business but we have a daily turnover, don’t you think the profit will disappear after a while if we start paying N100 on extra N1,000?” she asked.

“Those who make the laws are literates who failed to consider its impact on the majority,” said Princess Kosegbe Tolani, Secretary to fabrics dealers in a popular Lagos market. “Sometimes the less privileged suffer more from laws made by the government. Many of them have money to throw about and they might not feel the pulse in case the CBN decides to do otherwise. To somebody like me, my survival depends on contribution here and there, we have daily, weekly, bi-monthly, monthly, quarterly and yearly, which we plough back to the business but how do we cope if the CBN starts this unnecessary deductions? Definitely, many people will find it difficult to cope as a result of its adverse effect.

Similarly, a foodstuff dealer at Oshodi, who is popularly called Madam, said the policy will increase the prices of goods so that traders will be able to cover their losses. “I see it as a loss, in most cases, the banks usually find it difficult to pay interest but are eager to issue a policy that will not benefit the populace. Of what profit is such policy to individuals? It is simply another way to increase the prices of commodities because nobody will want to sell at a loss. For instance, if one pays an extra cash of N100,000, it means the bank will charge a sum of N10,000, the best way to recover such money is to increase your price which will definitely affect patronage.

Well, only the rich can cope with such policy and I believe the CBN must have reasoned well before drawing a conclusion,” she said. A plastic dealer with Sunarts Plastics at Ota who simply gave her name as Madam Cash said the policy will encourage robbery among Nigerian youths. “The policy will discourage traders from patronising their banks. Before the existence of banks, Nigerians had a way of keeping their money and the new policy from CBN will remind them of the old system of keeping money. In other words, armed robbers will start going from house to house to collect money from those who keep it at home,” she said.

The concern of these traders is reinforced by the Managing Director of Accion MFB, Mrs. Bunmi Lawson. She said: “The regulatory authorities didn’t consider the microfinance sector before pronouncing such policy statement because the policy is like a two-edged sword.

On the one hand, the CBN is trying to promote a cashless economy, but on the other hand, the market is not ready for such. For the commercial banks, the high and medium income sectors, it is a good policy but for the lower end of the market and the microfinance sector, where people withdraw to pay for their goods, I think the CBN has to do a rethink on the policy.”

Managing Director of the Nigeria Police Force MFB, Mr. Ade Adesina noted that the policy will have both negative and positive effects on the microfinance sector.

“Since we deal mostly with mirco-enterprises and micro-lending, we may not be affected by the policy. But it will affect us when we go and withdraw money for on-lending purposes from our correspondent banks because placing a limit to how much we can collect daily will affect our ability to meet the financial needs of the people who may not understand the policy.”

To the organised private sector, the policy, though laudable, is like putting the horse before the cart. They said the objective is good but given the level of literacy and infrastructure development in the country, the approach is wrong.

“This economy is over 80 per cent informal and the literacy level in this segment of the economy is very low. These are critical issues we should worry about as the CBN moves to transform to cash-less economy”, said Muda Yusuf, Director-General, Lagos Chamber of Commerce and Industry (LCCI).

“The way forward in my view is not to penalize the people for the use of cash. It would be most unfair to do so. Rather, the level of confidence in other payment systems should be drastically enhanced through reduction in ATM fraud, internet fraud etc; the cheque clearing period should be significantly reduced; there should be incentives for the use of non-cash payment systems.

“There should be consultation and enlightenment of stakeholders. Transformation by fiat will cause serious dislocations in the economy and slow down the velocity of business transactions. It would also create serious queuing and congestion problem in the banking halls. We need to put the issues in proper context”, he added.

Similarly, Dr. Ademola Ajayi, President, Nigeria Chamber of Commerce and Industry, remarked: “We are worried that the policy may not work in isolation but may require other macro-economic policies including infrastructure, to be put in place.

“With our large illiterate society and poor ICT access by majority of the citizens, the CBN will need to introduce other policies to complement this one to make paper transactions cheaper and attractive with some education of the masses. Bank charges on non-cash transactions could be reviewed downwards for customers as incentive,” he said.

CBN Responds

The CBN, however, said it is already making moves to increase availability of alternative payment channels like Point of Sale terminals. In a telephone interview with Vanguard, Muhammad Nda, Director, Currency Operations Department, CBN said the CBN will soon license independent firms that will roll-out PoS terminals across the country. He said the one year notice is to allow for preparation for the smooth take-off of the policy, which is designed to discourage the use of cash by providing alternative payment channel in the form of Point of Sale (PoS) terminals.

He said the apex bank will achieve this by facilitating massive deployment of PoS terminals across the country. He said for this purpose, the apex bank will soon appoint independent PoS deploying firms that will be licensed solely to deploy PoS terminals. He said the licensing of the companies and deployment of PoS terminals will take place in the next one year such that there will be adequate PoS terminals coverage in the cities designated for the first phase before the policy commences in June 2012.

He said that under the new dispensation, bank customers will be able to use their cards on all PoS terminals irrespective of their bank or who deployed the terminal, adding that all PoS terminals and payment card switching platforms will be interoperable. Before now, people were not used to using ATMs but now, they have accepted ATMs to the extent that some banks have placed restrictions on cash withdrawal across the counter asking customers to use the ATM for transactions below specific amount.

“That is why we are appointing the companies for massive deployment of PoS. They will put PoS in all the merchant locations, markets and places of mass sales. So people will be able to use their cards to pay just like they use them to withdraw money from ATMs.

Also, the merchants, like hotels, supermarkets and the rest, will receive little cash, and will not have to carry cash to the banks. If we all cooperate, people will have little or no cash to carry around, incidences of armed robbery will reduce, there will be more respect, and also people will be able to make purchases and payment online,” he said.

Why CBN introduced the policy

Vanguard investigation revealed that the policy might have been prompted by the persistent reluctance of merchants to accept the use of PoS terminals as payment channels. Also, banks were offering free cash pick-up services (known as cash-in-transit) to merchants. Like in the case of airlines cited above, banks deploy their staff to merchant locations to collect cash from them and take it to banks, free of charge.

According to the Chief Executive of one of the three companies licensed to deploy ATMs in offsite locations, who spoke to Vanguard in confidence, the banks were using the free cash pick-up services to compete for patronage of the merchants. Thus, there was no motivation for the merchants to accept PoS terminals as payment channels.

This, however, increased the cost of cash management for banks. To deploy staff to merchant locations or pick up cash for them implies additional cost of operations. This additional cost, according to the Head of E-business unit in one of the leading banks, who spoke under anonymity, is the biggest problem confronting the industry today. “The merchants don’t want to use PoS terminals because they don’t want to pay the 1.25 per cent fee per transaction. Rather, they want banks to pick up their cash for free,” he said.

Investigation reveals that besides the problem of connectivity, most merchants refuse to use PoS terminals because of the 1.25 per cent charge, while some merchants simply pass it on to customers.

But for some merchants, it is the increasing incidence of fraud associated with payment cards that scare them from PoS terminals, hence they insist that customers pay with cash.

The CBN, however, considers the free cash pick-up services rendered by banks as the major barrier to the use of PoS by merchants and hence to its efforts to popularise the use of electronic payment channels to pay for goods and services. Hence, the decision to ban such services, and license independent companies to deploy PoS across the country.

What the CBN is simply saying, according to the Chief Executive of the ATM firm, is that banks should no longer process cash for free. “Banks should make their customers pay for cash processing, and the customers should begin to consider alternatives to cash because those alternatives are cheaper,” he said.