After decades of being in limbo, government is consciously making efforts to transform the country into a cashless economy in line with global trend. This is in realisation of the enormous benefits that such transformation would bring to the social and economic lives of the people. Nigeria, they say, cannot realise its vision of being one of the 20 most advanced economies in the world by 2020, which is just nine years from now, if its payment system remains undeveloped. Taking the bull by the horns, the Central Bank of Nigeria, CBN, had in January commenced the implementation of the pilot scheme of the cashless policy in Lagos State with plans to extend it to Port Harcourt, Kano, Aba and the Federal Capital Territory, Abuja, by January next year.
But the pilot scheme in Lagos has thrown up a lot of challenges. The deployment of the point of sale, PoS, terminals is abysmally low. This has been blamed on the lack of infrastructure, particularly power and telecoms connectivity, leading to frequent downtime. Besides, most Nigerians still prefer the use of cash to cards. To enforce the implementation, the CBN had, in a circular in April last year, declared that “Commencing from June 1, 2012, a daily cumulative limit of N150,000 and N1 million on free cash withdrawals and lodgements by individuals and corporate customers respectively with deposit money banks shall be imposed.” Defaulters would be made to pay penalties. Following public outcry, the daily cash withdrawal and deposit limit was raised to N500,000 for individuals, from N150,000, and from N1 million to N3 million for corporate accounts. But this has not assuaged the frustrations of Nigerians. Many still could not comprehend the introduction of penalties rather than incentives to encourage the use of electronic cards. South Korea, for instance, introduced a preferential VAT treatment for consumers who pay with cards to encourage the move to cashless payments and this led to a sharp drop in the volume of cash payment in that country. Mobile transaction is already taking root in a growing number of countries. With a population estimated to be 167 million and 98 million mobile phone subscribers in Nigeria, the country has a huge potential to dominate the mobile payment landscape, but it is not.
MasterCard, a global payments and technology company, which operates payments processing network in more than 210 countries is at the forefront of promoting cashless economy in the country. The company recently announced a restructuring of its Middle East and Africa operations and appointed Daniel Monehin, a Nigerian, as its division president, sub-Sahara Africa. According to Monehin, “The move will help us bring our international expertise and resources much closer to these emerging markets.” In this interview with Helen Eni, deputy editor, BSJ, Monehin gives an assessment of the country’s cashless policy, identifying the challenges within the environment, the factors working against the emergence of a cashless economy and suggests the way out. Excerpt:
How has Nigeria fared in the race towards a cashless economy?
Nigeria is basically a cash economy but we are looking forward to a world without cash in line with our slogan in MasterCard. If you look at the card evolution path, the base is where card is non-existent, then a period when the card is available but inactive (people get the card but they don’t use it), then it goes to only ATM use, followed by ATM and low PoS use, then you begin to go to high PoS usage. Nigeria is still at the ATM stage. Once we get past that stage, there would be an astronomical rise and we will get there.
With many people in Nigeria being compelled to have ATM cards, some people measure the success of our cashless experiment by the volume of ATM transactions, which indeed is on the increase. What is your take on this?
Like I mentioned earlier, the growth graph of any economy or market that is embracing the payment card first starts with ‘no card at all’. Then the next stage that people move to is the ATM because it is the closest to cash. Even when they adopt this ATM, they still stick to what they are used to, which is cash. But the difference is that with the ATM, you have bridged the use of cash. You can use the card to withdraw the exact amount of cash that you need and after a few days or weeks, you can go and draw cash again. But that is not the cashless economy we are talking about. Though it is a good development, we cannot begin to pat ourselves on the back and say we have achieved a cashless status. Nigeria has only moved from the bottom to the next stage, which is the ATM. It is a natural progression. The ultimate is to move to where, even though we still have the ATM, it is not the dominant payment platform. The cashless initiative is paying attention to PoS transactions, not ATM.
How would you assess the cashless policy in Nigeria?
I would say the journey, for Nigeria, has started but we would need to learn from the experience of those countries that have achieved a cashless economy. Cards still represent less than three per cent of transactions while the remaining 97 per cent is cash. Even when you use ATM, it is still cash because you withdraw cash and spend. Regulation can accelerate card payment dramatically but what we found is that punitive legislation is ‘don’t’ and encouragement is ‘do’, and as humans we respond more to ‘do’ than ‘don’t’. South Korea was able to move the use of cards to about 70 per cent by way of incentives and not just penalties. What they are saying is, if you as a business entity receive electronic payment up to X number of transactions, you will pay less tax by this much. So, that encourages the merchants to make sure their PoS are up and running. These incentives started changing the behaviour of people to embrace cards. So there are lots of incentives that government can put in place to drive electronic payment, not just penalties. It should be a carrot and stick approach. In Italy, for example, you cannot pay more than €2,500 with cash anymore. It has to be electronic card otherwise there would be penalties and all that. I’ve mentioned markets like Korea where they use incentives.
You can combine these; with your penalties in place also add incentives that would encourage the use of electronic cards. The penalties have their place but what we have found is that the encouragement is where the people want to outdo one another to get the benefit.
So what result did the policy of incentive produce in South Korea for it to serve as an ideal model for a cashless economy?
As recent as 1999, South Korea was not different from Nigeria in the use of cash. Just 13 years ago, it was a heavy cash society. And then it introduced electronic payment encouragement policies. What we have in Nigeria is cash deterrent policy by putting penalties in place against cash. But what Korea did was to have an electronic payment encouragement policy to stimulate domestic expenditure, which results in new taxes because if you cannot see the transactions, you cannot tax them. The policy was highly effective and led to mass adoption of card payment. Of course not everything worked. They also had challenges. Sudden growth in credit led to credit crisis but they’ve brought it under control. They were not used to borrowing like that and once that became available, they couldn’t manage it. But now they’ve put structures in place to control credit.
South Korea now has one of the world’s highest penetrations of personal consumption within 13 years. That means the usage of card is very high. The expenditure of the individual per month now is mostly on electronic payment and that is because of the encouragement policies. Look at what has happened to their GDP (gross domestic product) during that period. The GDP per capita for Korea moved from $12,600 in 1999 to $31,000 in 2011. Electronic payment spurs economic activities; it is a catalyst. During the same period, South Korea’s unemployment rate dropped from 7.9 per cent in 1999 to 3.4 per cent in 2011. The country now has a very strong economic growth and the liberalisation of payment card is a contributory factor to that growth. That country shows how quickly cards can penetrate the lives of the people and make it better.
The PoS penetration is still very low and in financial institutions or businesses where they are deployed, people still ignore them. What do you think is responsible for customer apathy towards the use of PoS in the country?
It is habit. We are creatures of habit as humans and therefore moving from a system that you are used to into another system will require time. I’ve seen people say they swore on the grave of somebody dear to them that they would never use a card and now that they have started using cards, they are swearing on the same grave that nobody can take their card away from them. As time goes on and people begin to see the benefits, they begin to see that it is actually faster and safer to transact with electronic payment, and that they don’t have to carry cash across states to conclude transactions, they will embrace it. When they realise that it is not as complex as they thought it was, that their spending is made more transparent and they can actually keep a record of what they are spending, it would become something that they would latch on to. Definitely, we are heading in that direction – I have no doubt.
Some card users complain of the problem of interoperability where certain cards are rejected by some terminals. How can this issue be effectively addressed?
Interoperability has been mandated by the Central Bank of Nigeria and it has been effective this year and I am aware that systems have been put in place to ensure compliance. What could be happening beyond interoperability is really connectivity. There are still connectivity issues in the payment system. That again is being addressed by the Central Bank working with the Nigerian Communications Commission, NCC, to make sure that we have a reliable communication system behind the PoS because it is one thing for the payment value chain players from MasterCard, for instance, to ensure that the PoS that were deployed by the financial institutions would accept MasterCard, it is another thing for connectivity to be available to process the transaction and authorise payment. So you could have PoS that is fully interoperable, which means all the cards work on it. But without the proper connectivity, the card would fail. So that to me is the biggest obstacle that needs to be taken care of. Once that is taken care of, the rest is just adoption. We would just keep going along that trajectory until we hit the point where if you do not have the PoS as a business person, it is like you are just incorporating your business; you’ve not started because once you start you need to put a PoS there because that is what your customers will want to pay with. If you fail to provide the terminal, they move on. That is what happens abroad. I believe that whatever progress that has been made in the United States, US, Canada and other developed economies, they probably got there in X number of years. But Nigeria will get there in X minus several years because we want to bridge the gap very quickly and Nigerians will do that because once they latch on to something, it carries on a life of its own.
But there are still security concerns, which to a large extent hinder adoption of electronic cards. How can the cardholders be assured of the safety of their transactions?
If you carry cash around, then you should be worried about security much more than if you carry a card, because with the chip technology that is in place now, fraud has been effectively tackled. MasterCard has the M-chip 4 on every of its card in the market. It’s a chip and pin card such that for a fraud to take place, your card has to be in possession of somebody else and that individual has to know your pin to make it work. After a year of reviewing this technology, the Central Bank reported a few months ago that fraud has dropped by over 98.9 per cent compared to what it was when we were using the magnetic stripe system, which was developed by MasterCard over 30 years ago. The magnetic stripe is an old generation card technology and the fraudsters have cracked it several years ago and therefore could skin the cards.
The Central Bank took the initiative to mandate chip in Nigeria such that all the cards that are issued in the country work on chip and pin technology, which is the latest and offers the best protection for electronic cards today. It makes fraud virtually impossible on the cards. The biggest way you can be exposed to the risk of fraud is by allowing access to your cards and pins. Sharing pins or cards accounted for the 1.2 per cent fraud that is now in the market because it is almost non-existent now. (This is) because the chip technology cannot be broken. It is the highest form of security for payment the world over and that is what we are using in Nigeria. If you must allow somebody access to your card, then maybe you could use a prepaid card where you just transfer a limited amount of money that you want the person to withdraw for you. In this case, the account or the balance could be monitored. Your main account which may be your debit account or credit account would still be intact. As a security measure, you can make sure that the pin on your prepaid card is different from the one on your regular card.
How competitive is the Nigerian electronic payment market?
Within Africa, I would say the Nigerian electronic payment is finding its right place now. We had been out of the race for a long time. But now we are in the race for rolling out technology that others are not rolling out as fast and adopting forms of payment that others are still trying to explore. A good example is contactless technology. It is called the MasterCard PayPass; it is a brand for our contactless payment technology. So instead of inserting the payment card into the PoS, users can make payments by simply waving their card over an electronic reader to conclude the transaction. From Japan to Milan, New York, Johannesburg and many other cities around the world, transit systems are now using the PayPass technology. We are bringing this technology into the market here. It has not been released yet but it is happening already because the backbone for it is being built. It is ready, but we are now getting the banks ready to be able to offer it to customers.
How soon will this technology be available in the country?
The banks will roll it out within this year. We have over 100,000 merchants, about 120 million cards with PayPass, and 311,000 acceptance locations globally. The technology is available in about 38 or 39 countries and Nigeria will definitely be the next country to deploy PayPass. The technology is available in China, India, Australia, Brazil, US, Canada and almost the whole of Western Europe. South Africa is the only country in Africa that has the technology.
Seeing that Nigeria is yet to embrace significantly the card technology, what value will the contactless technology add to the socio-economic lives of her people?
The advanced countries are using it for their transit system (Global PayPass Transit Solutions). If you look at the evolution of ticketing, Nigeria is still at the base where the use of cash is the norm. We’ve not even started using the token, which is followed by magnetic stripe, then smartcard. The contactless is the latest technology that enables you to tap and ride. It could revolutionise the lives of the people. So from coins to tokens to magnetic stripes to smartcard that is closed (closed system means you can only use the card only at that particular transit), then to contactless card, which is an open system (you can use the card at an ATM, PoS or other payment channels and devices).
It is cheaper to run. Transport of London runs Oyster, one of the world’s most successful payment systems. But last year, we won the deal to take that over to move it to the contactless system or technology. With that, Oyster will be saving over £100 million per year, which they are using to run their closed system. So if you go to London now and buy Oyster, they will give it to you in a MasterCard sleeve. It is to prepare the minds of the people to go fully PayPass. It is ideal for transit system and other business activities.
Don’t you think this can only be used where we have well structured transport system?
Even the unstructured ones can also migrate to contactless payment technology. If the National Union of Road Transport Workers, NURTW, buys into it and sees it as the transparent way to go, that would be a starting point. Once the key stakeholders buy into change, it happens. It is not new; countries are adopting it around the world. We normally think Nigeria is different but we have the same aspirations. We go through the same adoption challenges and all that to achieve the cashless economy we desire.
You need a transport authority to drive the adoption. LAMATA (Lagos Metropolitan Area Transport Authority) disclosed some time ago that it was going to introduce the use of smartcards in its operations. The PayPass has been tested in danfo-like commuter buses in South Africa. The device is attached to the bus, the passenger taps it with his card and the fare is paid. The bus owner does not have to worry that the driver is cheating him because the contactless payment is transparent. It is wireless and can be powered by the vehicle battery. We provide the standard for the machine and certify a number of vendors that make them available so that whoever wants to deploy it has so many sources to get it from.
Beyond the ease of transaction, what are the other factors that could drive the adoption of card technology?
Beyond the immediate benefit to the individual cardholder, institutions and government benefit a lot from a cashless society. If we go cashless, we would be able to see and monitor transactions more effectively than in a society where cash is the dominant method of payment. In many advanced countries, the usage of cards has helped institutions to guard against or investigate crime. In such societies, the use of cash could constitute security threat. The security agencies can be aided by the card system to monitor and detect unusual transactions. In a transparent card system, the security agencies, for instance, could easily detect and nip crime in the bud or arrest offenders and bring them to justice. Questions could be made for a transaction for the purchase of chemicals – what sort of chemicals are being purchased by who and from who, could they be used for bomb making, and so on?
That is how investigations are done the world over. But if you don’t see the transactions, there is no way you can monitor it or manage it. And that is one of the motivations for governments to support cashless technology. Electronic payment drives transparency because what security agents do is to track activities, movements and whatever it is to come to a conclusion on an issue or to pre-empt something from happening. But if you don’t see it, you can’t track it. The transparency gives the visibility to authorised security agents to be able to see transactions and make judgments about it and be able to carry out their work in a very efficient way. That is what this does. When you apply that to the security situation in the country, it can indeed help to improve the situation.
What are the major challenges in the country’s environment?
The biggest challenge is the connectivity (telecommunications). It is infrastructure problem that we are having right now. Once we can get that fixed, we believe there is no other challenge that we cannot overcome. That is the most critical challenge. Others are just the regular challenges of running business in Nigeria or outside Nigeria. We are in it for the long haul.
Where does MasterCard stand in Nigeria’s quest to attain a cashless economic status?
We are working with key partners to encourage the use of cards. MasterCard is helping to drive the cashless society initiative and is providing incentives to customers to move to the PoS. We are also sharing best practices around the world with banks, our partners, customers, financial institutions, showing them how Vietnam, South Korea moved from where they were in 1999 to where they are now, how India did it, how China is doing it, how Europe did it, and so on because we were there when their transformation happened because MasterCard is 45 years old as a company and we’ve always been part of such transformation. We are here to play similar role in Nigeria and even more. We want to be the organisation that you could look back and say MasterCard was part of that movement that led to this cashless transformation in Nigeria. We want Nigerians to be proud of what we’ve done and what we have achieved in terms of building the structures and networks and building the knowledge base of the people to be able to take advantage of electronic payment. We are bringing the mobile payment platform into Nigeria because that is the way of future transactions. Mobile payment is a global trend and some countries are already making headways with it. In MasterCard’s Mobile Payments Readiness Index, MPRI, released recently, Kenya is one of the top five countries in mobile transactions, with others being Singapore, Canada, US, and South Korea. While Kenya is deemed to be ahead of Nigeria in the index, it is interesting to note that Nigeria is ahead of France, South Africa and Italy. Nigeria has the potential to lead in this category and we have the technology to help her achieve that. MasterCard is committed to bringing the best technologies out there into the sub-Saharan market and using Nigeria as a springboard because Nigeria, right now, is MasterCard’s headquarters for sub-Saharan Africa. That is a massive statement that we’ve made and it is in recognition of the country as a hub for West Africa and as a pillar in Africa.