Few weeks into the commencement of the cashless policy scheme in Lagos State, many residents are yet to wake up to the reality even though there are many service providers raring to go
Among all the home news he had received in recent months, the determination of the Nigerian government to enthrone a cashless regime in the country, to him, was the most gladdening. But when Fidelis Obi arrived in Lagos from his base in Maryland, United States, US, two weeks ago, he could hardly see the signs of an emerging cashless society. “I have been here for about one week and all the transactions I have done including fuelling my car have been cash-based,” he said.
Obi was disappointed because his expectations were very high and rightly so. With only four weeks to the commencement of the cashless policy implementation in Lagos, many like Obi say non-cash transactions should have pervaded the city by now. The apex bank had fixed January 1, 2012 for the implementation of the pilot scheme in Lagos State and June 2012 for implementation in Port Harcourt, Rivers State, Kano, Kano State and Aba, Abia State, respectively, as well as in Abuja, the Federal Capital Territory.
With its implementation, there would be very low cash flow as electronic channels would be employed in place of cash transactions, and these would involve debit, electronic funds transfer, mobile payments, multi-functional automated teller machines, ATMs, Internet banking, and extensive use of point of sale, PoS terminals.
The new policy has imposed a daily cumulative limit of N150,000 and N1million on cash withdrawals and lodgements by individuals and corporate customers respectively with deposit money banks, DMBs. By this policy even third party cheques above the cumulative limit would no longer be cashed over the counter, as it would be expected to go through the clearinghouse. To ensure compliance, the apex bank would impose sanctions of N100 and N200 for every thousand naira, on individuals and corporate organisations, respectively, for cash transactions above the required limits. Any bank that allows cash payment on a cheque above the stipulated limits would also be liable to a fine of 10 per cent of the face value of the cheque or N100, 000, whichever is higher.
Besides the cash withdrawal and lodgement limits, the Central Bank of Nigeria, CBN, has directed that all electronic payment card systems in the country should be harmonised, stressing that no card scheme, foreign or local, would be allowed to operate separately in the country, warning that any payment scheme, processor, switching company, service provider or bank that contravenes the policy would be sanctioned. This explains why ATMs installed across the state have been configured to accept any card irrespective of the issuing firm. Like the ATMs, the PoS terminals to be deployed will accept payments through all cards – Visa, Mastercard, Verve, Genesis, and others – such that a terminal owner will not need to provide separate PoS terminal for each type of card scheme.
The choice of Lagos for the pilot scheme is not out of place. With a large population estimated by the state government to be 18 million, Lagos is the commercial nerve centre of the country, besides being the economic and financial hub of the country. The state is said to account for over 80 per cent of PoS transactions and over 60 per cent of cleared cheques in the country. Besides, over 70 per cent of the financial institutions in the country are said to be located in the state, which is also blessed with vibrant airports and seaports. About 50 per cent of the money supply in the country is said to end up in Lagos as the economic hub of the country. To the policymakers, therefore, if the policy can be successful in Lagos, then it can succeed in any other city in the country.
To make the scheme a success, the CBN had projected the deployment of 40,000 PoS devices in Lagos State to create an enabling environment for the successful take-off of the cashless policy scheme, and to increase the number to 150,000 by the end of next year. What is being envisaged is that people in Lagos would no longer be required to present cash for goods purchased or services rendered by airlines, hotels, shopping malls, supermarkets and many other commercial concerns. With the new policy, motorists may not need to purchase fuel with cash as debit cards would be the popular mode of payment. Besides, ATMs penetration is being intensified to ensure that an individual would withdraw only the limited amount of cash he or she requires. With ATMs now used for multi-functions, the cards could serve as electronic purse.
Already CBN has appointed manufacturers to provide PoS terminals for the prospective terminal owners. These include PAX Technology, PAX, a Hong Kong-based firm reputed to be a global leader in the provision of secure electronic payment card electronic; Bitel, a South Korean firm; Ingenico of France; and Verifone, a Hawaii-based firm. The apex bank explained that the selected companies have products that conform to the minimum standards as specified in the CBN’s PoS guidelines. Their services would complement that of the Payment Terminal Service Providers, PTSPs, already licensed by CBN. These service providers include Valucard, ETOP, ITEX, Paymaster, a subsidiary of Chams; Citiserve and Easyfuel, which will focus on the downstream sector of the oil and gas industry. The service providers will provide support for the 40,000 PoS terminals that will be operated within Lagos.
With a deepening of the scheme in the state, more service providers could be licensed. The CBN has also licensed 11 operating banks to provide mobile banking services, of which the United Bank for Africa, UBA, has taken a lead by launching its mobile money service, U-Mo in Lagos, last July. Philip Oduoza, group managing director of the bank said that “just like the GSM changed the face of communication in the country, the U-Mo is also going to revolutionise the Nigerian banking system. What we are trying to let people know is that you can now store your money on your phone and use it to transact business.”
Electronic-business, mobile banking or e-banking, is gradually taking root in Lagos. The apex bank and the Bankers Committee have also embarked on awareness campaign in major markets to sensitise Lagos residents on the coming regime; yet, a cashless economy is yet to appear in the vocabulary of Lagosians, many of whom are still in the dark as to what the scheme is all about. Isaac Okoro, a dealer in household wares in Ikeja, the state capital, for instance, is not aware of any plans to migrate Lagos to a cashless state. Nevertheless, Lagosians have expressed divergent views on the scheme.
Muhammad Nda, director, currency operations department, CBN, had explained that the apex bank was propelled by the need to reduce the high usage of cash for transactions, moderate the cost of cash management and also encourage the use of electronic payment channels in the country as is the case in developed economies. According to him, all DMBs, savings and loans institutions, mortgage and microfinance banks are all expected to comply with the new directive.
The Bankers Committee, which comprises CBN, the Nigerian Deposit Insurance Corporation, NDIC, the discount houses and the 24 deposit-taking banks, has also assured that the scheme would result in a reduction in the lending rates to make it possible for large and small businesses to access credit. According to the committee, “The bankers at their meeting recently agreed to cut down operating expenses by as much as 30 per cent to make funds accessible to borrowers at a lower cost. The e-payment initiative involves a transformation of the payment system and the idea is to permit banks to cut cost through moving the country from its present “cash-and-carry” status to one where people will make payments through electronic channels.” The committee’s findings revealed that the direct cost of cash management borne by banks was N114.5 billion in 2009, and is projected to increase to N192 billion by 2012. This represents an increase of about 68 per cent. This, according to the bankers, increases the cost of lending, which will fall by the time the new regime takes off.
Informed Nigerians are not averse to the implementation of a cashless policy because of its expected benefits, not only to the citizens but also to government and foreign organisations. According to experts, a cashless society offers convenient electronic transactions and reduces the cost of transactions. It also helps government to improve its services through automation, tax earnings, and reduce the cost of currency management. According to CBN, a cashless regime would boost economic development and reduce financial risks in the country.
Indeed, many have begun to appreciate the many benefits of a cashless society to the people and the economy. For those in the financial services sector, the scheme would help to reduce the cost of cash handling and cost of funds. It has been projected that the banks could spend about N200 billion on cash management by the end of 2012 if the present cash-based regime were allowed to persist. But the apex bank has vowed not to let it happen.
Blessing Dada, a wholesale dealer in vegetable oil is highly expectant of the new scheme. “It is really a good idea because it will reduce the spate of robbery in Lagos since people will carry less cash,” she said. But Dele Ndidi, a dealer in chemicals disagrees. “The idea of cashless economy in Lagos cannot work because we don’t have the required infrastructure,” he said. Like Dada, Idowu Olawoyin, a banker with a microfinance bank is happy with the scheme. He noted that “it will reduce the rate of theft,” citing petrol station attendants who he alleged cheat customers since sales are cash based. Alice Obong, a nurse, said the use of cards will benefit holders as they don’t have to forfeit their money for lack of change. “If you pick up an item which cost N19.85k, the person selling the item will round it up to N20 without any apology. But with the use of cards, you are not cheated,” she said.
Adeola Kayode, marketing manager, Fatgbems Filling Station, Ojodu-Berger, and Angela Ediete, a customer care attendant, Diamond Bank agree that the deployment of PoS would help to ease business transactions, but they observed that the awareness is still very low among the people. Sunday Oshia, an attendant in a store in Ojodu said although the owner of the store has provided a PoS, many customers still prefer to make cash payment. They are not alone. Most Lagosians still have the cash and carry mentality mainly because of their distrust of the electronic payment system in the country. Olalekan Ibrahim, a quantity surveyor expressed worry about hackers getting illegal access to people’s account. This appears to be the fear of many who avoid the ATMs like a plague, especially with the high incidence of fraud and indiscriminate deductions from people’s accounts, coupled with inefficient service provision.
Some sceptics also point to inadequate ATMs and PoS terminals to drive the cashless policy scheme, aside from poor Internet connectivity, which leads to downtime in most cases and the ATMs are unable to dispense cash or process other transactions. There are also cases of cash jams, which lead to malfunctioning of the machines and incorrect debiting of customers’ accounts. The reversal of such incorrect debiting often takes several weeks in some banks and even months in some others. Adebola Johnson, a Lagos-based businessman recalled a time when he was debited as having withdrawn N60,000 from his account with the use of ATM when in actual fact, the machine did not dispense cash. According to him, it took him several weeks after making a formal complaint and several visits to the branch for it to be reversed.
Some Lagosians have also expressed the view that CBN’s lack of consistency in its policies would affect the success of the cashless scheme in Lagos. Johnson cited the directive of CBN to banks to remove their ATMs from non-banking locations only to reverse its stance after they have spent huge sums of money to remove the machines. The latest directive contained in a circular and titled: Modalities for Off-site ATM Operations/Deployment, and signed by G I Emokpae, acting director, Banking and Payments System, CBN, directed banks and independent service providers to deploy more ATM machines and ensure their efficiency to ensure a smooth implementation of the policy, stressing that “all ATMs (off-site and on-site) shall have a minimum uptime of 95 per cent going forward.” The circular also prescribes sanctions for failure to comply.
But some experts say the ATM and other e-payment channels work with Internet link and when there is no network, transaction process is interrupted. Chris Uwaje, president, Institute of Software Practitioners of Nigeria, ISPON, identified the challenges of broadband infrastructure, accredited application software, legislation, human skill capacity, call centre backbone, consumer profile data, and credible regulation security, which he said must be addressed for the scheme to achieve its objectives. According to him, embarking on electronic and mobile transactions without a legal framework and a national database system could be disastrous. “When it crashes someday... given the existing conditions of poor power and other infrastructure there will be no fall back system for business continuity and government survivability...There is need to return to the drawing board,” he cautioned.
There have been calls on government to ensure the security of the cyberspace, computer systems and networks, as well as electronic communication through appropriate legislation in view of the high incidence of cyber crime, which is feared to be even higher with the increase in e-transaction. Also the electricity situation and ICT infrastructure has to be improved upon for the cashless regime to be efficient. Since these are not in the purview of the service providers, the quality of e-transactions could continue to be a major challenge for a long time.
Additional Reports by Abiola Odutola, Segun Odubanjo and Ifeoma Ossai