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Monday, August 06, 2012

Consolidating The Cashless Policy

Less than six months to Nigeria’s nationwide adoption of the cashless economy policy, the Central Bank of Nigeria puts measures in place to address lessons learnt from the pilot scheme

Over six months ago, the Central Bank of Nigeria, CBN, commenced its cashless policy pilot project in Lagos State. The policy is expected to spread to other parts of the country by 1 January 2013. The CBN introduced the policy with a view to bringing the nation’s payment system at par with those of global leaders.

According to Malam Sanusi Lamido Sanusi, Governor of the CBN, the policy, which aims to reduce drastically the volume of cash in circulation in favour of electronic forms of transaction will help the apex bank achieve its objective of expanding, deepening and modernising the payment system in Nigeria.

It is also expected to galvanise the CBN in ensuring that Nigeria ranks among the top 20 economies of the world in line with the nation’s Vision 2020 aspirations and impact positively on economic growth and development.

Sanusi argued that an effective and modern payment system positively correlates with economic development and serves as a key enabler for economic growth. From the regulatory angle, the policy will create an environment for more effective monetary policy implementation, create a more stable pricing system and curb the menace of inflation which is identified as a deterrent to the growth and development of any economy. The CBN boss said the initiative will bring at least 50 million more Nigerians into the formal banking system in the next eight years.

The Lagos cashless project is believed to have made some progress, as between N75bn and N100bn transactions are made electronically daily in recent weeks. Since December 2011, deployment of point of sale, PoS, devices has been on the rise. By 1 July this year, the cumulative number of PoS deployed/connected to NIBSS CTMS stood at 88,632, representing an increase of over 100 per cent in relation to the 5,992 recorded at the end of January. Mr. Chidi Umeano, Head, Shared Services Office, CBN, disclosed that the target of purchasing at least 10,000 PoS terminals per vendor has been met for three vendors while registered merchants stood at 151,717 by 1 July this year.

Banks, determined to bring more consumers to the Cashless Lagos project, have flagged off road shows to enlighten and encourage traders and the general public to embrace the cash-less banking initiative. The road show has the theme “Go Cashless, use PoS, Automated Teller Machines (ATMs), internet, chequebook and phone.” The show, which started at the Trade Fair Complex, Lagos, is expected to move to other markets like Alaba, Mile Two and Idumota, all in Lagos State.

The main objective of the road show is to effectively propagate the initiative as an inevitable innovation payment option that is much safer than cash transactions.
The show will also allow banks to test-run the PoS machines and teach customers, especially traders, how to use the devices. Traders are being told to see the technology as the only solution to problems like theft and delay in payment for goods and services. PoS machines will be supplied to deserving customers by their respective banks. Merchants who qualify for the PoS machines but do not operate current accounts will be guided on how they will be serviced.

But the Cashless policy is not without challenges. As the CBN boss observed, the banking penetration level in Nigeria is still very low and many people prefer to keep their money in their own vaults rather than lodge them in banks. Literacy is also still at a comparatively low ebb, especially regarding to computer and financial literacy. And there is poor enforcement of the law. Sanusi also attributed cashless policy hiccups to bandwidth failure by the telecommunication operators and infrastructural challenge. About 92 per cent Nigerians are unaware of the policy.

Umeano cited other challenges like resistance due to prevailing cash culture, distrust in the banking system, lack of clarity in communicating content of policy and lack of PoS at priority locations. Others are clearing exorbitant bank charges on e-payment products, need for standardised pricing to encourage usage and adoption, and independent online, real-time monitoring of electronic channels uptime.
Mr. I.T. Nwaoha, Deputy Director, Consumer and Financial Protection Department at the CBN cited lack of uniformity in (Asynchronous) Information Technology Platforms, lack of judicial precedence despite the enactment of “Evidence Act 2011”, poor institutional framework to ensure monitoring and compliance, low creativity in product delivery (most patronised products are ATMs and PoS), weak Information Technology Control Systems and biased Audit Trails (that is, audit trails generated and maintained by same financial service provider) as other challenges. Last year, ATM and PoS related complaints accounted for about 90 per cent of total number of complaints received against financial institutions.

Sanusi disagreed with the criticism that the cashless policy will hurt the low-income group adversely. He argued that many of them cannot, with the volume of their transactions, qualify for the cost that the cashless policy attracts. The CBN boss disclosed that a survey carried out by the apex bank showed that only 10 per cent of daily banking transactions are above N150,000. This suggests that the bulk of the banking population subsidises the costs that the tiny minority (10 per cent) incurs in terms of high cash usage. The high cash usage results in a lot of money circulating outside the formal sector, thus limiting the effectiveness of monetary policy.
Aside from the use of ATMs and PoS, transactions carried out through the use of well managed/developed mobile Agent Network have surged. By the end of May 2012, the total number of subscribers was 1,787,731 while the total number of Agents enrolled stood at 19,042. Total volume of transactions was 468,312, while total transaction value stood at N4,671,444,715.00. The figures are expected to grow as awareness increases.

A total of 15 mobile scheme operators have so far been granted operating licences. The operators are offering a range of services to members of the public using mobile phones as a channel. The services are micro savings, loan vending, bill payments, person-to-person funds transfer, balance enquiry/mini statements and airtime top-up. Others are cash in (stored value accounts) and cash out (stored value accounts) purchases, payroll/pension disbursements and banking services (recurring deposits, loan repayment).
The overriding objective of the Mobile Payments Regulatory Framework is to extend the payments system to the unbanked as a vehicle for financial inclusion, while achieving national utilization of the payments and banking infrastructure.

The CBN is not relenting in its role of addressing the challenges thrown up by the cashless policy. The apex bank has deployed PoS with the following features: 24 hours battery life to address power outage, two SIM slots for better connectivity, car charger for alternative charging and multi-functional machines for various transactions. It has also issued a circular requesting all banks and financial institutions to expand their ATMs and establish helpdesks to accommodate all consumer complaints. There is an on-going effort to introduce ATMs with graphics to accommodate illiterates. The CBN has introduced the chip and pin cards to replace magnetic stripe cards and has launched public enlightenment and awareness campaigns on consumer rights and responsibilities.

The CBN introduced the Nigerian Unified Bank Account Numbers, NUBAN, account numbers to facilitate direct electronic funds transfer among banks and reduce clearing errors. The apex bank has also commenced periodic compliance checks on financial institutions to ensure establishment of effective and functional complaint management systems. On 2 April, it upgraded its Consumer and Financial Protection Division to a full department with a view to strengthening its capacity to address consumer issues and ensure that the confidence of users of financial services in Nigeria are sustained.

Consumer protection in e-banking environment entails entrenchment of fair competition/trade practices, promotion of consumer rights and resolution of e-commence related disputes. Notable causes of customers complaints under e-banking include porous information technology platforms, ignorance of the security implications of divulging personal information access to customers, information by fraudsters and low level of consumer enlightenment on product suitability. Others are untrained marketers of card products, inexperienced officers, non-automated reversal of PoS and ATM errors and delayed and suppressed transaction notifications.

Nwaoha advised individuals to be very cautious about the confidentiality of their personal information like token, pin, passwords and password recalled questions and to promptly inform their banks on the slightest suspicion of fraud. Corporations are also advised to ensure that competent and reliable personnel are responsible for all stages of electronic transactions, maintain sufficient primary or auxiliary evidence of transactions and build safe and secure information systems (firewalls and biometrics). Nwaoha expects telecom companies to develop durable electronic payment solutions and ensure integrity of data transferred through networks. He also wants the judiciary and legislature to develop the necessary laws to support electronic processing and payments and ensure proper interpretation of laws relevant to electronic processing.

Umeano spoke glowingly about the benefits of a cashless policy. He posited that for the government, it will optimise tax revenue collection, increase economic growth and increase financial inclusion. For corporations, it will offer better access to capital due to shorter payment processing times, increase efficiency of payment processes and accounting, reduce revenue leakages and provide more efficient treasury management. For the banks, it will provide efficiency through electronic payment processing, reduce cost of operations (cash handling) and increase banking penetration. For the consumers, it will provide faster and easier payments, increase convenience/access (more payment options) and reduce risk of robbery.

Nigeria remains largely a cash-based economy. By December last year, cash-related transactions accounted for over 99 per cent of customer activity. But the cost of cash to Nigeria’s financial system is high and increasing, with the direct cost of cash estimated to hit N192bn this year. This excludes bank cash infrastructure costs and employee costs attributable to cash logistics.
Heavy cash usage has its attendant problems. These include robberies and cash-related crimes, kidnapping, election rigging, high cost of cash handling and processing, revenue leakage, inefficient treasury management and corruption. A cashless policy is expected to mitigate against these problems.(TheNEWS magazine)

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