Banks and fintech companies in Nigeria have several major hurdles to cross in the race to increase cashless transactions.
Barring any last-minute review, Nigerians would only be able to withdraw N20,000 of the lower denominations from any Automated Teller Machine (ATM) across the country from January 9, 2023, a move experts have described as the most radical step the Central Bank of Nigeria (CBN) has taken since it began the journey to the cashless economy as far back as 2009.
The CBN set N100,000 and N500,000 as the maximum limits for withdrawal over the counter by individuals and corporate organisations respectively.
The policy has huge implications for both banks and fintech companies, which are expected to fill the gap that would be left by the reduction in cash in circulation. Nonetheless, the payment infrastructure available is considered by many experts as grossly inadequate to withstand the pressures that would follow the implementation of the policy.
Inlaks, which owns and manages over 40 percent of the total ATMs in the country, said in a report that the number of ATMs deployed across the country rose from 10,865 in 2011 to 19,355 in 2021. ATMs in Nigeria increased from 1.8 units per 100,000 adults in 2006 to 16.2 units per 100,000 adults in 2020, growing at an average annual rate of 22.52 percent, it said.
In comparison, Brazil, with a similar population, has 96.56 units of ATMs per 100,000 people, according to the World Bank. Indonesia has 51.66 units of ATMs per 100,000 people. African peers South Africa and Egypt have 58.59 units per 100,000 people and 22.06 units per 100,000 people respectively.
Most of the traffic is moving to Point-of-Sale (PoS) transactions, as the infrastructure is not evenly distributed.
Between 2017 and 2022, the number of PoS terminals in Nigeria grew significantly, from around 155,000 to 1.1 million as of April 2022. Sixty percent of those terminals are domiciled in Lagos State, which also has the largest concentration of banking agents at over 281,631.
It is also the state with the highest agent per 100,000 adults at 3,412 agents per 100,000 adults. On the other hand, Yobe State with largely rural dwellers has the lowest number of agents at 8,194, while Jigawa has the lowest number of agents per 100,000 at 330.
Mobile banking channels have also seen huge transaction growth but continue to experience glitches, which leave consumers frustrated and seeking alternatives.
Banks network malfunction was among the top reasons that the Nigeria Inter-Bank Settlement Systems (NIBSS) Instant Payment Platform fell to N32.64 trillion in September 2022 from the N33.2 trillion reported by NIBSS in August.
Low investment in payment infrastructure to boost quality service delivery means that even banks have to struggle to capture the majority of the customers to use their digital banking services. In its report for the first half of 2022, Guaranty Trust Bank said only 25 percent of its over 28 million customers carried out electronic transactions.
For business owners like Okeke Timothy, CEO of TalkTailor, a Nigerian-based social networking platform for fashion lovers, implementing the policy would require banks to upgrade their infrastructure to run more efficiently and the CBN to address the bottlenecks in the banking sector.
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He said he had been trying to do an interbank transfer with his debit card at ATMs but had not been able to complete it as of the time of speaking with our correspondent. “Now imagine what would happen if this was an emergency, seeing that my firm won’t be able to access cash of N50,000 per day come next year.”
For experts like Kalu Aja, a personal finance consultant; and Adedeji Olowe, CEO of Lendsqr, who support the CBN cashless policy, its success hinges on addressing the transaction fees that consumers are facing with the various electronic channels.
“I completely support the Central Bank of Nigeria’s directive to go cashless because the country needs it,” Olowe said in a post shared with BusinessDay. “Some may argue that this impacts the poor and the bottom of the pyramid negatively, and they wouldn’t be wrong. Yes, it does, at first, but in the long run, this is significantly superior to cash and benefits everyone.”
Olowe said while the cashless policy presents an opportunity for the CBN and bankers to grow financial inclusion and bring benefits to Nigerians, it would only succeed if they make transactions free (and cheaper) for Nigerians and take other measures to assuage the populace about the benefits of this initiative.
Aja, who agrees with Olowe, highlights the specific areas the CBN needs to quickly address. These include scrapping all ATM and bank transfer fees, as an incentive to consumers that would be impacted by the cash limit policy.
“Push the banks to offer digital check deposits. For example, I can take a picture of a check and deposit it into my account directly. Scrap VAT on transfers,” he said.