Cash-less Policy: A Burden or Relief?

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Obinna Chima writes that the cashless policy will contribute in the drive to formalise economic activities and reduce drastically the prevalence of cash in the economy

Today, policymakers across the world strive to attain a society whereby the amount of transactions done by cash is reduced significantly. With the growth of electronic payment, the spread of mobile technology, adoption of open banking and other digital payment platforms, the use of cash is slowing.

For instance, the total value of transactions through various electronic payment (e-payment) channels in the country rose sharply by 103 per cent to a total of N231.247 trillion as at June 2019, compared with the N138.672 trillion recorded in the whole of 2018. Also, the volume of transactions jumped by 42 per cent in the period under review, from a total of 2,163,779,156 recorded in 2018, to 3,068,922,121 in the first six months of 2019.

The breakdown of the figures showed that total value of interbank e-payment transactions in the period under review was N203 trillion and total volume at 1,756,300,720.57. The data also showed that while the combined value of Automated Clearing House System/NAPS/PMS stood at N2.271 trillion and volume at 3,416,537 in the period under review, ATM transactions stood at N11.596 trillion in the first six months of 2019, with total volume of 424,619,677.

However, the value of cheque transactions within the same period was N2.271 trillion with total volume of 3,416,537.
Clearly, the figures contained in the industry e-payment data for the half year 2019 obtained from the Central Bank of Nigeria (CBN), showed the shift towards a cash-less society in the past few years.
That was why the central bank reintroduced the cashless policy. Even though some have argued that the policy would be a burden to some, analysts have called for its support because of the benefits.

The Reintroduced Policy
According to the central bank, the full implementation of the policy would become effective from March 31, 2020. Also, the banking sector regulator recently announced a review of the process for merchant settlement, which it said was to further promote a cashless economy and enhance the collection of applicable government revenues

In the circular titled: “Re: Implementation of the Cashless Policy,” that was addressed to all banks, it announced the commencement of charges on deposits in addition to already existing charges on withdrawals. In the circular, the charges now attract three per cent processing fees for withdrawals and two per cent processing fees for lodgements of amounts above N500,000 for individual accounts.

Similarly, corporate accounts would attract five per cent processing fees for withdrawals and three per cent processing fee for lodgements of amounts above N3,000,000.
The Bank, however, disclosed that for now, the charges on deposits shall apply in Lagos, Ogun, Kano, Abia, Anambra, and Rivers states as well as the Federal Capital Territory.

In a related development, the CBN in a separate circular titled: “Review of Process for Merchants Collections on Electronic Transactions,” announced the its approval for banks to unbundle merchant settlement amounts and charge applicable taxes and duties on individual transactions as stipulated by regulations.
The circular also announced a downward review of the Merchant Service Charge (MSC) from 0.75 per cent capped at N1,200 to 0.50 per cent capped at N1,000.

The CBN had in April 2017, suspended the nation-wide implementation of the cashless policy which commenced this month.
It had then stated that the existing policy before the announcement of the new policy would remain in place in Lagos, Ogun, Kano, Abia, Anambra, Rivers and Abuja.

“You will recall that a directive was issued on the nationwide implementation of the cashless policy vide our circulars with reference numbers BPS/DIR/GEN/CIR/04/001 dated February 21 and BPS/ DIR/GEN/CIR/04/002 dated March16.
“Please note that the new withdrawal and deposit processing fee charges above the threshold, as contained in the circulars referenced above, are hereby suspended until further notice. The position of the policy shall now revert to the status quo ante.

“The new policy already applied effective April 1, 2017 as contained in the circulars in reference above should be reversed and the old charges be applied. All necessary refunds should be made accordingly,” the CBN had explained then.
Financial inclusion has continued to assume increasing recognition across the globe among policy makers, researchers and development oriented agencies. Its importance derives from the promise it holds as a tool for economic development, particularly in the areas of poverty reduction, employment generation, wealth creation and improving welfare and general standard of living.

The payment system plays a very crucial role in any economy, being the channel through which financial resources flow from one segment of the economy to the other. It, therefore, represents the major foundation of the modern market economy.

The Debate
To the Director General, Nigeria Employers Consultative Association, Timothy Olawale, noted that even though the policy would move the country into a cash-less economy and reduce crime involving cash, said there should have been enough notice before implementation.

He also said it would also have the greatest impact on retail businesses and other medium-scale retailers in the fast moving consumer goods sector.
Olawale said: “Though the overall aim of reducing cash transactions is good, the policy will, however, increase the cost of doing business and force organisations and individuals to start multiple deposits and withdrawals in order to beat the charges.”

Also, the Director General, Lagos Chamber of Commerce and Industry, Muda Yusuf, said the notice given by the CBN was too short and that it would have disruptive effects on bank customers and other stakeholders.

“We implore the CBN to give at least two months to allow for players in the economy to adequately prepare themselves. This is particularly so for investors who are major players in the retail segment of the economy,” he added.
But the Managing Director, Unified Payments, Agada Apochi, welcomed the policy, stressing that the timing would not be a challenge.

He noted that the cost of handling cash remains too expensive to the government, businesses and individual citizens.
“The costs include printing of notes and coins, handling and processing, high operating costs for banks who pass the costs to customers, high interest rate, lack of transparency, black market economy, violent and non-violent crimes, etc,” Apochi said.

According to Apochi, “Nigerian banks and other payment service providers have worked with CBN to make electronic payments available to Nigerians e.g. instant transfer, bills payment, etc. using mobile App, USSD, etc.
“Banks also provide PoS devices to customers without the customers paying for them. In other markets, customers pay for devices in addition to transaction charges. The transaction charge in Nigeria for point of sale transactions is about the lowest in the world, notwithstanding that the cost of providing the service in Nigeria ranks among the highest in the world.”

To the Financial Derivatives Company Limited, the benefits of cashless policy would among others, boost tax revenue.
The Lagos-based financial advisory company, pointed out that increased usage of electronic platforms for business deals would ease the tracking of transactions and assist the government to widen the tax net and lower tax evasion.
“An increase in the tax base will boost government revenue and lower the fiscal deficit (currently at N1.9trn). The new cashless policy will help to reduce the amount of cash outside the banking system.

“This will increase the effectiveness of monetary policy in managing inflation. It helps to keep a cap on inflation.
“An increase in the use of e-payment platforms will increase the CBN’s savings due to lower cost of printing currency notes. It will help to reduce related crimes such as money laundering, corruption, and other cash related fraudulent activities,” it added.

CBN’s Position
The Director, Payments Systems Management Department of the CBN, Sam Okojere, stressed that the benefits of the policy far outweighs whatever challenge some had identified.
Okojere said: “We are saying, there are several other means that do not involve physical cash and we have done quite a bit in strengthening these payment systems.

“A lot of cash outside the banking system makes it difficult for monetary policy to impact the economy.”
He further said in a bid to encourage cashless policy, agent locations would be omitted from paying processing fees or tax on cash-out done.
“For clarity, there will be no processing fee either under the Cashless Policy or tax on cash-out done at agent locations in order to encourage financial inclusion in the country.”

In the same vein, CBN Governor, Mr. Godwin Emefiele, pointed out that the adoption of the cash-less policy was in line with the Bank’s strategy to eradicate fraudulent activities in the Nigerian banking system.
Emefiele explained that the policy was not intended as a strategy to disenfranchise businesses as being speculated by some Nigerians.

He explained that Nigeria full adoption of cashless policy was in line with the Section 2 (d) and section 47 of the CBN Act as it would promote an efficient payment system that will end charges incurred from cash processing often passed on to customers by Deposit Money Banks, increase transparency in financial dealings and reduce fraudulent activities including ransom payments, extortion and cyber fraud.

Emefiele revealed that at the inception of the policy, that there have always been charges on deposits and withdrawals.
However, “Because there was lots of cash outside the banking industry we decided that there was no need to penalise those that wanted to bring in their cash from outside the banking industry into the banking industry, therefore, we retained the charges on withdrawals and relax charges on deposit.

“After five years, we expect that all the cash that was outside the banking system has been returned. So we think it is time to fully kick start the cashless policy,” he explained.

Therefore, the cash-less policy should be seen as a relief as it aims to curb some of the negative consequences associated with the high usage of physical cash in the economy. Also, it aims to address high risk of using cash as cash encourages robberies and other cash-related crimes. It also can lead to financial loss in the case of fire and flooding incidents.

Similarly, high cash usage results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth. It also enables corruption, leakages and money laundering, amongst other cash-related fraudulent activities.

For consumers, the policy is expected to lead to increased convenience; more service options; reduced risk of cash-related crimes; cheaper access to (out-of-branch) banking services, access to credit and financial inclusion.
On the other hand, corporates are expected to benefit from it through faster access to capital; reduced revenue leakage; and reduced cash handling costs.