Tortuous journey to cashless economy

Nigeria’s desire to modernise its payment system is gaining traction. Modern ways of paying for goods and services, which were hitherto impossible some five years ago, are now possible today, thanks to the Central Bank of Nigeria’s cashless policy drive.

Citizens now go to shopping malls, eateries and supermarkets with only their payment cards in their pockets. This is a card revolution in a country where cash was the only means of payment five years ago!

Unofficial figures from MasterCard, Visa and other payment companies have it that there are 35 million to 40 million Automated Teller Machine cards currently in circulation in the country, which were all issued by Nigerian banks.

The scope of the cards has gone beyond the nation’s borders as ATM cards issued by Nigerian banks are now being used overseas to make payment for goods and services through MasterCard and Visa.

The days when Nigerians do shopping overseas with large amount of cash or payment cards issued in foreign countries are getting over gradually.

But industry players say more thanks should go to the CBN, which has been at the forefront of driving the cashless policy, for the giants strides achieved in through the initiative so far.

According to them, Nigeria is one of the few countries where the central bank drives the cashless initiative. Banks, electronic payment companies, merchants and consumers are usually at the forefront of driving the cashless payments system.

But the CBN has reasons for championing the cashless course. These include the fact that achieving cashless Nigeria will help to make its monetary policy more effective; it will help the nation to achieve its Vision 2020 targets; it will help modernise its payments system; and will reduce the cost of banking services (cash handling constitutes 30 per cent of the operational costs in the financial system).

Other goals are that achieving cashless Nigeria will help stop a situation where 90 per cent of the poor are subsidising the 10 per cent who impose the huge cost of cash handling on the system; foster transparency and curb corruption/leakages; and drive financial inclusion.

The CBN’s cashless Nigeria programme seeks to reduce the amount of physical cash circulating in the economy by promoting and entrenching electronic and non-cash-based options as the major channels for payment and settlement, away from the current dominance of cash transactions.

Notwithstanding the achievements made in the cashless initiative so far, over 95 per cent of transactions in the country are still cash-based, according to industry experts.

Statistics have shown that the amount of cash in circulation is about 41 per cent of the nation’s Gross Domestic Product as of 2011, when the GDP was less than $400bn. This is in sharp contrast to countries like Indonesia where the amount of cash in circulation was just a meagre 4.3 per cent of its $800bn GDP as of 2011.

Although the journey to a cashless society is still far, experts say increasing challenges confronting e-payment systems may make it more tortuous and farther than imagined.

A major challenge threatening the cashless Nigeria drive is the increasing spate of electronic frauds. Bank customers are now unwilling to make use of online platforms or Internet banking because of the prevalence of e-fraud.

Findings show that bank customers who had yet to subscribe to Internet banking were now unwilling to do so due to fears of hacking of their details, while existing customers who had been defrauded had discontinued online banking.

Two weeks ago, a journalist discovered that her token, which she often used for online transactions, was no longer working. After a few weeks, she reported the matter at one of the branches of the first generation bank. She was asked to fill a form, which she did.

The following day, someone who claimed to be an employee of the bank called her and told her that the bank was working on her request and that she needed to provide some details on her account, including her password, which was no longer working.

She obliged and the call ended. A few minutes later, she got two alerts that funds had been transferred from her account to two accounts in different banks. A total of N279,000 in her account had been transferred to those accounts. The journalist returned to the bank to make the complaints and the lender referred her case to its Fraud and Investigation Unit. The matter is still being investigated and she has yet to get any refund, and have the fraudsters been apprehended.

In an interaction with our correspondent, the journalist says she believed strongly that there was insider collusion in her case.

“Someone from the bank must have colluded with some external fraudsters to defraud me. All along when my token was not working for about two weeks and I did not have time to go to the bank to make complaints, nobody called. Why is it that a day after I made my complaint at the bank that someone called me, claiming she works with the bank and that I should provide some details, which they eventually used to defraud me?” she queried.

A Deputy Governor of the CBN, Mr. Adebayo Adelabu, who joined the bank a few months ago, said that banks had recorded more fraud cases because of internal collusion between officials and fraudsters.

“We have recorded high success rate of frauds from this class of individuals with collusion of bank officials. In fact, before I left commercial banking, we had started seeing the incidence of more internal frauds than eternal; which means it is very difficult to curb,” he noted

Adelabu, who was the Deputy Governor, Financial System Stability, CBN, until a recent redeployment to the Corporate Services Department, spoke at the 2014 compliance conference held in Lagos by the Committee of Chief Compliance Officers of Banks in Nigeria.

“It is those who know your systems and controls that compromise to assist external fraudsters. If banks can find a way to minimise the cooperation of their employees with these fraudsters, there is going to be a reduction in the number of successful fraud cases,” he added.

The former Executive Director, First Bank of Nigeria, said while fraud and corruption were international in scope, they had become predominant in the third world countries, including Nigeria, as a result of perverse incentives.

He noted that fraud and corruption were being committed by those mostly entrusted with high positions or public funds.

In order to overcome the challenges, Adelabu advised the banks to keep close check on transactions involving high risk customers such as politically exposed persons and financially exposed persons.

The CBN deputy governor also listed factors responsible for the increasing cases of fraud as poor social value; continuous advancement in technology without commensurate emphasis on capacity building in banks and other companies; inadequate laws or poor implementation of legal/regulatory provisions for fraud cases; insatiable appetite for wealth among individuals and poor moral upbringing of children; and banks’ poor or faulty staff recruitment processes; poor conditions of service; and weak internal controls.

An Information and Communications Technology expert and Chief Operating Officer of Digital Encode, Mr. Adewale Obadare, said there was a need for banks to make more investment in technology owing to the spate of e-frauds.

According to him, e-fraud is not new to the financial sector but there is a need for the banks to improve on building controls around their systems.

He, however, observed that some banks had made necessary investment to secure their platforms, while also emphasising the need for training and continuous training of staff members on latest technologies.

The former CBN Governor, Mr. Lamido Sanusi, had noted that the cashless Nigeria initiative would lead to increase in e-fraud cases.

“We have got more money now being transferred through electronic channels. Our concern now is how can we put in checks and balances to minimise fraud because as you move huge money via electronic channels efficiently, you run the risk of fraud itself being more efficient,” he had said.

The Vice-President, West Africa, MascterCard, Mrs. Omokehinde Ojomuyide, said inadequate infrastructure, which manifested in poor Internet services and related challenges, were among the factors posing threats to the cashless drive.

She, however, said that the policy had also led to the growth of e-commerce in the country.

Ojomuyide explained, “The CBN and the banks are pushing for electronic payment; consumers are doing same too. However, they are pushing for cashless for different reasons. It is happening because the three forces in the eco-system are pushing for the same thing for three different reasons, but at the same time.

“You will see that e-commerce has also grown in Nigeria and continues to grow as a result of the cashless drive. Last week, I wanted to order for a smoothy maker. I went online and saw that has it. I ordered online and paid with my card and they are delivering to my office today.

“That would have been impossible five years ago. I would have had to leave my office for a shopping mall. I would probably have found myself in traffic gridlock and end up wasting hours of my employer’s time. New forms of payment and new forms of doing business are helping both the merchants and the consumers.”

The Managing Director, Dun Loren Merrifield Asset Management Limited, Mr. Tola Odukoya, said banks needed to expedite their process of handling customers’ complaints if they hoped to boost customers’ confidence in the cashless initiative.

He said, “The cashless policy will help to move the financial system forward. However, the challenges include psychological. Nigerians love to see cash and hold cash. Part of it is the literacy level of Nigerians.

“Also, the trust Nigerians have in the system is low; so, it means the CBN and the banks need to improve on the turnaround time for customer complaints. For example, when you are wrongly debited, how soon do the banks turn around to reverse the wrong transaction? Nigeria has always been a cash-based economy. The psychological problem will fade away with time, I believe.”

The President, Institute of Chartered Accountants of Nigeria, Mr. Chidi Ajaegbu, said the CBN had achieved a lot in the cashless drive but there was a need to continue to build public confidence in the electronic means of payments.

He said, “If we are striving to become a 24-hour economy, then we must have the necessary controls in place to build people’s confidence in the cashless policy we are driving. And part of this is making sure that people believe that their liquid assets and details are secure. It is the key to the 24-hour economy we are driving towards.

“What they do in other jurisdictions is that when they notice any perceived infraction, they descend on it heavily. And I think this is one of the things we need to adopt here. We should let people know that you can do every other thing but we can’t let you mess around with our cashless system. It is going to go a long way to help our economy.”

Sanusi had said the cashless Nigeria programme would help to reduce the amount that the banks and the CBN spent on cash handling

“When more people use mobile phones, ATMs and Point of Sale machines, it means less money is spent on having big branches and air conditioners. It means less money is spent on counting money and we will see results,” he had noted

In 2009, the CBN spent N49bn on currency management. In 2013, it was N35bn, while it is expected to be N30bn this year.

Next week, the CBN will roll out the cashless policy in the remaining 30 states yet to be covered.

The cashless Nigeria policy commenced on January 1, 2012 in Lagos in the phase one of the project. The state was chosen as the pilot because of the financial sophistication, presence of enabling infrastructure, volume of cash transactions and exposure of residents to alternative payment channels.

The phase two of the policy commenced on July 1, 2013 in Abia, Anambra, Kano, Ogun and Rivers states as well as the Federal Capital Territory.

Essentially, the policy pegged the daily limit of cash deposits and withdrawals by individuals and corporate bodies at N500,000 and N3m, respectively.

Any amount withdrawn or deposited above the limits will attract three per cent penalty for individual and five per cent for corporate accounts.

However, the new CBN Governor, Mr. Godwin Emefiele, on June 5, shortly after his assumption of office, cancelled the deposit charges.