It’s time to revitalise CBN’s Cashless Policy

Last December, I had the opportunity of spending memorable moments with family and friends in Nigeria. However, something else was memorable in an odd manner. I had gruelling experiences trying to withdraw funds from the automated teller machines (ATMs). My challenges with accessing cash ranged from frequently arriving at machines that were out of service, to long and rowdy queues at the self-service channels. 
From Lagos to Oyo; Ondo to Delta, it was the same story. In Benin City, we drove into the University of Benin, where we found about six or more ATMs of various banks. Only about two were operational at the time. We had no choice but to join one of the long queues. A few moments later, a young man walked up to us, looking distressed. His wife was in the hospital and he needed to make payment for her to be discharged. Everyone on the queue was sympathetic towards him and he was given consideration to jump the queue. The question to be asked is, why would a hospital in a city not have a functional Point of Sale (PoS) system or any other system to enable electronic payment? 

Policy overview  

The Central Bank of Nigeria’s Cashless Policy was designed to drive financial inclusion and the modernization of the country’s payment system. According to the apex bank, an efficient and modern payment system is positively correlated with economic development and is a key enabler for economic growth. While this is a noble goal, the CBN has not matched its rhetoric with actions. Five years after the official launch of the policy in January 2012, cash-based transactions are still commonplace. Bank customers still complain about time wasted carrying out routine transactions in the banks. 

While the banks are doing their best in providing ATM outlets for customers to withdraw their money, those channels are neither the only infrastructure needed to modernize the payment system nor can they achieve a cashless system. 

But interestingly, the story is not all gloom and doom as the policy has also recorded some successes. Within two years of implementing the policy, the value of interbank transfers, captured through the Nigerian Inter-Bank Settlement System (NIBSS), jumped from N51 billion monthly in January 2012 to over N1.5 trillion as at June 2014. In terms of volume, NIBSS’ transfers rose from 87,000 transactions per month in January 2012 to 3.1 million transactions monthly as at June 2014. According to the CBN, the volume of PoS transactions increased from about 2,000 monthly as at January 2012 to 1.6 million per month in June 2014, while transactions in value moved up from N38 million per month in 2012 to N24 billion monthly in June 2014. 

Licenced payment terminal service providers authorised to deliver PoS terminal penetration increased from five to 10, registering over 150,000 PoS terminals across the country as at June 2014. 

Outside of Nigeria, developed countries have certainly made significant improvements in cashless transactions. In 2013, MasterCard unveiled a global report, “Cashless Journey,” to track how 33 major economies were progressing from cash-based to cashless societies. The report, produced by MasterCard Advisors, identifies new technologies, government programmes and consumer preferences as key factors that are driving the faster shift to cashless economies, creating more productive and inclusive economies. 

The report puts Belgium in the top-ranked position (where an estimated 93% of the value of consumer spend was cashless); France came second (92%); Canada was third (90%); the UK and Sweden ranked in fourth place (89%); Australia was in fifth position (86%); and the Netherlands was placed in sixth position (85%).

Developed economies are doing all they can to go cashless. Sweden, the first European country where national paper currency was printed in 1661 is making efforts to become the world’s first cashless economy, according to a report released by Stockholm’s Royal Institute of Technology (KTH). 

Despite the progress Nigeria has made in advancing cashless transactions, the success of the Cashless Policy is dependent upon the widespread acceptance and usage of alternative payment options. For the economy to become truly cashless, three things must be done: Expand adoption of PoS terminals, promote and support fintechs and address infrastructure challenges.  

PoS adoption and usage  

Adoption and usage of PoS terminals must expand across the formal and informal sectors of the economy. Corner stores, market women, road-side mechanics, and other bottom-of-the-pyramid operators need to have PoS machines installed for utilization by their customers. While I understand there are infrastructural challenges for this to happen, it is, however, not insurmountable. 

In December of last year, the Indian government announced some measures to incentivise cashless transactions among its citizens, including giving discounts on purchase of fuel and insurance policies. Beneficiaries are those who make payments using debit and credit cards, mobile phone applications and e-wallets. Merchants who encourage customers to make purchases of up to 2,000 rupees electronically get a waiver on certain merchant discount rate (MDR) charged by the issuing bank.  

The key is incentivisation. When people are used to their old ways it’s hard to change. The CBN should also work with the Ministry of Finance to come up with ways to incentivise the citizens to use their cards. Incentives can also be provided for market women to adopt and use PoS machines.

Promoting fintech innovation

Concerted efforts need to be made to encourage and support financial technology start-ups in the country, especially those that are developing platforms for enhancing the payment systems and providing other financial services. This requires smart policy coordination between the central bank and the federal and state governments. 

Goldman Sachs estimates that Fintech start-ups could snatch up to $4.7 trillion in annual revenue, and $470 billion in profit, from established financial services companies like banks. In 2015, financing for fintech start-ups hit over $20 billion, a 66% increase from the $12 billion recorded in 2014, according to KPMG. Of this amount, 27% was in consumer lending, 23% in payments and 16% in business lending.  

Today, your personal or business transactions could be processed with fewer headaches by Square, Stripe, or WePay. These services are disrupting the financial services landscape. In an annual letter to shareholders, Jamie Dimon, CEO of JPMorgan Chase, warned that “Silicon Valley is coming.” 

On account of this, some countries have begun to make policies and enact laws that will encourage fintechs. In England, the Bank of England plans to encourage innovation in financial technology by collaborating with companies designing innovative payment systems and cybersecurity. In Australia, the government has put in place policies and regulations that will help promote Australia’s fintech capability by supporting the evolution of fintech start-ups and innovators in the country to develop, test and globally launch their innovative financial products and services. 

Switzerland has gone as far as easing rules that could pose as barriers to market entry and provide more legal certainty for the burgeoning fintech sector. The country has also established a new fintech licence, granted by its financial regulatory body. Singapore’s strategy is to encourage fintech start-ups and traditional finance to innovate simultaneously. Today, Singapore is home to over 300 fintech start-ups. 

Last year, U.S. House Energy and Commerce Committee members, Rep. Adam Kinzinger and Rep. Tony Cárdenas, introduced H. Res. 835, a bipartisan resolution urging the U.S. to adopt a national policy for technology to promote consumers’ access to financial tools and online commerce to promote economic growth and consumer empowerment.  

Fintech is the future of financial services, and is poised to grow by leaps and bounds over the next several years.  Governments, the world over, are providing huge support to fintech companies such as tax incentives, subsidized loans and other benefits to encourage their growth. The CBN and the Nigerian government should not lag behind.

The Nigerian fintech innovation scene is fast-evolving, too. In December, Paystack secured $1.3 million seed investment from local and international investors. Also last year, Nigerian digital payments giant, Interswitch, acquired Value Added Network Solutions Limited (Vanso) for a reported fee of N15 billion.  

Remove infrastructure bottlenecks 

The infrastructural challenges inhibiting the smooth running of payment systems and electronic banking must be resolved. Banks owe it to their customers to invest more in revamping their information and telecommunication technology capabilities. Without efficient e-payment services, the cashless system will stall.    

To address the infrastructure problem, efforts should be made to put in place adequate infrastructural facilities in the country. As usual, electricity is top on the list. The CBN should also work with the National Assembly to enact proper legislations that will ultimately drive a culture change. Private ATMs should be promoted and encouraged, while more payment service providers should be licenced.

Ultimately, the key to driving this cultural change is incentivizing use. Giving incentives to people to start using their cards, incentivizing retailers to start encouraging customers to use their cards, and encouraging banks to be more efficient with service delivery. Once people start using their cards, loyalty card programmes can also be introduced, potentially increasing the level of usage.


While there may still be a long and tortuous road ahead, both the economy and the people will benefit from increased efforts. As Kevin Stanton, President, MasterCard Advisors noted, “while each nation’s journey is unique and requires an understanding of local realities, the benefits that come with a more cashless society are universal: more convenience for consumers, better efficiencies for governments, higher productivity for businesses, and greater financial inclusion for society as a whole by bringing more citizens into the economic mainstream.”

The CBN has a lot of work to do to advance its Cashless Policy. It needs to increase efforts in working with other stakeholders to expand financial services to micro and small businesses, artisans and the larger informal sector. The apex bank should also put in place measures to ensure banks are supporting the Cashless Policy by overhauling their ICT facilities to improve their payment delivery systems.