In the wake of the recent naira redesign policy by the Central Bank of Nigeria (CBN), which has triggered currency scarcity due to its poor implementation, the Fintech Association of Nigeria has expressed concern that the impact may hurt the overall implementation of the CBN’s cashless policy.
The resulting cash crunch has masterminded a significant shift to digital transactions that has seen financial institutions struggle to meet the unprecedented demand. The Association said the situation may erode customers’ trust in Nigeria’s banking system.
As ATMs remain empty amid overwhelming demand for cash, which the N5,000 or less over-the-counter payment quota per individual has abysmally failed to curtail, alternative payment channels such as the PoS have upped their charges by nearly 50 percent, the Association noted.
The national fintech body expressed this concern through its ‘Thought Leadership Series’ titled ‘Cashless Economy on Steroids: Strategic or Suicidal?’ where it further noted that a cashless policy should bring about greater ease and convenience of payments, not the chaotic challenges currently unfolding in Nigeria.
“Challenges with execution may be leading to the erosion of trust in the banking system, with merchants asking for cash payments despite empty ATMs, digital channels increasingly overwhelmed, and POS charges inching towards 50 percent,” the body said.
Reports of delayed and unsuccessful electronic transactions have followed the naira redesign policy, compounding the cash scarcity and creating lack of confidence in digital channels as alternative to cash payments.
The CBN introduced the naira redesign policy in October and set a limited deadline of about two months to fully implement it. The naira redesign has been seen a segment of the apex bank’s decade old broader cashless policy but its implementation has failed to impress advocates of financial inclusion.
The Fintech Association of Nigeria said current challenges may defeat the purpose of the cashless policy which it explains as follows:
“The Central Bank of Nigeria first issued the framework for its cashless policy in 2012, to reduce the amount of physical cash in circulation, deepening financial inclusion by driving digital payments, reducing fraud and curbing cash-aided crimes such as terrorism financing, kidnapping, extortion, blackmail, and so on.
“Today, the maximum weekly withdrawal limits for individuals and corporates across all channels are N500,000 and N5,000,000 respectively. In an event where cash withdrawal exceeds these limits, a processing fee of three per cent and five per cent will be incurred for individuals and corporates, respectively. In addition, third-party cheques exceeding the sum of N100,000 are not eligible for over-the-counter payment.
“On the surface, a cashless economy in itself does not seem like a bad policy. Anyone who has been paying attention to the global payments trend knows that a cashless world looms and that it is only a matter of time till hard notes become obsolete or close enough.”
The Association laid emphasis on the need to create policies that will help emerging fintech firms in Nigeria to meet global digital payment goals. It quoted a Bain and Company report, which said that 67 percent of global payments will become digital by 2025. This, it indicated, means a greater a need for the Nigerian financial system to broaden its operation in order to accommodate the potential significant shift to digital payment.
“The current rise of digital-only banks (neo-banks) and contactless payments with the help of smartphones and super-fast networks indicates that the use of cash as a medium of exchange has been declining gradually for years,” the Association said, noting that while the drive for a cashless economy at all cost by the CBN was strategic, its execution and results had been described by many as suicidal.
The body said the CBN should learn from India’s failed cashless policy of 2016, which happened because the policymakers failed to take into consideration concerns of the people such as preferences, economic development, and technological advancement, during its implementation.
“One thing is clear. When adopting a cashless policy it is more important to have a customer-centric approach rather than a technical one. The success of a cashless policy is directly linked to the incentives offered to encourage mainstream adoption,” it said.
