Cash is King?….Or Kills?

Much has been made of the CBN’s implementation of a new policy on cash-based transactions, stipulating “a cash handling charge on daily cash withdrawals that exceed N500,000 for Individuals and N3,000,000 for corporate bodies”. As the nationwide date for implementation drew nearer [slated for March31st 2020], there was moderate uproar from some sections of society, who felt that this was an unnecessary, cumbersome quasi-tax — and for what?

In reality, when assessing the actual impact of such a policy, it’s important to consider the facts; only a small percentage of Nigerians will actually be affected by this policy; estimates suggest 5–10%, I’d hazard a guess at an even smaller percentile. Why? Because Nigeria is poor. We have one of the highest per capita rates of poor people in the world. Nigeria is not full of Nigerians who are carrying around N500K in their back pockets after a quick trip to the ATM in between meetings. Almost 95million people in Nigeria live in extreme poverty, according to WorldPoverty.io. In fact, very few people are walking around with N50K in their pockets. If you do examine the cash inflows in any bank in Nigeria, I am willing to wager that it’s less than 1% of customer base that make payments in excess of the N500k, individuals and businesses. As for salary payments, how many people get paid salary in cash above N50k?

Practically everyone is exempt from this policy — which begs the question, why is the CBN rolling it out?

Looking at who it will impact, there are two key segments who will be impacted most; 1). business and retail and 2). those who have, to-date, actively chosen to remove themselves from the financial system and who have chosen not to succumb to paying taxes. The Government needs to engage with both segments.

For retailers and businesses in particular, why should they care? Money’s money, right? In the simplest of terms — yes. But retailers who want to scale need to consider the cost of cash and the operational risks that come with managing cash; by this, I mean the cost of moving cash around, storing cash, insuring cash, and also having a lightweight and potentially ambiguous paper trail of cash. What businesses of all sizes should be thinking about, and this needs to be supported and pushed by the CBN, is investing in the digitization of their customers — looking at the many opportunities that this presents. This requires education at all levels, to engage businesses and customers, highlighting the many benefits of moving away from cash. There are a few successful solutions in the market, Access Bank’s “beta proposition”, a banking solution to displace a cash-based risky service that often ended up with market women losing their hard earned cash. Account opening was mobile, cash was collected by agents and funds ‘digitalized’. These market women are now transitioning from cash payments to convenient digital/electronic payments

For example, taking digital payments is a much faster way of getting money into an account; there’s also improved visibility of how much money is going through a business; money and financial transactions need to be accountable and transparent, to reduce fraud throughout the supply chain — from customer transactions to paying suppliers. Furthermore, by creating a digital footprint for a business, business owners are able to build a credit line with their banking institutions, and unlock capital for future expansion opportunities. By investing in the value chain and educating their customers, business will save billions of Naira in the long term. They may not know it yet, but it is our role to educate them, as well as provide financial incentives. By making cash more expensive, which is what the CBN is attempting with this policy, they are actively driving people and businesses into the financial system. This is a longer-term play to bring more people into a financially inclusive system where the benefits are felt by many, and not by the few.

But I don’t want to over simplify the policy; whilst the intentions are there, and the policy has been implemented and tested in a number of States [Lagos, Ogun, Kano, Abia, Anambara, Rivers State and the FCT], without additional co-ordinated efforts to provide the required infrastructure, the cashless policy will not see the light of day.

So having applauded this significant first step by the CBN, next we need to ensure the private sector is empowered and incentivised to build a pan-Nigerian infrastructure that will deliver on a cashless policy. We have sufficient capacity in terms of potential providers installed in Nigeria already — now we need the impetus, a catalyst, for them to scale their infrastructure.

Can the CBN and private sector do this alone? Absolutely not — this must be a deliberate and co-ordinated roll-out, that also takes into consideration the ongoing identity agenda for Nigeria — something I touched on in a previous post. A cashless society, fuelled by digitization of financial provision and services, can only be implemented if we we know who people are, and how they engage with money. This can only be done reliably through the collection of data, at scale. Collecting data points and transactions from millions of currently unknown people, as well as the businesses who do already engage with the financial system through traditional banking, is no easy feat. That being said, we know the technology exists; we just need to be purposeful in how we apply it and we need to consider who is bringing what to the table. So — who can do what?

• The telcos’ infrastructure is required to ensure this isn’t just a localised policy, but a country-wide policy and are critical collaborators to help move data and cash around, quickly
• OEMs are needed to ensure we have the right hardware to accept non-cash payments.
• The Public Sector can affect considerable change by taking digital not cash payments for services — this will drive adoption of the cashless policy significantly
• The Identity Management Systems which are currently in development can help identify people and bring them into the world of digital finance.

The logistical challenges of the policy do not end with infrastructure. Government and the CBN will also have to address concerns around areas such as cyber fraud and political lobbying — the benefits of the proposed cashless society are many but risks are ever present and we must be fully aware of them before we decide and move on any one course of action.

On a micro level, yes — We must do everything within its power to bring Nigerians into the financial system — for better inclusion, for better tax collection, for catalysing the economy through easier, faster and safer financial transactions. On a macro level, the relevant regulators need to work quickly to raise the country’s standards in becoming a global financial hub and, in their own words, “credible destination for financial transactions across the world”. This means we need a base to start from and to build upon. This policy is a bold step; a pronouncement of our country’s intent to start competing with other global economies. It is also an attempt to influence wider society from the top down, by implementing a policy that affects so few, but can have a far-reaching impact over time. Like others who’ve worked in the financial sector, I am an ernest spectator in terms of seeing how we go from policy, to implementation, to mass adoption.