Making Money Cheaper by Making Cash More Expensive
The recent CBN announcement, whereby cash withdrawals in Nigeria will be limited to N100,000 a week has somewhat polarised opinion and has left many with mixed feelings. For me, the decision made sense, although yes, I can see that this sudden jolt of news is going to disrupt the equilibrium.
We have seen that the CBN has been considering alternatives to cash for some time — most recently, the introduction of the eNaira. Cash is, in a physical format, expensive and has significant operational risk, and regulators need to continuously find better, more efficient, and more transparent ways of moving money around. Indeed, ahead of elections where cash for bribery purposes will have a damaging effect on our democracy, it makes sense to limit the amount of physical cash in the system. In the short term, this news stops people [well, reduces significantly at least] paying for votes. The timing is spot on.
The CBN’s decision to limit withdrawals is a win for our ongoing push to a cashless society. Lockdown was the catalyst for making people consider better ways of moving money around and reducing our reliance on cash. Lack of cash movement affects people, which in turn sparks innovation and additional thought about alternatives. COVID-19 was really the beginning of the end for the cash-is-king mantra. Those criticising this withdrawal policy suggest that this will affect small businesses; but these were the same small businesses that were affected due to lack of cash movement during COVID. They are at the mercy of physical cash and the operational risk it entails, and the CBN’s push towards a cashless society should actually help them and enable them to move money around faster, more safely, and cheaper.
Commentators talk about how these changes will stifle small businesses, but the issue is that no onehas captured the data, and if you don’t have any data [anecdotal evidence on its own is not data] then it’s virtually impossible to make decisions, and educate people. We’re not speaking from a data-driven perspective. Especially when it comes to how businesses will cope with these changes. The new CBN policy states businesses can withdraw N500,000 a week. QUESTION: How many Nigerian small businesses even turnover more than N500,000 a week? There are probably about 40m small businesses in Nigeria, and about 90% are micro and nano businesses. I say approximately as we don’t know, as there’s no data. And this is what we need now and what a move to a cashless society will help with; data gathered via digital money transactions. With data, we can start lending responsibly to nano businesses and stimulate the economy [lack of access to credit and working capital is historically one of the fundamental pain points for businesses in Nigeria].
The push to digital will be disruptive; in terms of educating peoples’ mindsets, in terms of investing in the tools and infrastructure to take digital payments. The disruption will force people to adapt, and there’s no progress without disruption. People complain every time a new policy comes out, because it upsets the equilibrium, but we have to ask ourselves, Is it good for the greater good? Only long-term thinking is going to help get our economy back on track.
Even at Diamond Bank, when we introduced and enforced a no more cash payments policy for staff, the pushback was a lot. We struggled to sell our no-cash policy to our team, even before we considered rolling it out to our customers. We were trying to lead by example, but the complaints were plentiful. However, we removed the substitute [in this case, removing cash and cheques], and this is where the innovation took place, and allowed us to develop better products and services and allowed us to scale. Cheques create uncertainty; if, as a small business, you receive a cheque, you have to wait to take it to a banking hall to deposit the money. If, as a customer, you pay by cheque, you have no control over when the vendor cashes the cheque and the money comes out of your account. There’s no control on either side, whereas digital payments = control for all parties involved.
The CBN’s policy is intelligent; they aren’t banning cash, they are just making it more expensive — and the trickle-down effect will be to push people towards digital, a cheaper and safer alternative. Yes, we’re going to have to figure out how micro and nano businesses in particular, will be able to invest in a cashless future — that’s of course, a pain point for them. But once we get over that hurdle, they will not only have better control over their money, but they will spend less time counting physical cash and worrying about paper cash trails. Theywill also be able to build a data-backed footprint for their businesses that can unlock credit.
