This article will provide information on "what are the problems and prospects of cashless policy in Nigeria?" and also provide answers to questions regarding cashless policy in Nigeria.
Information technology plays an important role in bringing about sustainable development in every nation. Without an optimal use of information technology, no country can attain a speedy socioeconomic growth and development. The future of all businesses particularly those in the service industry lie in information technology. In fact, information technology has been changing the ways companies, financial and non-financial organizations compete. Information technology is more than computers. It encompasses the data a business creates and uses as well as a wide spectrum of increasing convergent and linked technologies that process such data. Information technology thus relates to the application of technical processes in the communication of data. It is no doubt that information technology can help to reduce transaction costs for banks, which will translate to lower prices for services to customers. Information technology for banks takes different forms which include: computerization of customers’ accounts and information storage and retrieval, deposit and withdrawal through Automated Teller Machine (ATM) and networking to facilitate access to accounts from any branch of the bank. Other forms include bio-metrics used in fingerprinting and identification which should dispense the use of passwords or personal identification by customers. The payments system plays a very crucial role in any economy, being the channel through which financial resources flow from one segment of the economy to the other. It represents the major fundamental of the modern market economy. In recognition of this relevance, the Central Bank of Nigeria (CBN) led by the then Governor, Mr. Sanusi Lamido Sanusi initiated a form of payment system that limits individual and corporate daily cash transactions in the banking system. Precisely, the CBN cash limit policy requires that, all cash withdrawals and deposits be set at a daily limit of a maximum of N500,000 while pegging that of corporate entities at N3,000,000, with penalty fees of 10%per extra above N500,000 for individual and N3,000,000 for corporate defaulters respectively. The CBN’s reason for the new payment system was attributed to lot of issues affecting the financial system; from check on money laundering and illicit activity, inflation to cost of maintaining an economy predominately cash base. A cashless economy is simply at its prime when all means of payments are carried out without the use of physical cash. Payments will range from a list of options such as cheques, wire transfers, debit and credit cards, online transactions and mobile banking. The advantages of a cashless policy are enormous, from regulating and controlling to securing the financial system of any economy. Furthermore, there are three pivotal roles for the payments system namely; the monetary policy role, financial stability role, and the overall economic role. In the past fifteen years the Central Bank of Nigeria, in collaboration with the Bankers Committee, launched the first major initiative to modernize the payments system. The starting point was to automate the cheque clearing system and making it a veritable platform for development of electronic payment channels. Hitherto, cheques processing and computations of the net settlement position of banks were done manually. The implementation of the new procedures and rules based on Magnetic Ink Character Recognition (MICR) technology revolutionized the cheque clearing system. Consequently, a Centralized Automated Clearing process was established in Lagos clearing zone, whereby with MICR Reader Sorters, necessary information on cheques are captured, built into clearing files and electronically transmitted to the clearing house, from where the net settlement position of participating banks are automatically computed and also electronically transmitted to the Central bank for final settlement.
Cashless policy is a system that allows individuals to purchase goods or services without the exchange of anything tangible or physical cash. The term money still exists, but it is more in an electronic form than previously. It is same as electronic cash system. Cashless policy or electronic cash is a term becoming more acceptable as the world makes a shift towards a cashless society. Since the 1960’s governments and financial institutions globally have made slow, but steady steps towards the goal of a society without cash. The cashless policy is being sold as a more convenient method of payment, and a method of preventing crimes all the way from the robbery of cash from an individual to the extent of money laundering among crime syndicates and cash stockpiling at home by corrupt government officials. Interestingly, it is not the complete absence of cash, it is an economic setting in which goods and services are bought and paid for through electronic media. Cashless economy is defined as one in which there are assumed to be no transactions frictions that can be reduced through the use of money balances, and that accordingly provide a reason for holding such balances even when they earn rate of return. In a cashless economy, how much cash in your wallet is practically irrelevant. You can pay for your purchases by any one of a plethora of credit cards or bank transfers.
- It will reduce the high operational cost incurred in a cash based economy. Such costs emanate from cash management and movement, currency sorting and printing
- Cash-less policy will help minimize the risks associated with the use of physical cash that do arise from burglaries and thefts as well as financial losses in fire outbreaks
- Cash-less economy will make every segment of the banking population to pay for its usage of cash. The situation in the cash based system where the majority small cash users pay for the minority high cash users will stop. There will be no more subsidies on cash transaction costs
- It will reduce cost of printing notes, instances of their soiled or becoming unusable and counterfeit currency
- It will speed and give satisfaction of operations for customers as no delays and queues, no interactions with bank staff required
- Cash-less economy will arrest a situation where a lot of cash are outside the formal banking system. By encouraging formal financial arrangement, it will facilitate the effectiveness of monetary policy in checking inflation and pushing economic growth
- Cash-less economy is capable of reducing corrupt practices like money laundering which is common in cash based economy. To the extent that cash is not easily pulled out of the system, it will discourage launders
- Corporate organizations will benefit by way of faster access to capital, reduce revenue leakages and reduce cash handling cost
- On the part of the government, it will bring about increased tax collection, greater financial inclusion, reduced revenue leakages and increase economic development
- The cash-less system brings along with it different banking instruments such as POS systems, mobile payments, direct debits, internet banking, electronic fund transfer etc.
Implicitly, companies that are connected with the production of these products will benefit including stakeholders
- The policy is challenged by financial infrastructure deficit. The cash-less payment channels that are currently available are not adequate to cope with the demand of the policy if it is to be implemented religiously. This means that the policy will require further investment of funds by operators and regulators
- Given that the system is driven largely by ICT, the policy is exposed to dangers of fraudulent practices as any security lapses can be exploited by the astute fraudster to perpetuate fraud. Internet related crimes like hacking is likely to threaten the cash-less policy in Nigeria
- Electricity is a critical infrastructure for an efficient e-payment system. Sadly, Nigeria cannot boast of steady power supply across its urban and rural areas. This will without doubt affect the success of cashless policy if not addressed
- The high charges and fees on some of the electronic channels are capable of generating resistance by the banking public. For example, the recent reintroduction of charges for ATM withdrawals did not go down well with the users
- To operate successfully in cash-less economy, some level of literacy is required in view of the technology involved. Therefore, Nigeria with high rate of illiteracy will certainly have some challenges. Illiterate population would prefer to keep their money in cash
However, Nigeria's cashless policy faces several challenges including poor network connectivity and debiting customers' account twice, high transaction charges, POS machine malfunctions and other technical issues.
In the study, the impact of central bank of Nigeria cashless policy in Nigeria economy, it is found that the policy has the tendency to reduce unemployment, risk of carrying cash, corruption tendencies as well as enhancing foreign direct investment.
India faces many challenges in setting up a cashless economy like lack of digital and banking infrastructure, cyber security and financial literacy, high cash dependency etc. Finance Minister, in 2016 budget speech, talked about the idea of making India a cashless society.
The cash-less economy will bring about increased convenience, more service option, reduced risk of cash related crimes, cheaper access to banking services, and credit to customers. Corporate organizations will benefit by way of faster access to capital, reduce revenue leakages and reduce cash handling cost.
The benefits of adoption of cashless economy include reduction in corruption and the cost of services by banks (such as cost of credit), increased operational efficiency, improved financial inclusion, via providing alternatives that aid easy transactions and greater reach, and improved efficiency of the monetary policy.