Godwin Emefiele, CBN Governor
  • It will discourage informal sector from banks—Analysts

By UCHE CHRIS

From first of April 2020, banks nationwide will begin the implementation of the new charges earlier introduced by the Central Bank of Nigeria, CBN, in pursuit of a cashless policy of the apex bank. Implementation of the new charges was delayed by the CBN following public uproar against the decision, alleging lack of consultations and sensitization by the CBN before imposing such charges.

Six months after it pilot phase in six towns, the apex bank announced last week that the new charges on cash deposits over N500,000 will be implemented nationwide effective from Wednesday, April 1st, 2020. This comes as an addition to the already existing charges on withdrawals. This means that cash deposit or withdrawal over N500, 000 at any of the bank branches located in Nigeria, will attract fixed and processing fees.

Individuals will pay 3% charge, and processing fee of 2%; while corporates will pay 5% charge, and processing fee of 3%; effective April 1. This is coming two years after the charges were suspended to allow for proper penetration and public awareness and the second attempt to enforce the charges.

Governor of Central Bank of Nigeria (CBN), Mr Godwin Emefiele recently unveiled plans to extend it nationwide.

“We had to wait a while because we felt that there was a need to be sure that the rate of financial inclusion in Nigeria has effectively penetrated all the nooks and crannies of the country for us to proceed on cashless banking. Very soon all the structures that have been put in place would improve banking services in Nigeria,” Emefiele said.

Initially introduced to reduce the amount of physical cash used in business transactions in the economy as well as encourage more electronic-based transactions, the policy seems to a large extent to have succeeded in achieving the set objectives as most Nigerians have embraced electronic and digital modes of transactions.

Before its introduction most banks customers must visit the banking halls to do their business however insignificant such may with the attendant pressure on time and human traffic. But this has drastically changed with only the most critical transactions requiring personal interface. Virtually every business can be done with mobile apps or ATMs.

Also, the issue of cash theft which used to dog most business people has been largely resolved as other electronic payments channels have become available without handling of cash. Before its introduction, monetary authorities were challenged on control of money in circulation as most transactions were not captured by the financial system, which made monitoring herculean.

Although the policy was initially conceived in 2012 to include a penalty on cash deposits, Emefiele had on assuming office in June 2014 removed such charges so as to encourage people and businesses to put their funds in the banking system.

The benefits are many but the most poignant is that the more transactions take place within the banking system, the more effective monetary policy will be in managing inflation and driving economic growth. It is also cost-efficient in that the policy reduces the risks (and of course, expenses) associated with handling a large volume of cash and there is already evidence that it is working.

The cashless policy has resulted in the modernisation of the payments system, which is an enabler for economic growth. It has led to the use of various channels to deliver financial services and such channels include but are not limited to mobile phones, POS and the internet.

Consequently, there has been an increase in access points for financial services and a resultant increase in the use of such services. Put simply, the introduction of the cashless policy has spurred financial inclusion and the participation of poor, geographically distant and more vulnerable members of society in economic activities.

However, despite what can be seen as the early successes of the cashless policy, there are still a few challenges that limit its efficacy. Such challenges include illiteracy, limited knowledge of computing/use of internet and lack of trust and confidence in the system, among others. Many people are not conversant with using electronic channels and thereby breach security by giving their PINs to strangers to transact on their behalf.

In addition, infrastructural challenges persist, internet access remains erratic, ATMs still debit accounts without dispensing cash and the apathy to using POS terminals remains in a society where patronage has become a defining characteristic of business and politics.

Nevertheless, the upside is that Nigerians are witnessing an increase in the usage of technology and the growth of technology-enabled businesses such as e-commerce and social-media blogs. Therefore, we expect this full-scale implementation to result in a deepening of these activities, new business opportunities and new jobs. As the implementation of this policy expands, we also expect to witness a reduction in cash-related fraud, an improvement in the efficiency of the financial system and further job growth in agent banking and the technology sector.

On September 18, 2019, the charges were reintroduced on cash deposits and withdrawals from individual bank accounts. In a circular to all deposit money bank (DMBs), the Director, Payments System Management Department at the CBN, Sam Okojere, said henceforth 3 per cent processing fees would be paid for withdrawals and 2 per cent for deposits of amounts above N500,000 for individual accounts.

Similarly, corporate accounts will attract 5 per cent processing fees for withdrawals and 3 per cent processing fee for lodgments of amounts above N3 million. The CBN said the charges would be in addition to already existing charges on withdrawals and will be aimed at encouraging its cashless policy. The statement, however, said the charge on deposits shall apply in Lagos, Ogun, Kano, Abia, Anambra, and Rivers states as well as the Federal Capital Territory.

To further promote a cashless economy and enhance the collection of applicable government revenues, the CBN also announced a review of the process for merchant settlement by bank customers. With the review, which took effect from Tuesday, September 17, the CBN said it gave approval for banks to unbundle merchant settlement amounts and charge applicable taxes and duties on individual transactions as stipulated by regulations.

The financial sector regulator announced a downward review of the Merchant Service Charge (MSC) from 0.75 per cent capped at N1,200 to 0.50 per cent capped at N1,000. In June 2014, the CBN announced the takeoff of the third and final phase of the cashless policy in 30 states.

The apex bank said the decision followed the successful completion of Phases 1 and 2 in six pilot states and Abuja. Phase 1 of the scheme took off in Lagos on January 1, 2012, while additional states, namely Abia, Anambra, Kano, Ogun and Rivers States, as well as Abuja, were involved in Phase 2, which commenced on October 1, 2013.

Dr Vincent Nwani, economist and consultant, said that the plunging economy makes its implementation at this point ill-timed and a disincentive to business.

“This policy that is going to be operational from April 1 has implication for the cashless policy of the Central Bank.  What it means is that any money above N500,000 will attract charges. This policy will discourage poor people, mainly the informal sector from patronising the bank. This category of people will prefer to keep money at home. It is counterproductive, the only way it will work is of the apex bank reduces or removes stamp duty and POS charges” he said.

Attempts to contact the CBN spokesperson failed after SMS exchange.