In this second part of our comprehensive feature on the reform programmes of the Central Bank of Nigeria (CBN), Jide Akintunde, Director, Nigeria Development and Finance Forum, and Martins Hile, Editor, Financial Nigeria magazine, spoke with Tunde Lemo, Deputy Governor, Operations Directorate, CBN to review the first six months of implementation of the Cashless Policy programme. This interview also explored the early successes and challenges of the programme, and prospects of scaling up it from trial implementation in Lagos to other parts of the country.
Q: It is now six months since the trial launch of the "Cashless Nigeria" programme in Lagos. What is your assessment of this phase of the programme implementation?
Undoubtedly, we have recorded some progress in encouraging a change in the cash-reliant lifestyle of Nigerians, especially Lagos residents. We some challenges at the start-off point which necessitated the shift in effective implementation to March 31st. We also used the three months lead time to properly sensitise the public on the benefits and implications of the policy.
We have improved on the payments infrastructure required to drive this shift, especially the POS. Prior to January 2012, we had less than 10,000 active POS in the entire country, however as we speak there are over 70,000 active POS in Lagos alone. The uptake in payment cards by banks? customers is very encouraging and indicative of the enthusiasm of Nigerians. We have registered over 100,000 merchants - an all-time high in the history of our payment system. We have also increased the number of telecommunication providers as well as the telecommunication options to ensure that downtime is kept at the barest minimum. We are getting positive feedbacks as several organisations including trade associations have signed on to collaborate with us while we are addressing other issues to ensure that Nigerians have a good electronic payments experience at any time they opt to pay accordingly.
Q: What is the big picture regarding the Cashless Nigeria programme in terms of its implementation facets and components in transforming the Nigerian economy and payments system?
The Cashless Nigeria Programme is in line with the transformation agenda of the Federal Government. The Central Bank of Nigeria is fully aware of the impact of a modernised payments system on the economy. In fact, it has been proven that an improved payments system is capable of adding one to two percentage increase to a country's GDP. Mind you that the country will be better able to account for all commercial activities within its borders. This will reduce the black economy and assist in trailing corrupt and fraudulent practices.
Financial inclusion is a veritable approach towards improving the lot of the poor within our society. It brings access to finance to micro businesses, farmers and artisans. The implementation of the mobile payments system is targeted at improving access to finance for the predominantly un-banked Nigerian populace especially in the rural area. This will stimulate urban-rural remittances including remittances from Nigerians in diaspora. Other financial products such as savings, credit and insurance will thereafter be bundled along with the payments and remittances services. Assuredly, it opens a new vista for the funding of microbusinesses in our rural areas with the positive impact of reducing unemployment.
Furthermore, many of the mobile payments operators are recruiting agents thereby creating employment opportunities. You may also be aware that the Ministry of Agriculture will be leveraging the mobile payments to distribute vouchers for the purchase of fertilizer directly to farmers. We will also be leveraging the vast post office network to create access to finance in remote areas. We have also stimulated the interest of international payments service and technology providers in Nigeria thereby attracting foreign investment.
Q: After the "shaky" take off of the programme in January, it appears the implementation has smoothened. Was the initial bumpy ride avoidable if infrastructure deployment were to have prefaced the service implementation phase?
We have never taken any chance with infrastructure from the inception. We gave ourselves a year to prepare adequately. In terms of electricity, while we believe that the Federal Government's efforts will pay off soon, we deliberately raised the POS standard to take account of the need for a rechargeable POS which users could actually recharge even in their vehicles just like the handsets. We did that before January. Similarly, we ensured that we had failover options with respect to telecommunication before January and we continue to improve on that. However, we were challenged in taking delivery of POS at the ports owing to the customs unduly high duty charge which was attributable to wrong classification of POS as cash registers. Consequently, we decided to give additional three months to enable us have the POS cleared, deployed and activated for transactions. As at January, we had less than 20,000 active POS; by April 2, we had over 40,000 deployed and now we are above 70, 000 and optimistic to have 150,000 POS deployed in Lagos before the year runs out.
You may need to note that as at January, the instant payments options being offered by banks over the internet was already up and running. We considered that we needed to drum up the options available and communicate more with Nigerians on how life could be lot easier with the e-payments options. It was therefore inevitable for us to ensure that the transition is implemented without being obtrusive to commerce. I must, however, admit that usually, changing over to an ICT-based systems such as electronic payments system will naturally pose some teething problems especially at the scale with which we dimensioned the Cashless Lagos project. By and large, we anticipated the challenges and we continue to respond proactively.
Q: The big scare for the electronic/mobile channel is security. Although electronic/mobile banking has not been known to be more unsafe than conventional, brick and mortar banking channel, what frameworks are in place to address actual and perceived risks that will potentially characterize large-scale service deployments under the Cashless Nigeria programme?
Our approach to fraud and risk management with respect to the cashless policy has been very proactive and strategic. With our experience in respect of ATM cards, we had anticipated the issues and enhanced our regulations to tighten security procedures by every stakeholder. Nigeria's changeover to chip and PIN is globally acclaimed as unparalleled. Through that, we had succeeded in eliminating card cloning and card fraud incidences had actually plummeted by over 90 per cent before the implementation of cashless Nigeria by outlawing magnetic strip cards.
We have also issued standards and guidelines and fine-tuned existing ones to plug loopholes. To remain ahead of the curve on the tactics of electronic payments fraudsters, we established the electronic payments fraud forum as an industry platform to highlight trends and collaboratively tackle issues as early as possible. In addition, we will soon be implementing a Payments Oversight and Anti-Fraud System to effectively monitor all forms of electronic payments and manage risk effectively. We have also embarked on adequate user education by mandating banks to ensure that every customer is educated in the functions and how to handle his/her card with safety of their funds in mind. Banks have also been mandated to maintain responsive complaints desks to fast track resolutions of complaints and other issues.
Central Bank of Nigeria Headquarters, Abuja
Q: Transaction charges are seen to make significant contribution to the profits of the banks. The Cashless Nigeria Programme has even brightened the horizon for the banks to make even higher income from transactions fees. Isn?t this very likely to result in "armchair banking" whereby banks will do little to mobilise deposits and build credit asset while also scaling back retail distribution outlets as has been reported? Are we likely to see some of the multiple fees consolidated at some point?
The Cashless policy is a product of a broader transformation agenda known as the Industry Infrastructure Transformation Programme. The programme is targeted at enhancing the efficiency of banks towards extending their reach and their ability to intermediate at lower lending rates. Contrary to your thinking, cashless policy will actually extend banking services and lower cost of accessing finance as we all adopt more efficient means of payment. Electronic payments will actually discourage arm-chair banking because the velocity of money increases with electronic payments and balances will change more rapidly. Smart bankers therefore know that they must broaden their deposit portfolio in the era of electronic banking and payments.
I will also use this avenue to inform the public again that the Central Bank of Nigeria is at the moment reviewing the Guide to Bankers Tariff to prevent arbitrary charges. It will be out soon and adequately enforced.
However, with respect to electronic payments, I believe that the users will find it cheaper than cash usage. Let me illustrate by this example, if you had to send some money to someone, you are most likely to incur some transportation cost to your bank, withdraw some cash over the ATMs which will also cost some money before depositing. Averagely you may end up spending not less than N500 to send just twenty thousand Naira across, however with the instant payments that banks are offering, you can transfer to the account of the same person in another bank as high as N500,000 (and more in some cases) for less than a N100 charge.
Q: Africa is seen to be at the fore-front of innovation in mobile banking with the outstanding success of MPESA mobile money service in Kenya. What financial inclusion success story is likely to develop in Nigeria from the Cashless Nigeria programme under your leadership?
We are hoping to see a new financial landscape that encourages patronage by all as a result of a nimble and very efficient and integrated electronic payments driven platform. We are collaborating at the moment with NIPOST, working seriously on transforming our widespread post office network into an efficient electronic financial services outlet which will bring many presently un-banked Nigerians into the formal financial industry. We are looking forward to powering government initiatives on social benefits through electronic payments. As I speak, the Bank is supporting a new project to help The World Health Organisation (WHO) transit a wholly cash operations for Immunisation to an electronic operations leveraging the Mobile Money schemes and the huge army of agents that will be created in the hinterland.
Q: Do you think the Cashless Nigeria programme is likely to define your career which has spanned commercial banking at very senior level roles and as a banking regulator?
It has been an exciting and truly refreshing period for me leading this policy. It is more gratifying when you realize that what we are instituting will outlive one's career and lifetime. The programme is capable of redefining who we are in Nigeria in terms of cleaning up the corruption toga, encouraging enterprise, fostering and inclusive financial service offering and creating new jobs. It may indeed turnout to be an excellent capping of my already eventful career.
This article first appeared in the June 2012 edition of Financial Nigeria magazine - a monthly Development & Finance journal. To subscribe to it, click here