Concern over huge cash outside banking system despite surge in digital transactions

Nigeria’s journey toward a digital payment economy is often celebrated for its speed and scale, yet a troubling cash paradox has emerged that financial experts and policymakers can no longer ignore. While electronic payments have surged by about 276 per cent over the past five years, the vast majority of physical currency remains outside the formal banking system, raising questions about the real depth of financial inclusion and the effectiveness of policy transmission in Africa’s largest economy.

According to Central Bank of Nigeria (CBN) money and credit statistics, as of November 2025, nearly 93.35 per cent of all currency in circulation — about ₦4.91 trillion out of ₦5.26 trillion — was held outside deposit money banks, leaving only 6.65 per cent within the formal banking system. More recent figures show that by December 2025, currency outside banks rose further to a record ₦5.4 trillion, as total currency in circulation climbed to ₦5.7 trillion.

This development has persisted despite rapid growth in digital payments. Latest CBN data show that electronic payment transactions reached ₦384 trillion in value by July 2025, reflecting sharp increases across mobile transfers, USSD banking, PoS terminals and digital wallets, with transaction volumes continuing to rise.

The coexistence of explosive digital growth and rising cash holdings has unsettled economists, bankers and regulators. At the annual Committee of Heads of Banks’ Operations conference, industry leaders stressed the need for a balanced payment ecosystem where digital innovation and physical cash can coexist. However, they warned that the sheer scale of unbanked currency weakens monetary policy effectiveness and limits the banking sector’s ability to mobilise deposits and extend credit to the economy.

Nigeria’s payments revolution has expanded access, particularly in major cities, but cash remains deeply embedded in everyday economic life, especially in informal markets and rural communities. Financial analysts attribute this disconnect to a mix of behavioural and structural factors.

Historical distrust in the banking system — amplified by policy shocks such as the 2023 naira redesign and cash scarcity crisis — has reinforced a preference for holding physical cash. For small-value and informal transactions, cash remains immediate, final and familiar, making it the default choice for many households and businesses.

The dominance of Nigeria’s informal sector further explains the persistence of cash. Roadside traders, artisans, transport operators and small merchants account for a large share of daily transactions. Many prefer cash to avoid transaction fees, complex digital processes, failed transfers and digital records that could expose them to regulatory or tax scrutiny.

Speaking with Nigerian Tribune, the Head of Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi, acknowledged the apparent contradiction but said it reflects Nigeria’s economic realities rather than a policy failure.

“I think both are not mutually exclusive. While digital transactions have taken wave in most cities, Nigeria is prominently a cash-based economy,” Olubunmi said. “Nigeria’s payments revolution is not killing cash; it is coexisting with it.”

Analysts at Proshare agree, noting that Nigeria’s financial future is increasingly “phygital” — a blend of physical cash and digital channels rather than a purely digital system. They argue that the persistence of cash is not a temporary anomaly but a structural feature rooted in trust deficits, infrastructure gaps and the continued dominance of the informal economy.

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Infrastructure challenges continue to undermine confidence in digital-only payments. ATMs frequently run out of cash, network coverage remains uneven, power supply is unreliable and service outages are common. In such conditions, physical cash serves as a necessary hedge against disruption.

Cost considerations also play a critical role. For many lower-income Nigerians, digital transactions often attract multiple fees across platforms, making cash a cheaper and simpler medium for everyday transactions.

While some experts see the coexistence of cash and digital payments as inevitable, others warn that persistently high levels of cash outside banks undermine monetary policy tools, reduce deposit mobilisation and complicate tax revenue generation because unbanked transactions leave no digital trail.

As Nigeria moves further into 2026, the message from the data is clear: technological progress alone cannot transform payment behaviour. A truly inclusive and efficient financial system will require trust-building, reliable infrastructure and cost-effective digital services, ensuring that cash and digital payments complement — rather than contradict — each other.