Pains, gains of cashless policy

As part of its cashless policy initiatives, the Central Bank of Nigeria (CBN), recently announced that banks will now be allowed to take charges on customer deposits in excess of N500 thousand for individuals and N3 million for corporates, respectively.

This new measure builds on previously issued guidelines related to charges on large cash withdrawals.

According to the CBN, the new policy took effect on September 18, 2019 in Lagos, Ogun, Kano, Abia, Anambra, Rivers states and the FCT, while a nationwide rollout is set to take effect on 31 March, 2020.

 

Who benefits?

In every new policy directive, there is always a beneficiary and those who bear the pain.

Managing Director, Afrinvest (West) Africa Limited, Mr Ike Chioke believes that the banks are the first beneficiaries. He said the policy is largely positive for banks’ fees and commission income, notably for cash and e-business related transactions.

Although, banks already charge fees on withdrawals in excess of the regulatory limits, “we believe the introduction of charges on deposits increases scope for additional income.”

Chioke and his team of finance experts at Afrinvest explained that first, an induced migration to alternative channels is likely to increase deployment of Point of Sales (POS) terminal and Automated Teller Machine (ATM) terminals as well as encourage debit card issuances.

“This is also likely to lead to increased adoption of banks’ USSD and online platforms by customers.

“Secondly, customers who fail to migrate will have to pay the required processing fees, which are also likely to be supportive of banks’ fee incomes. Bureau De Changes (BDCs), petrol stations, traders and small businesses who handle a lot of cash are likely to be negatively impacted by the new charges,” he said.

Analysts from the firm however, note that the CBN had previously backtracked on attempts at nationwide implementation of similar initiatives in the past, and believes that there is the possibility of similar occurrence comes March 2020.

The general populace has been reacting to this measure, given that Nigeria remains a hugely cash-driven society. The timing of the new charges according to the analysts may stoke negative sentiments, given the recent spate of fiscal measures such as Value Added Tax (VAT) increases and introduction of VAT on online transactions, which are likely to shrink household wallets

Viewed from a different perspective, some argue that the policy is contradictory in many aspects. According to them, a central bank that want people to come on board, cannot at the same time, be charging them for bringing their money to the bank.

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The director-general of the Lagos Chamber of Commerce and Industry, Muda Yusuf, has raised two issues with the policy. One, he said, the notice for the effective take off of the policy was too short. This, he pointed out at an interview with The Nation newspaper that “It would have short term disruptive effects.” The CBN, he suggested, should have given at least two months notice to allow for players in the economy to adequately prepare for it.”

The second issue he raised about the policy is the same one that sent most people scratching their moustache, the charge imposed on cash deposits. Yusuf said, “It is difficult to justify the decision to penalise cash depositors.”

Also, Mrs Kenny Daniels, owner of a retail outlet, said that it was the banks’ own way of increasing cases of armed robbery.

“They are only telling us to start keeping our money at home again like we traders used to do before.

“And of course that is an invitation to robbers burgling your home. We were told cashless policy on withdrawals before, we thought that was in our interest,” she stated.

 

More salient charges

Charges as stipulated by the cash-less policy will be applied on the excess amount above the limit of deposit or withdrawal amount.

There have been talks about Nigerians focusing on the CBN charge on deposits when in reality the real focus should have been on additional taxes that will now be incurred on POS transactions.

On September 16, they released two circulars. The first circular was titled Implementation of the Cash Policy. It is the one the public have been debating but the second one was titled; Review of Process for Merchants Collections on Electronic Payment.  This according to analysts is the real deal because it prescribes two regulations.

Firstly, Banks shall unbundle merchant settlement amounts and charge applicable taxes and duties on individual transactions as stipulated by regulations and Merchant Service Charges (MSC) has been reviewed downward from 0.75 per cent cap (N1,200) to 0.50 per cent cap (N1,000).

According to a public policy analyst Mr Yinka Ogunnubi explained that transactions are bundled together irrespective of bank and credited into the merchant account.  When settlement is done, all transactions are settled as one. So the CBN is now telling banks to separate each individual transaction and apply charges where necessary.

These charges are stamp duty. In other words all transactions from ?1,000 and above will attract the N50 charge. Records show that electronic transactions totalled over one trillion transactions on 2018.  This means more revenue for the Federal Government.

The second regulation according to the analyst, reduces the cost of Merchant Service Charge (MSC) from 0.75 per cent to 0.50 per cent with a cap of N1,000 down from N1,200. What this means is that merchants will be charged 33 per cent less on their POS transactions than they used to.

When this is matched with the first regulation on the unbundling of transactions it seems counter productive.

It will look to some that while government is enforcing tax on individual transactions, or that it is also reducing cost for merchants. But the Stamp Duty will be applied on every transaction above N1,000.

“So imagine I buy an item worth N1,000 now I would have to pay to government an additional N50 as stamp duty. On the other side, the charge the merchant will pay on the N1,000 will reduce from ?7.5 to N5 (excluding VAT),”

“In other words, while the merchant has saved N2.5 on my purchase, I had to cough out N50 extra on mine. Of course if you are buying something more expensive like N50,000, you probably would not mind paying the ?50.

But regardless, it looks counter productive seeing that majority.” Ogunnubi explained.

He believes that this is one issue that should be dominating conversations and not the implementation of another element of a cashless policy that has been on since seven years.

 

How to avoid charges/penalty

The former Managing Director of Asset Management Corporation of Nigeria (AMCON), Mustapha Chike-Obi in a Chat with Nigerian Tribune said that the explanations which the CBN has given so far, for re-introducing the cashless policy was satisfactory.

He explained that for instance, if an individual deposits N600,000, only N100,000 will attract the charges.

On how to escape charges, the finance expert suggested that Nigerian’s can use less costly electronic channels or do piecemeal deposits not exceeding N500,000 for an individual a day.

His words: “If you have N2 million, you can deposit N500,000 every day for five days and escape penalty. I don’t understand why people a shouting and jumping up and down.

“Many of us have three bank accounts. So you can go to Fidelity for instance and deposit N500,000. The next door you go to GTBank and deposit N500,000. Then go to Zenith and deposit another one the same day. If you like, you can sit down and transfer all of them to the main account if that is what you want. The problem we have is that we don’t trust ourselves anymore. “

Other analysts and bankers have at different occasions suggested more ways to avoid charges on deposits and withdrawals.

According to them, to avoid deposit charge, the banking public can pay for/receive money for goods/services through Point of Sale (POS) machine, online (internet banking) transfer, and other cashless means.

To avoid paying unnecessary withdrawal charges, individuals are also advised to plan their expenses well to drastically reduce the number of withdrawals they make on a monthly basis.

Further more, finance experts have also suggested checking account fees.

Banks usually have charges for checking of account balance, either via SMS or Automated Teller Machines (ATMs).

To avoid paying these charges, a bank customer can keep track of account balance via phone’s notepad, diary or the banks’ mobile apps to check account balance and avoid unnecessary charges.

Banks can also be approached to find out if they have other free modes of checking account balance.

The banking public is also advised to use only ATM affiliated to thei banks. “When you use ATM belonging to other banks, you will be incurring additional charges separate from the one your own bank will also charge you.

“The hack here is to ensure you are banking with a financial institution that has widespread presence and ATMs in key areas,” a top banker who prefers anonymity told Nigerian Tribune.

 

House of Representatives intervention

However, the house of representatives is not comfortable with the policy.

Reacting to the policy, the Federal House of Representatives in its plenary session on Thursday, September 19, 2019, asked the apex bank to suspend the implementation of the cashless policy.

The lower legislative chamber said the policy leads to significant decrease in credit extension by Nigerian money deposit banks.

They also said it has negative impacts on small and medium enterprises “which are clearly the engine room for growth of the economy. The directive was, however, criticised by some Nigerians for various reasons.

Mr Chike-Obi, while reacting to the issue of asking the CBN to stop the policy initiative, said the House of Representatives has no power to dictate to the CBN.

What they should do if they disagree with the policy according to him, is to allow the chairman of the relevant committee to call the CBN governor and ask for explanations based on feedback they must have received from their constituents.

The governor of the central bank, Mr Godwin Emefiele, while briefing journalists on Friday September 20, 2019, said, implementation of the policy would continue as announced by the CBN. Debunking the claims that many Nigerians would suffer the negative impact of the policy, Emefiele said only about five to ten percent of bank customers would be affected by the policy.h The CBN governor added that a payment system that encourages the use of non-cash channels was desirable, if Nigeria wishes to compete with the economy of developed countries. He said the policy was first introduced in 2012, adding that a lot of stakeholder engagements were done to sensitise Nigerians on its benefits.