A Nigerian investor and co-founder of multiple businesses, Osaretin Victor Asemota on X (formerly Twitter) has identified reasons Point of Sales (PoS) terminal operators will continue to have more cash to be dispensed to the banking public than Deposit Money Banks (DMBs).
The simple problem according to him, is that “we have too much cash in circulation and not enough investment in trying to reduce it because many are insincere. Banks hate cash management as it is costly.”
Nigerians have increased their hoarding of cash, with as much as 94 percent of the currency in circulation held outside banks by March 2024.
An analysis of the latest money and credit statistics data from the Central Bank of Nigeria (CBN) shows that while currency in circulation was N3.87 trillion, currency outside banks was N3.63 trillion.
Also, the percentage of cash hoarding has been on the rise. January 2024 saw 90 percent of the currency in circulation being held outside the banking system, climbing to 92 percent in February, and reaching 94 percent by March.
Analysts believe that this pattern reflects a growing lack of confidence in the banking system or an increased preference for cash transactions, possibly driven by economic uncertainty or other socio-economic factors.
This alarming trend signals a severe liquidity crunch, posing significant risks to the nation’s financial stability and economic growth.
However, Asemota took to his X handle to explain that if all the cash in their vaults can be traded outside, banks would be happier.
“They also make money. It is now a cartel business selling money after creating scarcity. We saw what happened when cash was taken out of the system by force, people did merchant transactions, “ he stated. According to him, the Automated Teller Machine (ATM) is a very expensive piece of equipment for Nigerian banks to run and when they are not serving customers of other banks and getting commission, they are likely running it at a loss.
“We did the math and realized the POS with merchants/agent was cheaper. This was in 2007/08. The POS cash agent is an aberration. It was created by accident and it is sustained by greed. The only innovation that will eliminate them will be something that makes every single merchant a cash out point too. It is possible.”
“If you make a law where you cannot be an agent without having a merchant business, people will get smart enough to know that you can also pay a merchant without cash, “ he stated.
He noted that if the regulators are serious, this is easy to solve and it is not just by business registration alone.
According to Asemota, “this is the endgame for merchant payment acceptance in Nigeria. Once the consumer is certain he can pay without cash, he will forego cash. “But this will happen only when the merchant too can settle his own supplier/vendors without cash.”
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