CASHLESS ECONOMY: A Magic Bullet to National Development in Nigeria

CASHLESS ECONOMY:

A Magic Bullet to National Development in Nigeria

By

Ejem Chukwu Agwu
08038750350
&
Kalu Ugo Eke
08169442848

Lecturers, Department of Banking and Finance,
Abia State Polytechnic, Aba

Abstract
This study examines the cashless economic system so as to assess its
potential impact on the socio-economic development of Nigeria. Nigeria's
economy is being reformed to reposition the nation to take its rightful
position in the international community. One of the ways the government
hopes to achieve that is by introducing a cashless economy, as a way of
fast-tracking the Nigerian economy so as to be among the first 20 world
economies by the year 2020. The study used focus group discussion which is
a rapid appraisal technique that is highly effective for generating
qualitative information by organizing four groups of discussants (50 each)
who provided verbal views on the potential impact of cashless economy in
Nigeria. The results reveal that a cashless economy has the ability to
reduce the risk of carrying cash around, reducing the risk of carrying cash
as that is easily amenable to armed robbery, theft and misplacement,
contribute towards reducing corruption, helping to fight against money
laundering, among others. Based on the findings some recommendations made
are: educate Nigerians on how to operate the cashless system, increase the
point of sales terminals in Nigeria, among others.

I. Introduction
The Central Bank of Nigeria (CBN) introduced a new policy on cash-
based transactions for individuals and corporate bodies. The new policy on
cash-based transactions (withdrawals & deposits) in banks, aims at
reducing (not eliminating) the amount of physical cash (coins and notes)
circulating in the economy, and encouraging more electronic-based
transactions (payments for goods, services, transfers, etc.). It has in
recent times, according to Akhalumeh and Ohiokha(2012), engaged in series
of reformations aimed at both making the Nigerian financial system
formidable and enhancing the overall economic performance of Nigeria so as
to place it on the right path in tune with global trends. There was the
capitalization (to the tune of minimum of N25 billion) agenda, there was
also the aborted move at redenomination of the Naira. Recently the CBN came
out with two purportedly laudable agenda – the Islamic banking (non-
interest banking) and the cashless economy (e-payment system). Some of
these policy measures came with tremendous success despite the initial
skepticisms of Nigerians. However, some other policy agenda did not enjoy
as much acceptance as did the recapitalization agenda; for instance, the
redenomination proposal was snubbed and judged to be counterproductive. In
the same vein, the non-interest, Islamic banking concept has been greeted
with a lot of skepticism, and the initiators are accused of masking under
some hidden agenda. The same may be said of the proposal on the
introduction of "cashless economy".
So much may have been written and said about the expected gains
attendant to the adoption of cashless economy (or cashless banking) even
though people have not been convinced that the agenda is for the general
good. It is therefore important to assess the impact of the implementation
of 'cashless economy' on our socio-economic development or is it only an
assumption, given that the infrastructural platform needed for the cashless
economy to perform has not firmly been in place? From the foregoing
problems, the objective of this study therefore is to examine the benefits
of the cashless economy, the essential elements of the cashless economy and
assess the overall impact of the implementation of the cashless economy in
Nigeria. To achieve this objective this study is divided into five
sections. Following this introduction, Section II, examines existing
literature on cashless economy, Section III, presents the methodology
employed in collecting and analyzing data, Section IV, presents an analysis
of the collected data; and Section V offers the conclusion and
recommendations drawn up from the study.
II. Review of Literature

A. The Cashless System – An Overview
Akintaro (2012) asks a very vital question: Is it Cashless or Cash-
less system? The reason for that question is obvious. When the Central Bank
of Nigeria decided to code name the Nigeria e-payment system 'cashless'
society, little did the apex bank realize the confusion such a name would
create. But now, this has become another serious issue as awareness agents
have to battle in explaining to apprehensive Nigerians what the CBN
actually meant by cashless society. The understanding in some quarters is
that the kick-off of a cashless society in Nigeria means there would be no
more cash in circulation but cards and other instruments. Contrary to what
is suggestive of the term, Akhalumeh and Ohiokha (2012) argues, cashless
economy does not refer to an outright absence of cash transactions in the
economic setting but one in which the amount of cash-based transactions are
kept to the barest minimum.
A cashless economy or an e-payment system is a situation where there
is little or very low cash flow in a given society, thus every other
purchases and transactions will be made by electronic channels, examples of
which are direct debit, electronic funds transfer, mobile payments, multi-
functional ATMs, internet banking and a significant increase in point of
sale (POS) penetration and usage. It is an economic system in which
transactions are not done predominantly in exchange for actual cash. It is
not also an economic system where goods and services are exchanged for
goods and service (the barter system). It is an economic setting in which
goods and services are bought and paid for through electronic media. It is
defined as one in which there are assumed to be no transactions frictions
that can be reduced through the use of money balances, and that accordingly
provide a reason for holding such balances even when they earn rate of
return
In a cashless economy, how much cash in your wallet is practically
irrelevant. You can pay for your purchases by any one of a plethora of
credit cards or bank transfer (Roth, 2010). Some aspects of the functioning
of the cashless economy are enhanced by e-finance, e-money, e-brokering and
e-exchanges. These all refer to how transactions and payments are effected
in a cashless economy (Moses-Ashike 2011).
It simply refers to the widespread application of computer technology
in the financial system. Payments under this new system will range from a
list of options such as cheques, wire transfers, debit and credit cards,
online transactions, and mobile banking.
B. Content of the Cash Policy
The cashless policy is aimed at reducing the dominance of cash in the
system, by promoting the use of alternative payment channels. As a result
of this, the regulator had limited daily cash withdrawals/lodgment by bank
customers in the country. It has the objective of reducing cash payments
and encouraging electronic payments. The pilot phase commenced in Lagos in
January this year. According to the CBN, the policy would be extended to
some other states by next year.
The apex bank had, in response to public outcry over the previous
ceiling on daily cash withdrawals/lodgment, raised the limits. The banking
sector regulator increased the daily cumulative cash withdrawal/ deposit
limit for individual accounts from the previously announced N150,000 per
day to N500,000. Similarly, the limit for corporate accounts was also
raised to N3 million per day, from the N1 million earlier announced. Penal
charges were also placed for customers that wish to withdraw/deposit above
the limits. For withdrawal by individuals, three per cent above the
N500,000 threshold is charged and for a corporate organization, five per
cent above the N3 million is charged. 

Also for cash deposit, individuals would be charged two per cent for
deposit above N500, 000 and three per cent for corporate accounts. However,
exemptions had been granted to Ministries, Departments and Agencies (MDAs)
of federal and state governments for revenue collection accounts only.
Similarly, embassies, diplomatic missions, multilateral agency,
microfinance and primary mortgage institutions were also exempted from the
policy. Some of the alterative channels being offered by banks and service
providers include Internet banking, mobile money transfer, Point of Sale
Terminals (PoS) and the use of Automated Teller Machines (ATMs).

It should be said that as at now there are already some forms of
cashless transactions that are taking place in Nigeria. It is noted that:
Today there are up to seven different electronic payment channels in
Nigeria, Automated Teller Machines (ATM), points of sales terminals, mobile
voice, web, inter-bank branch and kiosks. E-payment initiatives in Nigeria
have been undertaken by indigenous firms and have been stimulated by
improvement in technology and infrastructure [2]. As noted above, the
cashless economy does not imply an outright end to the circulation of cash
(or money) in the economy but that of the operation of a banking system
that keeps cash transactions to the barest minimum. In this system users
are issued with electronic cards which can be slotted into special
electronic machines in order to effect payments. At the centre of such
payment system are the Point of Sales (POS) terminals (Azeez, 2011) These
are to be deployed across commercial points in the country. These POS
terminals thus deployed will serve like the Automatic Teller Machines
(ATM). In this case, upon completing a transaction and the value
ascertained, the amount is entered into a POS terminal into which the
electronic card has been slotted. The cash equivalent of the amount is
transferred from the payer's account into the account of the payee
automatically. Users are issued with a card (the electronic purse). The
electronic purse is topped up using revaluation terminals. There are
different types of terminals: coin & note, credit card and payroll
deduction terminals. The cards are simply inserted into the revaluation
terminal and certain programmed instructions are followed, and money is
added onto the electronic purse. This can then be used to pay for
goods/services by inserting them into the POS terminals. When the card is
inserted into the POS, and the transaction amount entered, the reader reads
the amount and is quickly deducted from the e-purse (the card)

C. Benefits of the Cashless Economy
The advantages of a cashless society are enormous; from regulating,
controlling, and securing the financial system of any economy.
From a general perspective, e payment system is said to offer an
endless convenience of transaction possibilities, and at the same time
reduce transfer/processing fees, increases processing/transaction time,
offers multiple payment option and gives immediate notification of all
transaction on customer's account. For instance, under this system, it is
believed that people can actually pay all their utility bills from the
comfort of their rooms g their mobile phones or by just walking down the
street to use a POS terminal. 
Issues of armed robbery and other cash related crimes are also
expected to be reduced drastically once e-payment system takes off in the
country. It is also expected to minimize the risk of carrying huge cash
around while businesses are to spend less in cash management. Banks, for
instance, spends a lot of money in processing cash, while a number of human
resources are devoted to cash counting on daily basis. All these are
eliminated.
Again, it is also expected that the government will benefit from
cashless economy in the area of adequate budgeting and taxation, improved
regulatory services, improved administrative processes (automation), and
reduced cost of currency administration and management. For the CBN, a
cashless economy will is expected to enhance effectiveness of monetary
policy measures to curb inflation and stabilize the economy, in the
interest of all, leading to economic growth and development that ultimately
create jobs and improve economic wellbeing of the country.
More so, a variety of benefits are expected to be derived by various
stakeholders from an increased utilization of e-payment systems. These
include:
For Consumers: Increased convenience; more service options; reduced
risk of cash-related crimes; cheaper access to (out-of-branch) banking
services and access to credit.
For Corporations: Faster access to capital; reduced revenue leakage;
and reduced cash handling costs.
For Government: Increased tax collections; greater financial
inclusion; increased economic development. Increased tax collections;
greater financial inclusion; increased economic development
Other key reasons for the introduction of the cashless economy are, to
drive development and modernization of our payment system in line with
Nigeria's vision 2020 goal of being amongst the top 20 economies by the
year 2020. An efficient and modern payment system is positively correlated
with economic development, and is a key enabler for economic growth.
Also, to reduce the cost of banking services (including cost of
credit) and drive financial inclusion by providing more efficient
transaction options and greater reach, as well as to improve the
effectiveness of monetary policy in managing inflation and driving economic
growth.
In addition, the cash policy aims to curb some of the negative
consequences associated with the high usage of physical cash in the
economy, including:
High cost of cash: There is a high cost of cash along the value chain -
from the CBN & the banks, to corporations and traders; everyone bears
the high costs associated with volume cash handling.
High risk of using cash: Cash encourages robberies and other cash-
related crimes. It also can lead to financial loss in the case of fire
and flooding incidents.
High subsidy: CBN analysis showed that only 10percent of daily banking
transactions are above 150k, but the 10percent account for majority of
the high value transactions. This suggests that the entire banking
population subsidizes the costs that the tiny minority 10percent incurs
in terms of high cash usage.
Informal Economy: High cash usage results in a lot of money outside the
formal economy, thus limiting the effectiveness of monetary policy in
managing inflation and encouraging economic growth.
Experts have pointed out specific areas in which the cashless economy will
enhance the quality of life; the reduction of transfer/processing fees,
increases processing/ transaction time, offers multiple payment options and
gives immediate notification on all transactions on customers' account; and
it is also beneficial to the banks and merchants; (there) are large
customer coverage, international products and services, promotion and
branding, increase in customer satisfaction and personalized relationship
with customers, and easier documentation and transaction tracking.
It appears that the most serious appeal of the cashless system comes
from the high cost of cash management in Nigeria (Eboh, 2011). Other
identified reasons for the cashless economy policy are robbery, revenue
leakages and inefficient treasury. The system will present some costs to
the banking public, there will be some costs to be borne by government and
there will be costs for the operators of the system.

D. Essentials of a Cashless Economy
For the cashless economy to work certain factors must be present, not
just present but in the right quantity and quality. Over the years, one key
factor inhibits certain developmental strides is infrastructure. Power
infrastructure, for one, stands as a key factor in driving the e-payment
system Nigeria. Obviously, those who are being pessimistic about the system
in Nigeria are coming from the angle that a nation without stable
electricity cannot run a successful e-payment system. What infrastructures
are there to support electronic banking, assuming most Nigerians are
educated and ICT-compliant is it enough to flood the nooks and crannies
with ATMs, with their vulnerability to fraud unresolved.
Besides this is the challenge of telecom and banking
Infrastructure, which are seen as not currently sufficient enough to
support all the applications that would help the country attain a cashless
society.
At present, POS terminals are sparingly available in the country, and
that is even in the urban centres, likewise ATM machines.
Moreover, for POS terminals to work effectively there must be a robust
infrastructure in terms of high bandwidth internet and the Grand Packet
Radio Service (GPRS) an essential service provided by the GSM telecom
operators. For now, availability of these infrastructures is limited.
Finnih (2012) hints that with adequate preparations, Nigeria can
witness a seamless transition to cash less economy and also reduce its risk
exposure. The financial expert believe the Central Bank of Nigeria is doing
enough presently to ensure the system gets off to a smooth start.
The issue of security is also standing as a major obstacle. Of course,
many have had unpalatable experience of ATM fraud, which is now raising
serious security concerns on the planned e-payment system. The reliability
of the system to prevent any act of hacking by intruders remains a major
threat.
IT security experts have alerted that while the cashless policy
is poised to increase online transactions and deployment of various payment
platforms such as Automated Teller Machine and the Point of Sales
terminals, the security of these e-payment platforms is not yet being given
priority attention by the stakeholders. It is observed that Nigeria has no
cyber security emergency response program in place, noting that if the
country is attacked on cyber space today, there is no way of knowing. 
Apart from the security challenge, many see the level of education in
the country as another impediment. It is believed that higher percentage of
Nigerians are illiterate who may find it difficult to adapt to the system.

III. Data and Methodology
The research design used in this study is the descriptive survey method; it
involves the use of a representative sample from the population. The
population of this study is the entire nation. A sample size of 200 was
selected using the convenience sampling procedure. Only literate Nigerians
were included in the sample since they are the ones that can respond
independently to the questionnaire. The method used to collect data for
this study is focus group discussion. Focus group discussion is a rapid
appraisal technique that is highly effective for generating qualitative
information. In each of the groups, a facilitator guided a group of
participants through a discussion on their views on cashless economy and
national development.

IV. Analysis of Data
The responses by the discussants during the focus group discussion
provided the basis for the following analysis, presented qualitatively
without recourse to quantitative presentation.
The responses show that there is a high degree of awareness among the
populace about the cashless economy. The reason for this high rate of
awareness may not be unconnected with the nature of the sample selected.
The study used only literate people who by all probabilities are expected
to be fairly aware of the happenings in the society.
The discussants further show that the most anticipated benefit of the
cashless economy to Nigerians is its ability to reduce the risk of carrying
cash around, reducing the risk of carrying cash as that is easily amenable
to armed robbery, theft and misplacement, contribute towards reducing
corruption, helping to fight against money laundering as the money flowing
through the system can easily be traced and followed and stimulating
economic growth as monies hitherto hidden in other illegitimate areas will
now be freed up.
In another vein, the discussants explained that there are some
problems which the respondents are envisaging to come with the cashless
economy which may be informing their apparent reluctance and lack of
enthusiasm about the cashless economy. Exposure to fraudulent activities
ranks first among such perceived problems and illiteracy to be a major
menace for the cashless economy. Another problem has to do with logistics.
The facilities, such as point of sales terminals and automatic teller
machines may constitute a serious drawback – or the inadequacy of the
machines.

V. Conclusion and Recommendations
From the analysis above it appears that much has already been done in
making the people aware of the cashless economy. This, according to
experts, will bring about efficiency in the payment system. It also appears
that many people actually agree with the government on the usefulness of
the cashless economy. It is agreed that the cashless system will be helpful
in the fight against corruption and money laundering. One most significant
contribution of the cashless economy is that it is expected to reduce the
risk associated with carrying cash.
Since most transactions will now be settled electronically, people
will have less need to move around with cash and therefore, loss of cash,
theft and armed robbery will drastically reduce. To make for the smooth
implementation of the cashless system in Nigeria, the following measures
are recommended: there is the need to intensify the public enlightenment
programme about the cashless system so that everybody will be acquainted
with the system before its introduction since it will affect everybody.
Since there is a high rate of illiteracy, and all people must be brought
into the system, the government should design special enlightenment
programmes for the non-literates, using probably signs and symbols to
educate this segment on how to operate the cashless system.
Consumer protection department that was recently created in the
Central Bank of Nigeria really needs to be fundamental in Nigeria if you
want to make a positive move to cashless, and also financial education is
also very important. The cashless policy is a very powerful tool to bring
millions of people into the financial system. Nigeria should make concerted
efforts to design an internet security framework to check online fraud so
that the public can be assured and protected against cyber attack and
fraud.
More so, there should be a careful study of the system to determine
the number of point of sales terminals that will ensure its smooth running
in Nigeria so as to prevent unnecessary friction in the system. There
should be adequate legislation on all aspects of the operations of the
cashless system so that both the operators of the system and the public can
be adequately protected.



References:
Adeyemi K. S.(2006)"Banking Sector Consolidation: Issues and Challenges",
Paper Presented by an Executive Director, Union Bank of Nigeria PLC,
2006.




Akhalumeh, P. B and Ohiokha, F. (2012) Nigeria's Cashless Economy: The

Imperatives, IJMBS Vol. 2, Issue 2, April - June 2012




Akintaro, S (2011) Going Cashlehttp://www.ittelecomdigest.com/cover12-
dec.htm

Aremu I (2003). Development and Political Stability in Kwanashie (ed)

Politics and Political PowerRelations in Nigeria. Lagos. Data and
Partners Logistic Ltd, 12: 248-262.




Azeez, K (2011) Fresh Hurdles for CBN Cashless Economy Plan", National
Mirror October 12


Babalola, D.Y. (1999). The Principles and Economics of Cooperatives.

Ibadan: Ejon Publishers.



Babalola, R., (2008),"E-payment: Towards a Cashless Economy", A Keynote
Address of the Finance Minister of State at CardExpo Africa
Conference. [Online] Available: http://www.nigeriavillagesquare.com.


Eboh, M. (2011),"Cashless Economic Policy'll save Nigeria N192 bn – CBN",
[Online] Available: http://www. Nigerianewsday.com


Ejem, C. A and Jombo, C. O (2011) International Finance, Aba: Ker Experts
Books
John Iyobhebhe (2012) Removal Of Fuel Subsidy In Nigeria- The Issues &
. Challenges
http://www.nigeriapolitico.com/subsidy%20.html

Moses-Ashike, H. (2011),"Cashless Economic can Reduce Risk of Carrying
Huge Cash", [Online] Available: http://
www.businessdayonline.com/…/22217.


Nworuh, G. E (2001) Fundamentals of Applied Quantitative Technique for
Management Decisions, Owerri: Bon AssociatesISBN 978-35060-6-4.




Roth, B. L. (2010),"The Future of Money: The Cashless Economy – Part 1",
[Online] Available: https://www.x.com/.../ future-money-cashless-
economy—part-i.

http://www.cenbank.org/cashless/