CAN CASHLESS ECONOMY THRIVE IN THE PRESENT DAY NIGERIA?

By EDE KENECHUKWU KENNETH 

Cashless economy is an economy where transaction can be done without necessarily carrying physical cash as a means of exchange of transaction but rather with the use of credit or debit card payment for goods and services. The cashless economy policy initiative of the Central Bank of Nigeria (CBN) is a move to improve the financial terrain; but in the long run sustainability of the policy will be a function of endorsement and compliance by end-users. Cashless economy 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. 

However, 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. Increased usage of cashless banking instruments strengthens monetary policy effectiveness and that the current level of e-money usage does not pose a threat to the stability of the financial system. However, it does conclude that central banks can lose control over monetary policy if the government does not run a responsible fiscal policy. A recent survey in Nigeria show that about 34.0% of the respondents cited problem of internet fraud, 15.5% cited problem of limited POS/ATM, 19.6% cited problem of illiteracy and 30.9% remained neutral—the respondents not been sure of problem been expected or experienced. While in some quarters there was fear of unemployment, some believe it will create more jobs especially when companies manufacturing POS machine are cited in Nigeria.

In the Nigerian monetary system, the Central Bank of Nigeria (CBN) is pursuing the cashless banking system that would see the co-existence of cash and electronic money and the policy document on cashless economy detailed out the following implications:

1.      Reduction in cash transactions to both the banks and their customers;

2.      Expansion in vault cash;

3.      Expansion in the credit creation process;

4.      Expansion in the involvement of the informal sector in the banking process.

These implications follow directly from the surface of the policy but there is the need for a deeper and economic analysis of the introduction of the cashless banking or cashless economic paradigm and its attendant implications as far as the attainment of advanced economic objectives are concerned. The policy has been affected by many factors including ineffective sensitization campaign exercise; inadequate protection of the interest of merchants and people in the informal sector; non functional Point-of-Sale (POS) terminals as well as other technological and literacy challenges. These challenges have as well seriously affected the policies; it is therefore the believe of some pessimists that the move is too idealistic in a country like Nigeria where a larger percentage of its population resides in the rural areas. And as at the last count only about 10,000 ATMs and 14,000 POS are functional across the states. 

Momentarily, governments should revisit the overall development project in the country to ascertain the extent of development. Cashless economy can only thrive in an economy where people are cultured or able to raise their homes up to average US student standard of living. Many problems surround the implementation of cashless economy in Nigeria; an average Nigerian would like to hold much cash and make transaction at his wish. Think of cash to be exchange through political dealings ‘such funds are usually colossal.’ In another dimension, major market dealings involve the exchange of cash. Looking at all these, you would see with me that things must be well fixed before cashless policy will thrive in Nigerian economy. For instance, the financial infrastructure in Nigeria is inadequate to carry the load of a cashless-society. ATMs, POS systems and other mediums have to be expanded to touch at least 60% of the whole economy before any meaningful effect can be achieved; again, erratic power supply has been a major challenge facing every industry in Nigeria, with banking industry not an exception. Power supply must be improved drastically to stimulate smooth operations of financial activities; Prevalence of e-fraud should be minimized to zero level. 

High level of fraudulent activities through e-banking is a challenge, which the entire banking industry must resolve before cashless policy can be effective; also, literacy rate in the country is very low in some part of the country. Business men in some regions prefer to keep their money in their private slipup rather than patronizing the bank; there is presently a psychological war going on in Nigeria over the proposed Islamic banking by CBN, as Muslims believe that conventional banks often sin against Allah by their interest charges. This undoubtedly, greatly affects the achievement of the cashless Nigerian society; Proper and accurate identification of account holders must be maintained and shared when necessary by all financial institutions; also CBN must collaborate with all other government or private agencies responsible for collection of identification of individuals in Nigeria for reconciliation of any identification. CBN and other banks must be ready to invest heavily in e-banking infrastructure to make this transition possible. 

Technology is not cheap and is ever changing at a very fast pace. Investment in billions of dollars, made in infrastructure, training, marketing, security and maintenance will be on routine bases and should be a collaboration of efforts by all parties concerned, if the policy is to be effective; also CBN must collaborate with National Assembly to enact proper legislation that would make the policy effective. Enforcement of the proposed legislation should be carried out by CBN and all other executive arms so empowered by the government such as EFCC, ICPC, Nigeria Police etc and they must commit to the training of personnel and the judiciary must be prudent and up to the task. 

Unavailability of network is a major problem facing ATM and internet usage in Nigeria. This no doubt, affects the policy; users have problem carrying out their transactions at their convenient time; trust is lacking in Nigerian business environment. Businesses are done on cash basis as cheques bounce at will, hence people place less trust on the use of cheque but prefer cash instead; therefore, the risks involved in rushing the programme without having all the infrastructures in place could be devastating as any failure recorded would make people to lose confidence in the systems and never rely on it any longer.

Power failure negatively affect e-banking, infrastructure like ATM. Network failure of communication links also affects the policy; also non existence of computer back-up is another factor; there bounds to be total loss of data on customers’ account if there is no back up and the entire file is damaged. This may lead to misappropriation of customers’ account, hence bank should maintain back up of all its information outside the bank’s premises. Generally, most banks find it difficult to fund procurement of modern equipments needed for optimal e-banking. 

Nevertheless, there has been tremendous improvement in automation of bank operation in the country in the last 5 years but there are still rooms for further expansion so as to catch up with hi-tech, which is in vogue in developed countries; electronic banking has somehow reduced the number of employees needed to handle most transactions in the bank as most work done by workers are now being handled by machines thereby translating to increase in the rate of unemployment in the country. ATM transactions, as an example, involves high cost (such as e-fraud, security and cost of ATM literacy), thereby discouraging customers from using it. CBN is working out a modality to stop forthwith charges for usage of ATM. This will be a sort of relief and stimulates the effectiveness of the policy in Nigeria, if fully implemented as promised. Low public acceptance by many people have burnt their fingers as a result of fraudulent withdrawals from their accounts through the use of ATM by unscrupulous individuals who believe in using master cards to withdraw money from unsuspecting individuals. 

Not to mention, situations whereby customers are debited by the ATM with withdrawals not supported by cash that fail to drop down from the machine as expected. Customers are discouraged to use the machine as it takes longer time before the wrong debit is reversed if it does not end up unsolved; thus most ATM locations are not secured thereby making it easier for fraudulent persons to carry out their fraudulent activities without any arrest. Computer hackers also use the porous security system to steal data by breaking the codes or passwords.

Therefore, it yields to the question again “can cashless economy thrive in the present day Nigeria?” Actually, as you are already getting a sense of my rather negative economic assessment of the fitting of cashless policy in the Nigerian economy, you would see with me that neither Nigerians nor the institutions can fully absorb cashless policy; thus, unless Nigerian government and her monetary authorities (CBN and other banks) prudently implement all it takes to achieve a cashless economy, then Nigeria will degenerate into cashless society. 

EDE KENECHUKWU KENNETH (ede_kenneth@ymail.com or 08101710583) wrote African Prospects  from The Department of Economics, University of Nigeria, Nsukka

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