IMPACT OF CASHLESS MONETARY POLICY ON NIGERIA BANKING INDUSTRY. ISSUES/ PROSPECTS AND CHALLENGES

INTRODUCTION

Cashless policy can best be described as a financial function operated or performed without using coins or banknotes for money transactions but instead using credit cards or electronic transfer of funds.

IMPACT OF CASHLESS MONETARY POLICY ON NIGERIA BANKING INDUSTRY

1.  A shift towards cash-less monetary policy will reduce the high operational cost incurred in a cash based economy. Such costs emanate from cash management and movement, currency sorting and printing.

2.  Cash-less policy will help minimize the risks associated with the use of physical cash that do arise from burglaries and thefts as well as financial losses in fire outbreaks.

3.  Cash-less economy will make every segment of the banking population to pay for its usage of cash. The situation in the cash based system where the majority small cash users pay for the minority high cash users will stop. There will be no more subsidies on cash transaction costs.

4.  Cash-less economy will arrest a situation where a lot of cash are outside the formal banking system. By encouraging formal financial arrangement, it will facilitate the effectiveness of monetary policy in checking inflation and pushing economic growth.

5.  Furthermore, cash-less economy is capable of reducing corrupt practices like money laundering which is common-place in cash based economy. To the extent that cash is not easily pulled out of the system, it will discourage launders.

6.  The cash-less economy will bring about increased convenience, more service option, reduced risk of cash related crimes, cheaper access to banking services, and credit to customers.

7.  Corporate organizations will benefit by way of faster access to capital, reduce revenue leakages and reduce cash handling cost.

8.  On the part of the government, it will bring about increased tax collection, greater financial inclusion, reduced revenue leakages and increase economic development.

9.  The cash-less system brings along with it different banking instruments such as POS systems, mobile payments, direct debits, internet banking, electronic fund transfer etc. Implicitly, companies that are connected with the production of these products will benefit.

PROBLEMS OF CASHLESS MONETARY POLICY IN NIGERIA.

1. Cashless policy could often be affected by physical challenges such as high rate of illiteracy, inadequate sensitization/education of the benefits of cashless policy, and inadequate logistics (such as the provision of internet connections in commercial areas, computers and Point On Sale (POS) machines).

2. Apart from the physical challenges, economic data and indicators useful in the analysis of the true impact of cashless policy on the economy are not fully available and reliable.

3. The government loses an important alternative to pay for its debts, namely by printing true-to-the-letter paper money.

4. Paper money costs you nothing to hold and carries no incremental risk, apart from physical theft. Converting it into bank deposits will cost you fees (and likely earn a negative interest) and expose you to a substantial loss if the bank goes under. After all, you are giving up currency backed by the central bank for currency backed by your local bank.

5. The cashless policy would be problematic for the very poor people, many of whom don’t have access to the banking system; this will only make them more dependent, in fact exclusively dependent on government handouts.

6. It would be interesting to know if the banks would actually like to deal with the administrative hassle of handling millions of very small cash transactions and related customer queries.

7. If there is an event that disrupts electronic transactions (e.g. extensive power outage, cyberattack, cascading bank failures) people in that economy will not be able to transact and everything will grind to a halt.

8. Enforcing a government mandate to ban cash transactions must carry penalties, which means more regulations, disclosure requirements and compliance costs, potentially exorbitant fees and even jail time.

PROSPECTS OF CASHLESS POLICY IN NIGERIA:

1. It’s comfortable. No more delving your pocket in search of money. With cashless policy, most people would have their cellphones more readily available than their wallets.

2. Reduced handling and transport costs. If all monetary transactions were electronic, there would be no need to move around large sums in expensive high-level security vehicles. This would produce savings for both public and private entities.

3. Increased personal security. Imagine carrying no cash in your pockets. Goodbye pickpocketing. Imagine cash registers void of any physical money. Goodbye armed robberies.

4. Enhance the tax base, as most/all transactions in the economy could now be traced by the government.

5. Substantially constrain the parallel economy, particularly in illicit activities.

6. Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment.

7. Enable the adoption of new wireless/cashless technologies.

CHALLENGES OF THE CASH-LESS ECONOMY

i. The policy is challenged by financial infrastructure deficit. The cash-less payment channels that are currently available are not adequate to cope with the demand of the policy if it is to be implemented religiously. This means that the policy will require further investment of funds by operators and regulators.

ii. Given that the system is driven largely by ICT, the policy is exposed to dangers of fraudulent practices as any security lapses can be exploited by the astute fraudster to perpetuate fraud. Internet related crimes like hacking is likely to threaten the cash-less policy in Nigeria. The high charges and fees on some of the electronic channels are capable of generating resistance by the banking public. For example, the recent re-introduction of charges for ATM withdrawals didn’t go down well with the users.

v. To operate successfully in cash-less economy, some level of literacy is required in view of the technology involved. Therefore, Nigeria with high rate of illiteracy will certainly have some challenges. Illiterate population would prefer to keep their money in cash.

ix. illiteracy

x. inadequate data