Saturday 6 July 2013

Tunde Lemo: With Cashless Policy, Banks Won’t Subsidise Heavy Cash Users Again

Deputy Governor (Operations), CBN, Mr Tunde Lemo, whose office is driving the cashless policy initiative and the industry-wide shared services policy, says the policy will help modernise the Nigerian economy and make it a hub for economic transaction in the West African region. He speaks in an interview with Obinna Chima


Eighteen months in the cashless policy in Lagos State, if you are to look back and assess the initiative how will you say it has performed?
I believe we should look back and congratulate ourselves that the initiative has performed very well. Yes, we can say that there have been challenges, but I let me go into the details of the initiative. First and foremost, look at Lagos State where we first introduced cashless policy, before the commencement of the policy, we had less than 8,000 Point of Sale (PoS) terminals.
Today we have close to 150,000 across Lagos. As at yesterday (June 28th), because I get the daily report of transaction of PoS transactions and other e-payment platforms, they were more than 25,000 PoS transactions in Lagos alone, totaling by value, N422 million in one day, and that is quite remarkable. In other words, there were  people that bought things and paid through their cards more than 25,000 times in just one day. So, even with the challenges that we have, people are getting used to the initiative. Don’t forget that we are still at the steep edge of the learning curve because it was just last year that we introduced it, over time it is going to gain traction. For me, in spite of the issues around connectivity, in spite of the issues around availability and in spite of the sabotage by shop attendants, because many of them deliberately pretend that those PoS machines are not working because of thieves and because of pilferage.
A lot of them pilfer proceeds which was why we told merchants that they must ensure that they get their officers to use PoS and where they pretend that the PoS are not working, they should get people to go and do spot check and if they find out that the machines are working, they should fire them because a lot of them steal money, that is why they will pretend that they are not working. We did that before, we went somewhere and bought certain things, they said the machines were not working, but we tried it and they were working. So, these are the kind of things that we are contending with. But again, I don’t want us to look at the success of cashless all around PoS. There are five major cashless channels that we have established and the other four are even doing better than PoS.  What are those other four channels? Of course, you know the internet banking, today, a lot of people use card model to do internet and with the use of token and second level authentication, they have also been able to work around internet fraud. But look at electronic funds transfer, there is what we call the National Electronic Funds Transfer (NEFT). NEFT transaction as at yesterday (June 28th) was 224,000 by volume, valuing N70 billion. The Nigerian Interbank Settlement System (NIBSS) about one and half year ago introduced a product called NIBSS Instant Payment (NIB) transfer. Which means that if I go to Alaba International market today and bargain for electronics and was asked to pay N500,000,  I can do NIBSS transfer. Even as we sit, the transaction hits your account and you check your account, because it is instant. For that, as at yesterday, they were 70,000 transactions under NIP, valuing N40 billion. Even for bulk payment, we have been able to move cheque payment to 23 per cent of the total volume. 
We now have 77 per cent under internet banking, electronic payment fund transfer and for me, if you then add that to what is happening around PoS, you will see the level of improvement. Those are the four channels. The fifth channel of course is the mobile payment, it is also gaining traction. In May, because I don’t have the figures for June, there were more than 1.4 million transactions, totaling about N10 billion through mobile phones! So looking back at the cashless policy, I must say that we need to congratulate ourselves in Nigeria. We are beginning to see the benefits even at the CBN. Between 2010 and now, the cost of managing cash has actually been going down in the central bank. When we came up in 2009, we said we were going to reduce the cost of cash management and from 2010 it began to come down. In 2011, it went down from N55 billion to N40 billion. Even in 2012, it went down to N37 billion.
This is just from the central bank, so if you add the savings from commercial banks, the value will be humongous. Why did we do cashless? Before we came up with this, we looked at other countries and since government said the Nigerian economy will be one of the 20 biggest economies by 2020, we must then begin to modernise our economy. That is the only way we can have other economies around West Africa to converge around ours. If we don’t do that and Ghana does it, then transactions will move to Ghana and that will be very shameful for the most populous black nation not having transactions commensurate with our population. In Indonesia, cash accounts for only 4.5 per cent of their Gross Domestic Product (GDP), in South-Africa it accounts for only 1.9 per cent, Venezuela same thing. But in Nigeria, cash accounts for 41 per cent of our GDP, which is really scandalous. For us, we can modernise our economy and even increase our GDP by ensuring that the payment system becomes a vehicle through which we can have a critical mass of the volume that we expect in Nigeria through the cashless policy.

So how prepared is the CBN to extend this policy to Abuja and the five other states?
The CBN team has visited Ogun State. We have visited Anambra, we have also had discussion with the Rivers State governor. He was in Abuja and we met with him. We made it very clear that we will go nationwide very soon, but the level of preparedness is such that we can start. If I tell you that we are prepared or not, I will just be begging the issue. What do you mean by preparation? Preparation actually is ensuring that people can do PoS transaction, ensuring that people can use their mobile phones, ensuring that people can use their laptops for internet banking  and that people can do NEFT.
All of this can be done in any part of Nigeria. But in terms of awareness, when we say we are introducing cashless in a particular state, two things change, one is the policy of banks that is, in those zones, they won’t subsidise heavy cash users again. I have a lot of respect for members of the National Assembly, but I think we need to dialogue further for them to know that nothing is changing where we said we are introducing cashless. All of what we are saying is that because of the need to save money and to modernise our payment system, banks are now beginning to say that they will be charging heavy cash users and not allow the poor man to subsidise the expensive lifestyle of the rich man. If you look around the world, most people will not go to the bank to collect the kind of money we collect in Nigeria and this cost money. It cost money to move and process cash. In those days, what we did was to put all of that together as banking charges and everybody is charged.
But from July, in those other new states, we will raise the level of awareness and let them know that banks will no longer subsidise heavy cash users. If the lifestyle will continue, then they will have to bear the associated cost. Nothing is changing; it is not as if we are saying there won’t be cash in those areas, no! The choice is yours. If you still want to carry heavy amount of cash, you can, but bear in mind that the associated cost of carrying heavy amount of cash will be borne by you.  So the cashless policy will take-off in Abuja and those other five locations by Monday (July 1). But much later in the year, we will also look at the possibility of rolling out across the whole country. However, banks will be mindful of some remote locations where those efficient means of transferring money are not available.
Take for instance in Port Harcourt, you have some locations that are offshore, you have places where there are no banks, there may be need to look at such local communities to see how things can be done to alleviate the suffering of the people. But it is important to let people know that nothing has changed about banking habit.
It is not as if the central bank is coming out to say they are going to penalise people. You can still carry as much cash as you want to carry. The only difference is that you must be ready to pay the associated charges.
One argument by the lawmakers was that the policy should be implemented in phases, do you agree with that?
I agree with them. The world cashless, if you translate it literally, it is a utopian. There is nowhere in the world that is completely cashless. The region that embraces non-cash payment the most are the Nordic countries such as Sweden, Norway and others, even if you go there, there are still some elements of cash around. So we are not saying that we don’t want to see cash. Okay, we are saying that cashless has been successful in Lagos; does that mean that cash has disappeared in Lagos? So what we are actually doing is less cash. It is just the euphemism. Cashless means that we are de-emphasising cash. We are actually on the same page with those people who say we should move to a realm where there will be less cash. Otherwise, even now in Lagos, as an individual, on a daily basis you can go to your bank and collect cash of N500, 000. That is very huge! This means that if you do that every working day, for 20 working days a year, which is N10 million cash. So, it must be in everybody’s consciousness that we must reduce the volume of cash in the system.

What is the central bank doing about the penal charges associated with the policy because some bank customers and even some members of the House of Representatives believe it is still high. Are you not considering a downward review of the charges?
The word ‘penal’ appears a bit offensive. It is not penal charges. But mark my word ‘they will then begin to bear the associated cost. Of course we will go back to the drawing board and see if indeed we will reduce the associated cost again. Where we see the associated cost not up to what we are talking about, maybe there will be need to review it and maybe not. Honestly we are open, we will look at it, we will crunch the figures and if indeed it makes economic sense to reduce, we will do so.
But I think people should think more about how to conduct their lives without paying those charges.  I won’t use the word ‘penal,’ it is associated charges for the lifestyle that they ought for. And it is not only in Nigeria, I can be proved wrong, in other climes, if you have to collect more than 50,000 Rand in South Africa, you have to make arrangement for it and making arrangement includes the associated cost. Even in Nigeria, the banks something when they import dollars and make it available, it is not free! Even for us at the central bank, the bit of the dollars that we sell to the Bureau De Change (BDCs), we also pay associated charges and those charges of course are normal because somebody has to ship it in. Cash management generally cost money, which is why we want people to change their lifestyle.

With all these, what framework is the central bank putting in place to ensure that consumers of these products aimed at driving the cashless policy are properly protected?
As we were rolling out cashless, we also established a full-fledged department in the central bank called Consumer Protection Department. We are supporting the Ombudsman bill and we are also working with the Consumer Protection Council (CPC), just to ensure that customers are protected. We are doing that through three angles. Firstly is through advocacy, where we let the customers know what their rights are through our departments and secondly, through the Bankers’ Committee sub-committee on ethics and professionalism. What we do in that sub-committee is that we adjudicate and if there is dispute between customers and banks and it is brought to us, we deal with it. But routinely, we also tell commercial banks that for every of these e-payment channels, if there is dispute, it must be resolved within a reasonable time. Such reasonable time in most cases means one week. In fact, if there is a dispute and it is reported, within 48 hours, you must at least give a holding reply and we expect that within one week or two, it should be resolved. The third level of protection is also through what we call e-payment fraud. We have a committee of central bank, commercial banks and other stakeholders within the e-payment space.
That committee looks at fraud generally and what is happening in other climes, even before it hits our country, we also begin to prepare for it. Through that we have been able to also nip other things in the bud. Through that channel, we open ourselves up and we discuss generally and as an industry, we are able to ring-fence ourselves and it has been working. So, talking about consumer protection, we are quite aware and we have been able to deal with that. Many times we have had course to tell banks to refund customers when issues arise around charges that are frivolous and the banks know that the central bank will continue to protect customers.

There have been a lot of controversies surrounding the Know-Your-Customer (KYC) requirement for Designated Non-Financial Businesses and Professions (DNFBPs) even though the central bank has decided to extend the policy. Can you shed more light on what the policy is all about?
Although it is not directly under me, but let me just say this. It is all about money laundering; it is all about disclosure; it is all about the system being able to keep track of the flow of money. And because we are part of the bigger global anti-terrorism community, the Nigeria Financial Intelligence Unit, is also a member of the global body, there are clear rules on how to go. In fact several years back, Nigeria was downgraded. We were declared a non-compliant country and because of that a lot of people did not want to do business with the country because those basic rules were not adopted.
We sat down and said we must deal with all those issues and raise the standard of anti-money laundering activities, which is exactly what we are trying to do. If you open an account as a Non-governmental Organisation (NGO), whether you are a church or a mosque, a business unit, there must be full disclosure on the money that goes into the account and out of the account. That is the only way we can fight terrorism, tackle fraud, which is the only way we can deal with corruption and ensure that the system is trusted even by the international community.

Now to the foreign exchange market where the naira has been under intense pressure in recent times, is the central bank not concerned?
The central bank is watching market development. A lot of people are panicking. If you look at currencies all over the globe, you will not see a particular smooth trajectory of rates.
Even the United States dollar, the Japanese Yen, the Renminbi, the euro and other strong currencies, you are not going to see a particular trajectory and it goes like that either upward or downward. You are going to see movements up and down. But it is only when you trend over a fairly long time series that you then begin to see the trend and that is generally what the central bank is doing, like I said, we are watching development and then we will respond at the appropriate time.
The Nigerian economy is still very strong and resilient. Don’t forget that some of these things may be as a result of the information out there that because of the oil pipeline vandalism, our crude oil export is not as high as it should be. But the good news is that the federal government is dealing with it, the ministry of finance is dealing with it and we have a robust external reserves level that can deal with all of these. So, that is not something we should worry about and I believe that this economy is strong and people who think that naira will crash may be making a big mistake. Speculators should be careful because they will loose their shirts.

Some have argued that the central bank has no business defending the naira and that it should be allowed to float freely, what is your opinion on that?
There is no country that will not defend its currency if it is under attack. What they are saying is that the central bank should not adopt a fixed rate policy, which I agree with. In other words, don’t peg a rate because if the economic fundamentals suggests that it should move in a particular way other than where you have pegged it, then of course there will be some distortions that will affect the economy in the sense that it gives opportunity for arbitrage and so on. I can understand that.
But that doesn’t mean that you sit by because there are speculators all over the globe who might want the currency to move in a particular direction and want to take action. 
Once you look at the fundamentals and you believe that it does not suggest the movement, then you know whether is temporary, then you move and say no, because we are not going to allow our currency to be susceptible to the activities of speculators.

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