Charles Nwodo Jr is the founder and chairman of the board of Integrated Cash Management Services Limited (ICMS), a cash processing firm in Lagos. In this interview, he spoke on the purpose of the cashless policy of the Central Bank of Nigeria (CBN) and other matters.
What services does ICMS render?
The cash industry in Nigeria is relatively new and therefore just evolving and the CBN deserves credit for this development which aligns Nigeria with global best practice in currency operations.
By licensing new operators in the cash value chain, CBN was adapting the Nigerian cash industry to global best practices because in other parts of the world, the cash industry ecosystem is made up of cash-in-transit (CIT) companies, of which there are nine licensed companies and two cash processing companies of which ICMS is one.
By licensing ICMS and the other operators, CBN has a responsibility to engender a conducive operating environment for the licensees to avoid the past trends where operators in this sector folded up due to poor operating environment and hostile regulatory disposition.
For example, CBN has rolled out policies and operating guidelines that expressly disallow banks from distributing and processing their own cash or apply to be licensed as such if they wish to operate the services.
But CBN has not been able or willing to enforce this policy as we still have several banks distributing cash with poorly equipped vehicles and processing their own cash. This is one of the challenges we have to contend with as an industry.
There is a CBN policy that prohibits banks from issuing notes that have not been processed. The reason is because if they are not processed, the state of the notes cannot be determined. If they are not processed, you don’t even know whether they are counterfeits.
Do these licensees have the capacity to fully process and distribute cash nationwide?
Presently, we are under pressure by the CBN to expand our capacity to be able to meet the expectations of this industry. People must understand that cash is going nowhere. Indeed for now and for the rest of our life time, cash remains the most important and largest store of value.
I can tell you authoritatively that the volume of cash in circulation worldwide and in Nigeria is not decreasing as many people seem to believe.
The reason why CBN initiated the cashless policy was not necessarily so that overnight all the cash in circulation would disappear. The cashless policy was necessary because the volume of cash in circulation and the attraction for cash transactions were growing at an alarming rate and threatening national security in some ways.
How would banks benefit from your firm, if they don’t have to process cash by themselves?
The central element of our value proposition is the inherent principle in shared services. This model is simple and trusted and validated by the success of several companies and industries in many parts of the world.
However we have had some poor records in Nigeria in this respect. Nigerian banks had in the past set up institutions that didn’t succeed in the end. So, there is a recognition that a shared services platform is typically the right model for most industries but the devil is usually in the details….structure, governance, regulatory support, industry compliance and enforcement etc.
Processing cash is more expensive for the banks across their branches nationwide. But our bullion vans are stationed and operate around clusters like Victoria Island and Ikeja for example. And because we use these same bullion vans to service multiple banks, we are able to service both a Fidelity Bank branch in Ikeja that needs to evacuate excess cash and First Bank in Ikeja that needs cash quickly and efficiently, using technology and advanced operational techniques. This reduces the cost to Fidelity and First Bank respectively because we are using the same vehicle to do this.
You said some banks still operate in violation of the CBN guidelines. How do you rate their compliance level?
We have more banks in violation of this CBN policy. We are probably servicing about 30 per cent of the available market share.
I sympathise with the CBN on this because the capacity constraint exists among licensed Cash-In-Transit (CIT) and cash processing companies like ourselves. And the CBN has a responsibility to maintain an orderly and safe financial system.
So, the challenge is for us to ramp up capacity quickly in order to be able to strengthen the regulator’s hands to enforce compliance with the extant policies and guidelines without endangering the stability of the banking system.
Hopefully, with the COVID-19 pandemic and its consequences which will inevitably impact the revenue profile of banks, I am sure many of them are going to start rethinking their mode of operation.
If the CBN has licensed us as CIT and cash processing companies to operate in the cash management value chain, the same CBN should protect our business by aggressively enforcing the guidelines. With that, the banks would be forced to work with us.
The problem is that the banks have infrastructure and operations that they are not licensed to undertake. And the licensed CIT and cash operations companies do not have the infrastructure to service the market as desired by the CBN.
You said cash is going nowhere, why did you say so?
We belong to an international association which sponsors research into various segments of the payments space including cash in circulation in various countries and across the world.
In the last few years the statistics show that in the European Common Market area, and Asia particularly, the cash in circulation has been growing steadily and in places like Africa the growth is even more on a year to year basis.
And this is in spite of the rise in digital and card payments. So, people were surprised because simultaneous to this, e-Payment was rising, cheque payment was declining and internet payment was also rising.
One explanation for the continuous popularity of cash as a medium of exchange and value storage is that there is a correlation between crisis/tension and rise in cash volumes. People tend to seek to hold cash in times of uncertainty and crisis and as the world continues to witness one crisis after another in different continents, it is no wonder that the volume of cash in circulation has continued to rise.
What is the vision of ICMS?
Our plan is to support the industry growth aspiration of the CBN by solving the problem of cash distribution and cash processing capacity constraint so that ICMS and other licensed operators in the sector can benefit from a more aggressive enforcement of extant policies and guidelines by the CBN.
To this end, we plan to have nine additional cash processing centres across Nigeria in the next 12 to 18 months and expand our CIT fleet of armoured vehicles substantially.
Our ultimate goal is to be listed on the Nigerian Stock Exchange in the medium to long term and we are working hard and actively on these plans.
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