Globally, people are increasingly transitioning from using cash for transactions due to technological advances. The 2021 Global Payment report shows cash payments account for 27.4 per cent of all point-of-sale (POS) transactions in Europe, 19 per cent in Asia-Pacific, and 53 per cent in the Middle East and Africa.
The transition was achieved without being paternalistic – restricting people’s choices through coercion for their own good. The process took time, and research is ongoing to understand how this can be improved.
Using the same data source for Nigeria, cash transactions’ market share stood at 69 per cent in 2021, declining from 91per cent in 2016. As of April 2022, there are 1.1 million POS owners in Nigeria, and many serve as bank agents. That shows people are more aware and can adopt innovations, especially when the resources are available and the tangible benefit of transitioning is evident. Of course, the responsibility is on those selling it – the banks.
On the one hand, cashless technology can help eliminate several business risks at a time, such as theft of cash by employees, counterfeit money, and robbery of cash common. On the other hand, the cashless society faces various challenges related to cybercrime, fraud, privacy, and the digital divide.
So, those who prefer cash holding need to see the benefits of cashless transactions outweigh that of holding cash. After all, holding cash can be thirst-quenching. Even Aliko Dangote can attest to the love for holding cash.
At the Mo Ibrahim Foundation’s Governance Week forum in 2019, he told the audience how he cashed 10 million dollars from a bank to convince himself that he had that wealth. Let’s be clear, Africa’s richest man is aware of all the financial products and how the banking system works, but it did not stop him from seeking the pleasure of seeing his wealth physically. Other members of society may be unaware of the banking system or are deprived of it, which makes them demand cash for transactions.
In every society, banks are considered key players when it comes to keeping people’s cash. Traditionally, banks are meant to be places where people keep their cash safely with the guarantee that they will get it whenever they need it. Banks do not want people to withdraw their funds, but they make people understand that they can withdraw their funds anytime they want. That is why people keep their money and do not worry about withdrawing unless necessary. People have trust in banks. It is the same as why Dangote returned his money the next day after withdrawing it. If Dangote had been told that he could not collect his money when depositing it, he would have had doubts and might have found alternatives.
Implementing the policy, as Emefiele announced after meeting with Buhari, will shock the economy and change the banking system as we know it. A withdrawal limit of N20,000 daily and bank charges of five per cent and 10 per cent for any cash withdrawal over the limit will not be welcomed by the key players of the economy. Countries that excelled in cashless transactions did not apply such draconian measures. Although many have withdrawal limits, charges over the limit are not imposed.
One wonders why the government rushed to implement this policy without studying whether the banks have the necessary infrastructure to handle an increase in customer base and the employees to handle any uncertainty.
According to the Yobe State governor, only four out of the 17 local government areas have banks in the state. The World Bank 2021 data shows that only 45 per cent of the population over 14 years have bank accounts. The 1.1 million POS sellers who serve as bank agents have supplemented the banking sector in many areas, and the policy will drive them out of business. It is akin to cutting the economy’s financial supply–choking it.
Banks will see fewer deposits and more cash withdrawals. Those who have cash at the bank will find ways to withdraw it, even if it will cost a one-off charge, and then stay away. Economic activity will decline if cash withdrawals are delayed due to government policy.
In the labour market, a construction worker who earns a daily wage just to buy food will not be attracted to open a bank account that will charge them for using it. Neither will the food sellers. The construction worker’s employer will not have the patience to find only those with bank accounts. They need to be financially literate and require an incentive to join the cashless economy.
As we know it, the primary responsibility of the government is to design a legal framework for economic activities to occur in the economy. If a policy truncates economic activities, the government should reflect and find ways to deal with it.
Banks are responsible for convincing customers to open accounts with them by providing incentives for those who wish to open them. They must convince people that the risks, like bank fraud, will be mitigated. They must guarantee the customers that their cash will be returned if it happens. Banks must also provide affordable financial products and services that meet people’s needs, like credit, payment, savings, and insurance. They must also provide it responsibly and sustainably.
In a free-market economy, we expect the government to allow the banks to do their business without interfering. Banks do not want the government to become their sales manager. The policy should only take off when the banking sector announces it has adequate infrastructure and sufficient resources to attract a larger customer base. Otherwise, we will be creating more problems than solutions.
Above all, the cashless policy has never been used as a tool for stopping election fraud. The government must keep its relationship closer to reality and avoid applying new theoretical assumptions without studying the unintended consequences.
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