Where paper and coin currency are not used for financial transactions, that country is operating under a cashless policy. In a cashless society, all transactions are electronic, using web transfers, debit or credit cards, and other forms of digital payment services. A handful of countries are moving towards operating a fully cashless society, but none has reported complete elimination of cash altogether.
Position of the Cashless Policy in Nigeria
The cashless policy was introduced by the Central Bank of Nigeria (CBN) in December 2011 to encourage more electronic-based payments for goods and services, as well as reduce the amount of physical cash (coins and notes) in circulation. The transition first took effect in Lagos State in January 2012 with some states following suit on 1st July 2013 including Rivers, Anambra, Abia, Kano, Ogun, and the Federal Capital Territory (FCT). By July 1st, 2014, the policy was implemented nationwide.
The grace period between 2012 and 2013 gave banks ample time to help customers to migrate to available electronic channels, demonstrate costs that now accrue to high-volume cash transactions, and for customers to experience the e-transaction infrastructure. The cashless policy first enforced that the following banking activities cease: cashing 3rd party cheques above N150,000, and cash-in-transit lodgment services rendered to merchant customers. Also, a limit was placed on cash withdrawals for Individuals despite the channel used (ATM, Cheques, Overt-the-counter); the daily free withdrawal limit is N500,000. For corporate bodies, the limit was set at N3,000,000.
Owing to the launch of the new naira notes, a further directive was released by CBN on December 6, 2022; that individuals can only withdraw ₦100,000 over-the-counter (OTC) and ₦20,000 from ATM/PoS daily, while the limit is set at ₦500,000 for organizations. The new notes introduced were to further strengthen the cashless policy by reducing the money circulating in the economy; Nigerians were mandated to deposit all old notes in the bank. This move was also intended to further encourage the use of electronic payment and it proved effective even more amidst the cash scarcity in the country.
In the CBN's attempt to achieve a cashless economy, they have implemented several initiatives that may have been slowing down the adoption of a cashless system by citizens. Numerous charges and fees have been introduced as opposed to the incentives of free digital services including transfers. There was the introduction of charges on cash withdrawals and deposits exceeding the stipulated limits, prematurely unveiling the e-naira without functionality. Also, the unreliability of the interbank settlement system remained a concern. The payment system infrastructure needs to be strengthened to earn consumer trust and fewer charges or transaction costs asides from tax are necessary.
Today, a visible shift towards embracing digital payments can still be seen in Nigeria despite inconveniences for the masses. Although the complete implementation of the cashless policy had been delayed by the CBN, there is still a lot of movement toward making Nigeria a cashless society. The citizens are embracing the cashless system at an impressive rate. There were around 155 thousand POS terminals in Nigeria but as of April 2022, the number was over 1 million. Almost every commercial bank has a mobile app or web portal for customers to access banking services, and many business merchants include POS and mobile Transfers as payment options and downloads of e-payment applications have been on the rise pre the Covid-19 pandemic and after. Statistica reports an increase from N48 billion in POS payments to 663 billion by July 2022 and similarly, the value of electronic transfer has also grown from N3 trillion in 2012 to N300 trillion as of October 2022.
Other Countries Making the Switch
Since there are currently no cashless countries, there are still countries that have been taking the necessary steps to go cashless. Some of these countries include:
Sweden is well on its way to being the first cashless country in the world. Between 2014-2018, cash payments dropped from 63% to 25% according to an intelligence survey. And according to the most recent statistics from Riksbank, Sweden’s central bank, the proportion of Swedes using cash fell from 39 to 9 percent from 2010 to 2020. Currently, less than 1% of its transactions are done in cash.
Although cash still remains legal tender in the country, Swedish legislation makes it possible for retailers, companies, and other merchants to refuse to accept cash. The signs implying "no cash accepted" are increasingly seen around business premises in the country and some merchants display QR codes for customers to scan with their mobile phones for payments. A popular Payment app in Sweden, Swish has reportedly been downloaded by more than half of 10 million+ citizens wish and was used by more than 8.6 million Swedes in total, as of March 2022. In the first half of 2022, the app was the most downloaded Swedish FinTech app with 484k downloads. Online shopping is very popular in Sweden as 87 percent of the Swedish population made purchases online in 2021, according to Eurostats' commerce statistics for individuals.
The Swedish government has continued to marginalize cash and preparations for e-krona, a Swedish digital currency complement to cash, are still in the works. And Riskbank states that "e-krona would preserve public access to government-issued money if cash were to be marginalized further" in their 2022 payments report.
Australia can be regarded as another worldwide pioneer of the cashless society. The implementation of the cashless policy began in 2016 when the Australian government introduced cashless debit cards. The digital payment method was slow to take off but once the functionality of the payment system was established, it grew very quickly. The Australian consumer payment study revealed in 2013 that point-of-sale card payments were slightly over 20% but three years later they accounted for over 60%.
In 2018 alone, 72.4% of the 26,309,493 Australians used some form of digital payment solution, including PayPal and BPay, according to a 2019 Roy Morgan research post. Governor Philip Lowe in a speech he gave at the 2018 Australian Payment Summit highlighted the following: Australians moved from an average of 100 electronic payments per year to nearly 500 electronic payments a year and Atm trips that were around 40 a year for an Australian reduced to an average of 25. He also stated that New payment technologies like payment apps were being developed to speed up the shift to electronic payments. Experts including market consultant Lance Blockley, believe that the Covid-19 pandemic also sped up the shift to cashless payments in Australia.
Chief executive of ABA, Anna Bligh said "COVID-19 accelerated trends in our society and changed the way we live our lives. Working from home will forever be more prominent within the workforce, we have steered away from using cash and as a result, are seeing an increase in card and technology payments, and the existing trend of doing banking online instead of in a branch has only continued," According to Australian Banking Association (ABA), in 2016 cash being used in the country continually declined to 37% from the 2007 rate of 69% and 47% in 2013; and in the wake of the pandemic in 2019, 27%. A similar analysis by ABA revealed that ATM withdrawals – a key indicator of general cash use – decreased by 20% as of August 2021.
Today Australia continues to move towards adopting more methods for cashless transactions. Consumers now have numerous convenient payment options available including PayPass and tap-and-go technology, digital wallets such as Android Pay, and Samsung pay, etc. A 2022 Australian payments report from FIS predicts that digital wallets are set to become the main way Australians pay for goods as soon as 2025.
Some other countries making the switch towards a cashless society are China, South Korea, Finland, the United Kingdom, Australia, the Netherlands, Canada, etc.
Benefits For Nigeria as a Cashless-Society
- Improve the strength of the financial system
The financial system will be tasked to continuously improve services when more people are migrating to the formal economy through cashless transactions. The capacity of financial service providers can be tested as more people adopt digital methods, and adjust as needed.
2. Encourage more indigenous fintech innovations
The focus will drastically shift to a digitally driven financial industry and fintech companies have a chance to shine. Already fintech payment apps are getting ahead of the game and attaching irresistible incentives to their services. They are proving to have reliable infrastructure, little or no charges, and exemplary customer service. More fintech innovations may begin to see the light of day with the motivation from the performance of the existing ones.
Banking has never been easier since digital apps saw the limelight. Being able to control and monitor expenses without the need for cash is somewhat convenient. Consumers can carry out financial activities without going out of their comfort zone. A mobile device and the internet are all that are needed to tap into the possibilities of a cashless economy.
4. Boost Financial Literacy
More Nigerians will be sensitized to the need for financial literacy, to get the best out of the cashless economy. The traditional banking system has allowed for little inclusion of consumers into the financial processes and data. The cashless society will open up room for more consumer involvement in financial decisions.
5. Reduce Informal Financial Sector
As of 2022, Nigeria's informal financial sector was represented by 57.7% which generated approximately $1,164 billion at GDP PPP levels. Many petty needs for consumers are settled with cash in Nigeria, which goes into the informal economy. The policy regulating the cashless economy draws in funds from the informal economy to be a part of the formal economy. It is easier to trace the movement of money for the government this way.
6. Reduced Crimes
Cash has been the drive behind the unfortunate acts of criminals. Armed robbers are reported to take victims to ATMs to withdraw large amounts of cash but now there are limits on such withdrawals. Without tangible money to steal, petty thieves will reduce or be forced to find legitimate means of income. Criminals like money launderers and kidnappers will no longer have access to the cash they can launder or collect as ransom, respectively.
7. The digital paper trail for tracing crime
Acknowledging that there are risks of hacks to digital accounts and loss of money, there is also an easy solution for tracing the movement of funds. In the case of cash, once it is stolen, the chances of recovery are low. The digital paper trail in a cashless society makes it easy to find thieves.
8. Save time and Cost For Financial services
Resources that banks expend like time and cost on producing, storing, protecting, and depositing physical money can be saved in the wake of a cashless society. Cost of banking for consumers can also reduce drastically.
9. Deepen The Open Banking System
Recently the CBN implemented guidelines for the regulation of open banking in Nigeria. It takes time to fully adopt certain alien practices hence certain measures have to help with enforcement. The cashless economy can help improve the regular practice of open banking. Since the open banking system suggests the digital sharing of financial data with consumer permission, and the cashless policy drives digital banking, one will affect the other. Consumers can now give third-party service providers access to data such as bank statements or credit status on their mobile devices, utilizing the open banking regulation.
10. Health Benefits
Cash is dirty except it has just been freshly printed. Once it gets into circulation, it begins to travel in the hands of millions of Nigerians. Germs and viruses like Covid-19 can be easily spread from contact with cash. A cashless society can reduce the spread of such illnesses.