Cashless Banking in Nigeria - An AppraisalBack

The relevance of the Nigerian economy both as a sub-regional economic power and as an unfolding but interesting economy in the comity of developing nations can hardly be seriously contested. From this point of view, economic policy formulation and strategy in Nigeria commands constant attention from economists around the world both as a reflection of expectations placed on potentially the biggest economy in Black Africa and purely for economic analysis.


It is therefore critical that economic policy formulation in Nigeria however minute continue to reflect the realities of the day and provide practical solutions to everyday economic challenges.


In 2011, the Central Bank of Nigeria (CBN) announced the introduction of a policy for the Nigerian economy’s more dependence on electronic payment methods and less on case. This is commonly referred to as the “cashless policy”. From the date of that announcement till its implementation there have been heated debates on the propriety or otherwise of the cashless policy in Nigeria.



The Cashless Policy


In analysing the issues involved, it might be useful to ask “what is cashless policy”? It is simply an economic policy which encourages the consummation of economic transactions by means electronic transfer of monetary value in place of cash. According to the CBN the aim of cashless banking is not “to eradicate the use of physical cash but to reduce substantially our economy’s reliance on it[1]”.


To be sure there are several advantages to wiping off a substantial amount of cash currently in circulation one that readily comes to mind is the security which less cash promises and another is the speed with which transactions can be completed. However chief reason identified in favour of the introduction of the policy is the cash handling and other related costs which cash engenders. The need for cash reduction is based on the study carried out by the Nigerian Bankers Committee to identify the cost drivers and possibility of proffering lasting solutions. The research revealed that on the average, 30% of bank branch physical space and employees was dedicated to cash logistics which ultimately translated into sums exceeding N190 billion as costs of the Financial System and total cash management costs. Furthermore, the study showed that only 10% of customer’s cash transactions carried out daily were above N150,000.00.[2]


Upon review of this finding, the CBN realised the enormous impact a solely cash based operation had on the economy and immediately came up with a road map to cutting the costs.


Another cost to be abridged is the cost of printing the Naira, according to the Managing director/CEO of eTranzact International Limited, Mr. Obi, who stated that the average cost of producing a Naira note is about N4.00 (Four Naira only) that means if the CBN produces 1 billon notes of Nigerian Naira, it would have spent N4billion[3].


The need for accountability on how money moved from one person to another also became necessary, the use of large sum of money in bags for money laundering, bribes and other corrupt practices need to be strongly discouraged and will drastically decrease with the implementation of the cashless policy.


Mr. Obi also mentioned that about two years ago, a World Bank study revealed that about $10 billion cash transactions that move just between Nigeria, Ghana and Cote D’Ivoire shows no clue about how it comes and how it goes. The transactions were not recorded or reported anywhere in our system. So government can’t even plan based on that.  There is high level of tax evasion in a cash based economy which a cashless system will reduce if not totally eliminate[4].


A major advantage of the cashless policy is not only in terms of ease and convenience involved in carrying out transactions but also the safety of doing so. It is a notorious fact that there is danger in carrying sums of money on once person as there stands a likely chance of one being disposed of the money. With the cashless banking this is less likely. In saying so, the probability of internet fraud is not dismissed. This concern is obviously at the fore front for the CBN, the ex- CBN Governor, Mallam Sanusi Lamido Sanusi stated that more money was now being transferred through electronic channels. The concern now is how we put in checks and balances to minimise fraud because as you move huge money via electronic channels efficiently, you run the risk of fraud itself being more efficient,”


The first step in the transition was the introduction of “cash service charge” on daily cash withdrawals or cash deposits that exceed N500,000.00 for individuals andN3,000,000.00 for Corporate bodies,[5] thereby discouraging the populace from the heavy reliance on physical cash acquisition.


While implementing this phase, the banks, business and the general populace were encouraged through various mediums to adopt the cash-less policy. Banks removed withdrawal slips from the general banking halls, Notices were placed in the banking hall encouraging the use of Automated Teller Machines (ATM) for minor withdrawals, mobile and internet banking was introduced, businesses were given incentives to use the Point on sale (POS) device and individuals were encouraged to use the Automated Teller Machines (ATM) for their regular cash withdrawals which as mentioned earlier on the average was below N150,000.00.


In a 2013 Banking Industry Customer Satisfaction Survey, conducted by KPMG Professional Services, Nigeria, which covers more than 14,000 retail customers in 18 states, indicates an increase in ATM usage in the country.


According to the CBN, this transition aims:


  1. To drive development and modernization of our payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.
  2. To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach.
  3. To improve the effectiveness of monetary policy in managing inflation and driving economic growth.


In addition, the cashless policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including:


  • High cost of cash: There is a high cost of cash along the value chain - from the CBN & the banks, to corporations and traders; everyone bears the high costs associated with volume cash handling.
  • High risk of using cash: Cash encourages robberies and other cash-related crimes. It also can lead to financial loss in the case of fire and flooding incidents.
  • High subsidy: CBN analysis showed that only 10% of daily banking transactions are above N150,000, but the 10% account for majority of the high value transactions. This suggests that the entire banking population subsidizes the costs that the tiny minority 10% incur in terms of high cash usage.
  • Informal Economy: High cash usage results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth.
  • Inefficiency & Corruption: High cash usage enables corruption, leakages and money laundering, amongst other cash-related fraudulent activities.


And by so doing, there will be a visible direct impact on the Nigerian economy, bank charges on loans and cost of banking services may experience a drastic reduction as the cost of cash to the financial system will decrease substantially[6].


Lagos, which is the centre of commercial activities in Nigeria operated as ground zero for the implementation of this policy and commenced on 1st January 2012 till the end of 2012 after which there will be a nationwide implementation in January 2013. This was to enable the CBN properly assess the implementation of the policy, learning the achievements and short coming of the policy before enforcing it on the national scale. This was achieved, on the 19th March 2012 via press release; the CBN informed the populace of a review of the cashless policy, and this review was due to the observations made within the Lagos test run.  


The review saw the CBN start by increasing the daily cumulative cash limit from N150,000 to N500,000 for individuals and N1,000,000 to N3,000,000 for corporate bodies. A decrease in the processing fees for withdrawals above the limit 3% from 10% for individuals and 5% to 20% for corporate bodies. For payments in to accounts the processing fee was also reduced, 2% from 10% for individuals and 3% from 20% for corporate bodies. These charges for processing fees however do not apply to accounts operated by ministries, departments and agencies of both federal and state governments where such accounts are solely for the purpose of revenue collections. Micro-finance banks, embassies, diplomatic missions, multi-lateral and aid donor agencies are also exempted from the charges on processing fees.[7]


The new policy from the review was implemented form the 1st April 2012, the CBN however left this review open for further assessment which will occur every six month. Abuja, Kano, Rivers, Ogun, Abia and Anambra states saw the implementation of the cashless policy in July 2013 while the policy was implemented in all other states 1st July 2014. There have however not been any further review of this policy and it is now in operation nationwide.


Given the nationwide implementation of this policy there have become apparent some challenges which this policy may face.





Despite its laudable intents, the cashless policy may run into a raft of practical challenges which are bound to call its implementation by the CBN into question.  First of such challenges is the “unbanking citizens” issue. It is estimated that up to 70% of the Nigerian population do not depend on formal banking sector or the usual channels transaction in consummating their economic activities[8]. This formed the basis of the House of Representatives initial objection to the implementation of this policy. The House had posited that given the living style of the average Nigerian citizen, the cashless policy was bound to inflict severe hardship on some segments of the populace.  Although the CBN had offered a counter argument namely that the policy seeks to encourage the current unbanking citizen to integrate into the financial system, this is highly doubtful due to the level of literacy within this class of people.


Secondly, it can be argued with some force that infrastructural deficits endemic in the Nigerian environment are bound to substantially affect the implementation of the cashless policy. Network outages, inability of some of the machines to dispense cash to customers in dire need of same, and incessant power outages are a few examples of this. To be sure, these can result in loss of millions naira to individuals and entities who but for the introduction of the policy would have proceeded on a cash based format for their transactions.


Third, it is clear that a large chunk of the unbanking citizens are either illiterates or residents of rural areas scattered across various states of the Federation. To these categories of people, the Cashless Policy brings little comfort given that they either unable to use the transacting channel or such channels are altogether unavailable to them. Due caution must be observed in judging the entire the scheme by its success or otherwise in Lagos State as the level of infrastructural advancement obtainable in Lagos cannot be compared with most other locations in the Federation.


Since its implementation, they have been obvious advantages to the financial sector one of which is the reduction of the cost of cash management in the central bank’s balance sheet which stood at N49 billion as at 2009, reduced to N35 billion in 2013 as a result of the policy.




The cashless policy is definitely a commendable policy with great prospects of making Nigeria’s economy a role model for other Africa countries. However, like most CBN policies, implementation will be vital to achieving the aim. Informing, educating and execution of this policy at the grass root level will see the unlimited success of this policy. Sensitisation of the unbanking citizen will prove vital to the success or otherwise of this policy. If these citizens will not carry out over the counter transactions then they are less likely to operate cashless banking.


Focus should therefore be on the dispensation of constant information about this policy not only to the unbanking citizen but to the general populace of the Federation.



[2]Abridged Version of the Keynote address by the Governor, Central Bank of Nigeria at the 2012 Public Lecture on “Nigeria in the Year 2012: The Vision of a cash-less economy”

[3] NSACC (2011): Imperatives of advancing a cashless Nigeria. Nigerian South African chamber of commerce. Retrieved from

[4] 3 supra

[5]Abridged Version of the Keynote address by the Governor, Central Bank of Nigeria at the 2012 Public Lecture on “Nigeria in the Year 2012: The Vision of a cash-less economy”

[6]Abridged Version of the Keynote address by the Governor, Central Bank of Nigeria at the 2012 Public Lecture on “Nigeria in the Year 2012: The Vision of a cash-less economy”

[7]Nigeria in 2012: Vision of a Cashless Economy- being the abridged version of Mr. Frank Nweke’s Lecture at the 2012 J-K Gadzama LLP Annual Lecture.

[8] See Mr. Valentine Obi “Imperatives of Advancing a Cashless Nigeria.” available at

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