Applying Charges on Cash Deposit Above N150K – A Fact Check
Category: Money Market
Monday, January 23, 2012 6:17PM
As often, we received an e-mail from a concerned professional with regards to the CBN’s “cashlite” policy on January 02, 2012. The concerns bothered on the need to start the debate on “applying charges on cash deposits above One Hundred and Fifty Thousand Naira (N150,000:00k)”.
In order to properly contextualise the published article, we sought responses/validating evidence from the program initiators (CBN) and associated professionals and have published below the feedback on the pertinent issues raised in the article.
Kindly permit me to add my humble contribution to the issue of deposit fee on cash deposit up to a certain limit as it relates to the "cash-less" policy of the CBN that took off in Lagos on January 1, 2012. I am aware the charges will commence at a future date, however, it is good we start the debate now.
I are mindful of the fact that the decision to apply deposit fee on cash deposit up to certain limit is not only limited to Nigeria . This practice also applies in other climes.
However, it is expedient that the CBN domesticate its policy so that the unintended consequence of implementing such a policy does not override the good and naturally intended consequences. To this end, I will like to re-echo some open issues which the CBN may need to reconsider before a wholesale adoption of this “cash-less policy”. These are:-
1. Volume of cash outside the banking industry –In the climes where deposit fee apply to cash deposit up to a certain limit, the volume of cash outside the banking industry is mostly less than 30% and as such activities within the banking industries can be said to fairly reflect the entire economy. More importantly is the fact that they are not contending with the challenge we have at hand of trying to get people into the banking net i.e. financial inclusion. So why it is in their interest to charge customers to deposit cash, in our case it will be counterproductive.
It is also instructive to state that in South Africa for example where you have up to 40% cash outside the banking industry, people have argued that the reason for this high percentage is not unconnected to the deposit fee on cash deposit. Therefore, in order to capture more cash, SA banks often waive this fee just to attract more customers. Talking about the US (and as captured in the article below), the very act of charging deposit fee on cash was regarded as "The Stupidest Fees of 2011"
In Nigeria , and going by figures presented by the CBN, the volume of cash outside the banking industry is around 70%. It then implies that if we are committed to banking the unbanked, we should be thinking of putting in place incentives to get these cash back into the banking industry as against blocking the cash out.
While I consider it appropriate to penalize those who want to take out of the 30% within the banking industry, incentive should be giving to those who want to take from the 70% and bring into the 30%. When the percentage is more in favour of cash within the banking industry, we can then consider the need to re-appraise our tactics.
FEEDBACK:With regards to cash outside the banking system vs. deposit charges, one can agree with arguments put forward on this, but the truth of the matter is that the charges have been suspended for now and some of the reasons were driven by the concerns expressed above. The thinking is that the ‘moratorium’ will also allow time for the massive campaign being organized by the trio of CBN, Banker's Committee and the CIBN on financial inclusion to permeate the unbanked (so to speak).
2. Sophistication of Nigeria Banks in terms of availability of alternatives- i.e. internet banking, mobile banking, POS deployment/coverage, self service ATMs etc. The level of sophistication of the banks in those climes where deposit fee apply on cash deposit is far ahead of ours. Let our banks up their games by putting in place robust and stable non-cash platforms and we can then penalize customers for eschewing these platforms. We may not want to accept this but the truth is, our banks are wired to conduct "face-to-face" banking than devised based banking. This is so because for any business dealing, the banks' officials will always tell you to come over to the bank for discussion.
FEEDBACK:It is true that there is much to be done to be where banks are in other countries, but it's also a fact that Nigerian banks are fast moving out of that "face-to-face" banking culture and we believe their investments in the alternatives for the last three (3) years or so is commendable and the implementation of the cashless policy will further accelerate the quest for workable alternatives. Indeed, what we are witnessing since the last couple of months is that - all the banks are making requisite investments in upgrading their internal infrastructure to support the alternatives we are talking about.
3. State of Infrastructure –Power, Network etc. (Cost of sustaining this might be prohibitive). Agreed, the POS ordinarily should come with inbuilt inverters. The truth however is that a number of times the inverter fails!!! Another very salient dependency is the reliability of network. Transactions that are thought to have been concluded only turn out not to be. This singular act might put pressure on merchants to only insist on cash or proof that cash has hit their account before goods are release. This in itself further compounds the process of transacting business. In those climes where deposit fee apply on cash deposit, their banks/merchants appear to have mastered this issue before introducing such.
FEEDBACK:The CBN and the banks appreciate this problem very well hence the conscious and well structured efforts to address them. The banks collectively are installing 40,000 POS across Lagos ; and major service providers including telecom companies are working round the clock to provide the needed infrastructure to support a cashless Nigeria . Indeed a special brand of POS to run on batteries are being imported while all the banks are busy hooking to various types of Internet, mobile phone banking services etc. We are not there yet admittedly, but the truth of the matter is that we are moving very fast to that destination. It is the CBN’s target that we should be at par with countries like Brazil and Portugal in the next 5years.
4. Financial Illiteracy level -Despite the adoption of telephony - that is always used as a yardstick to measure how Nigerians accept new technology or way of life, a number of our elderly people/illiterates still rely on the people around them to make a call or send a text. In effecting a financial transaction, this can never happen otherwise the CBN/Banks must braze up for an avalanche of customer complaints. Yes, the CBN/ banks already have an ombudsman in place but you can be rest assured that cases that will be coming up for resolution will not only be administrative, but also civil and criminal in nature.
FEEDBACK:Point made here is valid and CBN and the banks are fully aware of this problem; and are collectively working together to push that agenda to it's logical objective. In fact, the CBN, NDIC and other stakeholders are working towards including financial literacy in the curriculum of our schools in addition to massive enlightenment campaign being organized by the trio of CBN, banks and CIBN to be handled by reputable professional agencies.
5. Pressure on Disposable Income– It can be safe to say that the Nigeria economy is in a growth mode. This however cannot be said of the population’s disposable income. The hope of raising the disposable income in 2012 through the new PITA Amendment 2010 that was signed into law last year, is already being threatened by the seeming and expected rise in consumer goods as a result of the removal of oil subsidy. We must not fail to mention other disposable income draining avenues like the Lekki toll gate and more toll gates to follow, new vehicle plate number, the LASU school fees hike, petrol price hike etc. The question is thus, why do we want to compound an already bad situation?
FEEDBACK:We question the logic of connecting the cashless policy to the type of pressure on disposal income as alluded to above for the cashless policy was announced long before any of those sources of pressure mentioned here were announced.
6. Possibility of Loophole Mining –It is a common saying that necessity is the mother of invention. Suffice to say that “over-regulation” as is the case here pushes people to want to mine the loopholes in government policies. The implication of this is that banking transactions may no longer be a true reflection of economic activities as people will mine whatever loopholes exist in the “cash-less” policy.
FEEDBACK:It would appear that the position taking above requires further elucidation. The point is lost in the logic. What has over-regulation got to do with a Central Bank policy for a country trying to reposition its payments system to meet the demands of the 21st century, especially when that country aspires to be among the top 20 best economies in the world or the financial hub of a sub-region? It may not be foolproof but its importance lies in the desire of the policy promoters to plug those holes that exist or/and to punish those that may want to take advantage of such loopholes. The CBN of today has shown, since the last three years, it has the resolve to take head-on such culprits and apply the law to the letter. The promoters are committed to ensure that such loopholes as may be identified will be resolved.
7. Question Mark on the CBN’s Interest –During the just concluded nationalization of three banks that saw the emergence of Mainstreet, Keystone and Enterprise banks, the CBN said its job is to protect banks' depositors and not banks' shareholders. In the case at hand, it might also be good to ask the CBN whose interest they are protecting – the banks' depositors or the banks' shareholders? In recent times, the banks have been unfairly pricing deposit rates while lending rates have been on the high side. The gap between deposit rates and lending rates are in favor of the banks' shareholders. Also, rates offered on “risk-free” instruments are higher than "risky" deposit investments which to me defile logic. Money is thus made to look worthless while it is yet hard to come by. With the cash-less policy that seek to enforce deposit fee on cash deposit up to certain limit, people are beginning to ask; whose interest is the CBN protecting - the banks' depositors or the banks' shareholders?
FEEDBACK:We can say without any fear of contradiction that CBN is determined, in all respects, to defend first and foremost the depositors. The pronouncements and actions of the Bank in the last 3years have vindicated us. The CBN has no interest other than modernizing the Nigerian payments system as part of the banking reforms as reflected in the four pillars of reforms well articulated by CBN Gov. Sanusi Lamido Sanusi. The issue of the charges is not sacrosanct as CBN has said many times that if and when we get there, we shall cross the bridge. Anything that the CBN might observe to constitute a problem to the smooth implementation of the policy or seamless transition to the new regime, might be reviewed and done with in the interest of depositors. Your comments equally assist in getting it right.
In closing, my position is that while it is a fact that deposit fee apply to cash deposit in other climes, the situation we find ourselves today does not warrant applying a charge on cash deposit because of the need to “pull” more cash back into the banking industry in addition to the fact that the alternatives we are proposing are not fully on ground.
We appreciate the effort of the CBN in promoting payments in Nigeria and express our desire to support and work with the CBN. This said, the CBN too need to put "human face" to its policies and in the case at hand, suspend the notion to apply charges on cash deposit up to any limit.
FEEDBACK:It is in consideration of the need to give a "human face" to the policy that the CBN decided to defer the effective date of the charges by three months. If there is need to go further, CBN will not hesitate to do that including the issue of the size of the charges. Thank you.