The decision by the Central Bank of Nigeria to wean the country’s economy off of heavy cash dependence continues to draw a lot of comments. Initially christened cash-less banking, it was renamed cash-less banking after consultations with the industry stakeholders showed the ambitiousness of an instant 2-phase transition. Under the new guidelines, customers would be penalized for making withdrawals above certain limits on a single day, while businesses, which had hitherto enjoyed free cash movement provided by the banks, would not bear these costs by themselves. A breakdown of the daily withdrawal ceiling limits individuals to N150,000 ($910) and N1,000,000 ($6,060) for businesses.

During its awareness creation campaign on the policy decision, the CBN had cited a number of reasons for dethroning cash from its long held throne. The financial sector regulator explained that its action was motivated by four factors namely global trends to non-cash economic transactions; the handicapping effect of so much cash remaining outside the monitored banking system on the effectiveness of apex bank’s corrective actions to stabilize prices and the economy; the excessive costs of cash management, currency printing and movement on banks; and finally, the rise in crime incidents targeting cash.

One telling number quoted to support the move away from cash transactions is the cost of cash handling. Estimates indicate that this figure would top $1 billion in 2011 from less than $750 million in 2009, a leap of over thirty percent in two years. Advocates of the CBN policy point to this as the most damning statistic against the sustainability of cash-centric banking.

On the other side of the debate, some analysts have cautioned on the readiness of the financial system to process the demands that will be imposed by the new policy with minimal disruptions to households and businesses. Although, not entirely opposed to the policy, these commentators posit that insufficient time and resources have been made available to prepare the banks, vendors and public for new trading order.

Some have interrogated the ability of banks to absorb the vast increase of cash into the banking system. Statistics made available by the CBN shows that only about 35% of cash-in-circulation is captured within the banking system. This has led many informed observers to query the capacity of deposit-taking financial institutions to soak up the deluge of inbound funds.

A second panel of questions has arisen from the likely consequences of the policy on consumption, saving and investing patterns as households and businesses adjust to the new environment. Essentially, these query whether the anticipated benefits to be derived from the policy would outweigh the adjustment costs on society.

A third set of questions has thrown the gauntlet down at banks to develop products tailored for the unbanked public who will now be shepherded into the pen of the formal economy. Banks, they argue, must rise to the challenge of creating responsive products tailored to the needs of the unbanked public, in addition to making credit available to them.

Among Nigerian banks, Sterling Bank has given considerable attention to all these concerns in a bid to address them in partnership with its technology and channel partners.

According to Fatai Amoo, Head of E-business at Sterling Bank, ‘the obvious reason why people prefer to carry cash is because they do not want to find themselves stuck in a situation when they need it but cannot get it. This makes carrying cash a default insurance policy for those traveling or going on open-ended engagements. To assuage these worries, our merger with ETB provides customers with an expanded national coverage to access funds through our self-serve ATMs and branches.’

One other way of engendering cash-less practices is through mobile payments. With more than 70 million mobile phone users in Nigeria the potential for mobile payments is huge. Last year, Sterling Bank rolled out Sterling Mobile, its branded mobile payment service, which enables customers to check their account balance, confirm cheques and transfer funds using any GSM provider network. The bank is also lending its support to mobile payment ventures like Pagatech for the provision of branchless payments.

From the settlement side, there are also encouraging signs that as Sterling Bank, like other Nigerian banks, prepares for single day settlement (T+1) the resultant reduction in delays experienced in receiving payments would encourage customers to transact through the banking system. As a pilot study, the bank successfully implemented its emulator rollout within record time after its merger with ETB. This enabled customers of both banks to carry out seamless cross-bank transactions.

Outside these efforts by Sterling Bank, there are other infrastructural supports needed to ensure that the policy takes off. For instance, there is the need for blanket provision of point-of-sale (POS) terminals to vendors in the formal and informal economy starting with urban areas. Estimates show that more than 90% of registered POS systems are located in the major cities of Lagos, Abuja, and Port Harcourt. Despite best efforts by the CBN, banks have experienced speed bumps in this area. Only recently, a newspaper reported that the Nigerian Customs Service has imposed a 20% duty on these terminals, further raising the bar on their appeal to vendors and customers who must bear the cost in the final analysis. With plans for banks to deploy 40,000 terminals in Lagos in the first quarter of the year, and 150,000 nationwide by year end, there is still a lot of work and inter-agency cooperation needed to achieve these goals.

Side-by-side with the constraints faced in making the terminals widely available is the need to educate vendors and the public on the benefits of card payments. Buyers do not want to be turned back at the till so they carry cash which is the familiar mode of exchange. Similarly, every seller can tell the difference between a N100 and N1,000 note. Only a few can distinguish the features of a debit card from a restricted area security swipe card.

To address the gap-in-knowledge, financial institutions, including Sterling Bank, have engaged with electronic payment transaction switching services like Interswitch to raise public awareness as well as service reliability, network spread, and card activation. These switching companies provide the backbone for most e-payments in Nigeria and are the obvious partner for banks in boosting awareness on the takeoff of cash-less banking.

Moreso, the quality of their service delivery directly affects the takeoff of cash-less banking to the degree that it makes the public comfortable with cashless transactions outside the banking hall.

These are just a few of the proactive measures taken by Sterling Bank in preparation for the commencement of cash-less banking. Yemi Adeola, the Group Managing Director’s comments at a recent executive retreat says it all: ‘the CBN has outlined the gains of cash-less banking and as the One Customer bank we stand ready to bring them to reality for our customers.’