Amid the growing hardship that the Central Bank of Nigeria (CBN) naira redesign policy has inflicted on Nigerians, monetary and economic experts say the situation could lead to a host of negative unintended consequences, which may hit the deposit money banks hard.
They noted that digital banking could emerge from the current cash squeeze crisis as a vampire that could suck dry, the traditional money deposit banks.
There has been panic among traditional bankers over the rising popularity of digital and shadow banking (unregulated and non-bank financial intermediator). A top banker told The Guardian yesterday that the fear is even more palpable following the turn of events in the past week.
While the concerns could be dismissed as panicking, many banks have literally shut out their customers in the past week with their digital payment channels grounded, automated teller machine (ATM) disabled, and over-the-counter (OTC) operations non-existent. With digital service becoming increasingly erratic, supposed transfers take 48 hours or more in some cases to deliver. Customers with failed transactions are handed 10 working days before their cases could be resolved.
In the aftermath, many banks have drafted more personnel to customer services to attend to impatient customers and put information technology (IT) units on the spot. A number of the top banks have lost their good hands to better overseas companies in the wake of ‘japa’ syndrome. This is as the current crisis in the banking sector, some experts argued, is majorly traced to the mass exit of the IT support staff.
Most of the banks, the majority of which exist only on mobile applications, are currently listed on Unstructured Supplementary Service Data (USSD) to enable individuals with feature phones to join the ongoing mania. Still, the adoption rate in the past week has reached feverish heights, as an investigation last week revealed.
Though there are no verifiable statistics to show the uptick in subscriptions, those privy to the database of some of the financial technology firms, said the inflow in terms of volume and value in the last few days has been unprecedented.
From inception, some of the platforms (though with borderless operations) have recorded five to over 10 million downloads. The number of downloads, however, only suggests the level of interest a platform has received from the market rather than the actual subscribers.
Whereas some of the digital banking platforms are operated by licensed microfinance banks, a few of them (which are majorly wallets) have a working partnership with traditional banks. Only a few conventional banks, such as Wema Bank’s ALAT have been able to break into the rank of the top apps.
The Guardian had earlier reported of a move by some banks to acquire some digital banking platforms as the interest in taking a sizable slice of the cake increased on the back of a desire to wean the system of the risk of extended payroll.
The desire for a more nimble bank among directors was fueled by COVID-19. Different sources confirmed yesterday that “bank managers are now more eager to move on with leaner workforce” while investing more in digital infrastructure even if they have to acquire existing fintech.
The frugal banks are ready to scale up their IT to tackle the growing crisis and save their reputation. The low-hanging fruit for some of the banks is to headhunt experts to help fix failing software. But The Guardian learnt that attracting the needed expert is a tall order for many players.
A source close to a human resource consultant working with a top bank and privy to a headhunt brief said: “The bank is ready to bring in an expatriate at any cost because the situation is embarrassing and the board is becoming impatient. But not many people are so excited about Nigeria at the moment for obvious reasons. The most reasonable is to see how they can poach bright guys to stabilise the system and consider younger talents that could be trained overtime.”
Local fintech firms are targets of headhunters. A longer-term option to achieving a competitive edge is the acquisition of an especially stand-alone platform. Isaac Ijuo, a fintech expert, said the acquisition option is open-headed, which comes in different models.
“Many of the fintech guys end up selling their solutions to traditional banks,” he noted while arguing that for safety, many individuals would eventually keep their funds in conventional banks when the dust settles.
Ijuo noted that the downtime is triggered by a jump in transactions. Some of the bank IT, he said, are not scalable enough to handle the sudden surge in a transaction seen in the past few days.
December festive was a forerunner to the experience of the past few days. The Guardian has reported that the festive season was ruined for millions of Nigerians as ATMs ran out of cash while electronic payment channels were generally unavailable.
It was bad that people could not transact but terrible to realise that a failed transaction could be on the waiting list for over a week. In many cases, customers were cash-strapped.
The regulatory stipulation for reversal of failed on-us ATM transactions is instant or 24 hour for manual resolution where the instant option fails. On the other hand, failed transactions involving third-party cans are expected to be resolved in 48 hours. Today, many customers are put on the sideline for as many as two weeks before a green light on their complaint.
Experts said this rigidity is pushing many to more largely risky digital banks. Customers also do not have to worry much about arbitrary and multi-layer changes. Each transfer on a traditional bank app is charged while at least two notifications, which were previously charged N10 each before lawmakers intervened to force it down to N4.
Contrary, some digital banks offer unlimited free transfers. The popular ones, which also give instant uncollateralized but expensive loans, allow their customers at least 30 free transfers in a month. There are also saving options where customers with excess funds could earn close to 20 per cent interest rate.
The current minimum interest on savings, as mandated by the CBN, is 30 per cent of the policy rate (which is 5.2 per cent), which many banks do not comply with. Less-regulated term deposits, which come at a higher cost to customers, are less than two per cent interest yields in many banks.
There is an ongoing campaign by some of the digital banks where new subscribers are “dashed” a token once they sign up. For flexibility, low transaction costs and ‘give away’, many young people have long embraced the likes of Kuda, OPay, PalmPay, Hope PSBank, Eyowo, FairMoney and their likes as their preferred banks.
But the adoption is pushing well into the larger society, with millions of individuals from other demographics migrating to the space to reduce hours spent trying to complete transactions in lethargy managed by conventional banks. The fire could well spread to rural areas.
At most of the Lagos markets, merchants are also replacing traditional banks with digital platforms for customers wishing to settle their transactions via transfer. Some of them said they only present account details of traditional banks to customers paying via USSD.
The development comes as the CBN Governor, Godwin Emefiele, said he would discuss the possibility of suspending electronic transfer charges to make e-payment attractive to more people. Emefiele could be reopening old wounds. The banks and telcos had held depositors hostage over the settlement of USSD cost.
The cost was later transferred to customers. Yet, banks are indebted to telcos to the tune of billions even while the rip-off continues. Customers are to be charged N6.98 per transaction. Far from the regulatory requirement, charges are arbitrary with some banks charging as much as N80 for each transfer on the platform, which is expected to serve poor and rural dwellers with limited access to the Internet.
The cost of banking is getting complicated in the face of the scarcity of cash. As crises erupt at ATM points across the country, point of sale (PoS) operators have continued to fleece bank customers.
In the South East and South South, depositors part with as much as 20 to 40 per cent of the value of a transaction to have access to their savings. In Lagos, where some banks pay customers N1, 000 after spending over an hour in queues, PoS changes seem to have settled for 10 per cent.
The Central Bank directed that a customer should be restricted to a daily maximum withdrawal limit of N20, 000.
At a press conference in Lagos on Friday, Emefiele said the amount would increase as the supply of the new notes improved. But no bank currently meets the N20, 000 mark. Hoarding has also sparked as those who have access to cash hold back what they have. This could worsen the situation in the coming weeks.
Sherifdeen Tella, a professor of economics, is optimistic things would improve after the presidential and National Assembly election in the month when politicians would have flooded the system with cash.
Amid the growing hardship, monetary and economic experts maintain that
(CBN) has been hasty in implementation of the new policy notwithstanding the inherent benefits expected from the exercise.
They noted that though the currency redesign remains a good initiative, especially against the backdrop of the fact that it hasn’t been done in last 19 years, the negative unintended consequences are mounting partly due to the fact that the banks appears to be colluding with some members of the public to flout the guidelines.
In his opinion, Professor Uche Uwaleke, a professor of Capital Market at the Nasarawa State University, Keffi said: “To begin with, the CBN should promptly sanction any bank that is found to be in breach of its guidelines, usually involving diversion of new naira notes. The CBN should equally increase the daily limit.”
He explained that under the cash-swap programme, which operates in rural areas, the apex bank should consider increasing the limit from N10, 000 to N50, 000, and equally consider expanding distribution channels of the new notes to include Microfinance banks.
He noted: “Point of Sales operators represent a vital channel and should be given special consideration.”
In his opinion, the Director, Institute of fiscal Studies (IFS), Godwin Ighedosa said currency redesign is a financial policy that guides nations all over the world to protect their local currencies sometimes after ten-fifteen years. Drawing from his experiences from the United States of America, Ighedosa said that old notes of redesigned dollars legally last between three to four years.
According to him, “Our approach to issues in Nigeria is quite different from that of the developed climes. Here, different authorities are at play to frustrate government policies for their selfish interest. The CBN ought to know that like the blood running in the body, the physical cash remains the life wire of the economy. Once its circulation drops below a certain threshold, the economy chokes.
“It is unfair to see that old notes are being withdrawn without pushing out the new ones. This is what has brought unnecessary hardship, pain, and anguish to a majority of Nigerians in the last few weeks running. CBN must be more proactive and allow the people to have access to the new notes and save the economy from collapse.”
Meanwhile, ahead of the February 10, 2023 deadline for the withdrawal of the old naira notes from circulation, Nigerians have called on the CBN to allow the old notes to circulate side by side with the new ones for a longer period.
They made the demand given the hardship Nigerians were going through because of the scarcity of the new notes.
The managing director of a microfinance bank based in Enugu who preferred anonymity told The Guardian in a telephone interview that the decision of the CBN to regulate the release of the new notes was ill-advised.
He said his microfinance bank has not received a single note of the redesigned naira from CBN.
According to him, “What they would have done is to have pushed the new notes out quietly. Collect the old notes, and give out only new notes, Alternatively, they would have pushed out more of the lower denominations of N100, N50, and N20 notes, use them to flood the market, and people will be forced to start using them, even if you want to hoard them, the volume will be so much that it wouldn’t make sense. That is what they would have done while withdrawing the old notes and working on the new higher denominations.”
He said that way, there would be money in circulation but it would be in the lower denominations.
He noted that the reason people are selling the new notes is that they are not enough in circulation and many people are looking for them. “If you need it badly, you pay for it.”
He also said the N30 million daily allocation from CBN to commercial banks was grossly inadequate.
“Those of us in microfinance have not received any new notes at all. The ones I have in my bank are the ones customers brought. We are still giving out the old notes that we can receive and that is even exhausted. We are just paying N5000 to each customer.
“We went to CBN Enugu last week to request the new notes. For one week, they are still arranging to give us money. It is terrible.”
For Professor Muhammad Akaro Mainoma, a professor of Accounting and Finance and former President of, the Association of National Accountants of Nigeria (ANAN), what the CBN is doing has nothing to do with monetary policy, but a political action.
He said they should have allowed the old notes to circulate side by side with the new ones for a longer time than they have given.
According to him, “What they are doing has nothing to do with monetary policy, what they are doing is politics. If it is monetary policy, they should have done better than they are doing currently and make sure the money is available for the people.”
Mainoma said: “It appears they are trying to enforce the cashless policy, not really the redesign of the naira. If they say they want to stop vote buying, we can still buy votes through transfers. I don’t believe that is the objective.”
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