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Impact of Electronic Banking on CBN’s Financial Inclusion Policy

As banks and other financial institutions embrace electronic payments in preference to ‘Brick and Mortar’ location banking, stakeholders say financial inclusion policy of the Central Bank of Nigeria, CBN,  may be negatively affected as many unbanked Nigerians who mostly dwell in rural areas know little or nothing about electronic and mobile banking. Udo Onyeka reports.

Financial inclusion is an initiative that makes formal financial services available, accessible and affordable to all segments of the population. This requires particular attention to specific portions of the population that have been historically excluded from the formal financial sector either because of their income level and volatility, gender, location, type of activity, or level of financial literacy.

In so doing, there is a need to harness the untapped potential of those individuals and businesses currently excluded from the formal financial sector or underserved, and enable them to develop their capacity, strengthen their human and physical capital, engage in income-generating activities, and manage risks associated with their livelihoods.

Financial inclusion goes beyond improved access to credit to encompass enhanced access to savings and risk mitigation products, a well-functioning financial infrastructure that allows individuals and companies to engage more actively in the economy, while protecting users’ rights.

However with increasing numbers of countries and financial institutions in Nigeria adopting policies to accelerate the use of electronic channels and reduce the use of cash, it is obvious that many who live in remote villages across the country may not be fully part of this innovation.

According to experts the motivations for adopting electronic banking vary: many are primarily concerned with reducing tax evasion, some with fighting crime, and just a few linked it to financial inclusion.

According to CBN which announced its Cash-less policy in 2011 and commenced a pilot of the policy in Lagos State in April 2012, the policy intended majorly to reduce the use of cash.

It also intends to drive the development and modernization of the payment system in line with Vision 2020, reduce the cost of banking services and drive financial inclusion by providing more efficient

transaction options and greater reach.

In Nigeria where there is huge infrastructural deficit, and low level of literacy, especially in the rural areas adoption of electronic banking would hardly promote financial inclusion at least for now.

Since the introduction of Cashless policy in the country, some banks have shut some of their branches while online banking and Automated Teller Machines, ATM, grow.

Investigations reveal that some branches of some financial institutions were closed to accelerate the conversion of its customers to digital and also pressure to reduce costs in a struggling economy.

Findings by Daily Asset reveal that some banks in urban areas have cut down on the number of their branches.

For instance an operator who pleads anonymity said that his bank may before the end of 2018 significantly reduce the number of its branches by 30 per cent.

He said the changes became necessary following a review of branch-related functions that began late 2015 “as a result of our implementation of digital migration and automation aligned to the bank’s strategy”.

Executive Director, Shared Services, Fidelity Bank Plc, Mrs. Chijioke Ugochukwu said there is obviously a bright future for internet banking in Nigeria. Ugochukwu recalled that in 2012, only 32.9 per cent of Nigerians used the internet up from 0.1 per cent in 2001.

She believed that a lot of progress had been made with Internet use in other sectors for example online shopping sites.

“The same is now applicable to banking. Every banking service from account balance inquiry, funds transfer ,domestic and international, cheque book request, cheque confirmation, card requests, card hot-listing, payment of subscriptions, fees, account opening, among many others can now  be done online, anywhere and with any device,” she said.

According to her, “an in-depth review of customer satisfaction feedback reveals a clear correlation between the superiority of electronic channels and customer satisfaction.”When the customer talks, the bank walks. In a nutshell, the future of Internet banking in Nigeria is very bright. The freedom and convenience it provides are major selling points.”

CEO Electronic Payment Providers Association of Nigeria, E-PPAN, Onajite Regha, said the increasing rate of fraud in e-payment could discourage those who would want transact their businesses electronically.

However she advocates the need for to invest on awareness initiatives targeted at driving behavioral changes and promoting the culture of security consciousness among consumers.

The CBN’s National Financial Inclusion Strategy (CBN 2012) maps the current landscape of financial inclusion in Nigeria by category of financial service, distinguishing payments, credit, savings and insurance.

It draws on EFInA’s Access to Financial Services in Nigeria surveys to profile the financially excluded by demography, geography and barriers to access.

The Strategy commits to reducing financial exclusion to 20 per cent by 2020. It aims to achieve this through a range of coordinated interventions, such as tiered KYC, agent banking and mobile money.

Payments are clearly seen as the backbone of the strategy. The CBN has set a headline target of 70 per cent of adults using formal payment services by 2020. The Strategy also sets targets for channel infrastructure deployment, such as increasing the number of point of sale, POS, devices deployed to 850 per 100,000 adults by 2020, a compound growth rate of 55 per cent compared to 2010 and increasing the number of agents to 62 per 100,000 adults by 2020.

Achieving financial inclusion in the payments sector the apex bank said it is a two-step process:  First, excluded people must  have an account at a regulated financial institution that allows them electronic value. The account might be a bank account, m-wallet or other form of value storage.

Secondly, people must be able to use their account at a receive electronic regulated financial institution to initiate or transactions, beyond simply withdrawing cash at an ATM.

Data from EFInA’s Access to Financial Services in Nigeria 2012 survey highlight Nigerians’ limited adoption of electronic payments and services to date, with 0.7 per cent of banked adults using POS

terminals, 0.8 per cent of banked adults using the internet, and less than 2.5 per cent using mobile phones for banking transactions.

Though electronic banking transactions are increasing by the day analysts are of the view that those in the rural area are excluded, leaving them in some case to either use POS or ATM where it is available.

Data from Nigeria Inter-Bank Settlement System (NIBSS) showed a significant increase in the use of electronic channels.

For instance Point of Sale (PoS) terminals total transaction volume from January to November 2016 increased 65 per cent against all of 2015. The values of PoS transactions have doubled between 2014 and 2016.

Many Nigerians are indeed embracing alternative channel of payments, in August, Paga, a Mobile Money Operator, said it had reached 5 million customers, 20 per cent of whom were active. The operator said

it handled almost $800 million worth of transactions between July 2015 and July 2016 compared to the three previous years in which it handled $1 billion worth of transactions.

The service allows customers to receive and send money, pay bills, and purchase airtime through its platforms, whether or not they have a bank account.

Electronic and online payments  is gaining more grounds with several start-ups  investing in technology to enable Nigerians make more payments online. Paystack, one of those payments-focused start-ups,

recently closed a $1.3 million seed investment round led by Chinese investment holding giant Tencent.

Reports obtained from the CBN showed an increasing in e- banking activities. The banking sector recorded a total value of N2.33trillion through electronic transaction platforms within the first six months of 2015.

The figure, which was contained in the financial stability report for the first half of this year, however, represents a decrease of N113billion when compared to the N2.446trillion recorded via electronic transaction as of December 2014.

The report attributed the decrease in the transaction to the growing awareness of customers of other existing e-payment channels.

A breakdown of the N2.33trillion transactions showed that the Automated Teller Machine accounted for the highest figure put at N1.9trillion.

This was followed by transaction through the Point of Sale terminal with N200.88billion; mobile money channel, N192.04billion and Internet transaction, N39.81billion.

It said, “Electronic card transactions, other than cash withdrawals at the ATMs, increased in volume and value from 31.22 million and N402.53billion at the end of December 2014 to 37.03 million and N432.73billion at June ending 2015.

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