Making Electronic Payment System Work in Nigeria

Bamidele Famoofo

In order to institutionalise the e-payment system and entrench the cashless society in Nigeria, the Central Bank of Nigeria (CBN),which has mandated banks to only accept payment of salaries, pensions and other remittances as well as revenue deposit in electronic forms from their customers, has also rolled out sanctions for non-compliance. This latest move is expected to reduce transaction costs, increase customer convenience, and minimise the need for expensive physical infrastructure, including branch networks. Bamidele Famoofo reports

In line with its cashless policy, the Central Bank of Nigeria has instructed that on no account going forward should any deposit money bank (DMB) otherwise known as commercial banks, accept monies meant for payment of salaries, pensions and other remittances, suppliers and revenue collection from their customers in cash but only in electronic forms.

The apex bank disclosed this in its revised guidelines to banks on end-to-end electronic payment in which it announced specific sanction for different infractions deemed to be impediments to smooth transactions.

The revised guidelines according to the CBN are expected to reduce the time and costs of transactions, minimise leakages in revenue receipts and at the same time, provide reliable audit trails, thereby making the Nigerian payments system align with international best practices.

The fresh move, according to the bank, is in alignment with the National Payment Systems Vision 2020 (PSV- 2020), which primary objective is to ensure the availability of safe, effective and efficient mechanisms for conveniently making and receiving all types of payments from any location and at any time, through multiple electronic channels.

“Further to the implementation of the guideline on end- to-end electronic payment of salaries, pensions, suppliers and taxes by all public and private sector organisations as directed in the bank guidelines referenced (CBN/BPS/PSV/GEN/014/05), deposit money banks are to dishonour payment instructions for all forms of salaries, pensions, suppliers and taxes not transmitted on a bank approved straight through electronic payment and collection platform issued by organisations with more than 20 employees. This means payment instructions and associated schedules are no longer to be transmitted to DMBs through unsecured channels, such as paper-based mandates, flash drives, compact discs (CD), email attachments, etc. by qualifying public and private sector organisations. Enforcement by the Bank shall be effective from the date of the issuance of this regulation”, the guidelines read in part.

For the purpose of clarity, the circular hinted that the guidelines applied to all CBN-regulated entities operating in Nigeria and mandates adoption, implementation and compliance with the directives on end-to-end electronic payments of all forms of salaries, pensions, suppliers, taxes.”

Cashless Nigeria

In January 2012, just about six years ago, the apex bank introduced a policy on cash-based transactions, which stipulates a cash-handling charge on daily cash withdrawals that exceed N500,000 for individuals and N3,000,000 for corporate bodies.

The policy on cash-based transactions (withdrawals) in banks, aims at reducing, but not eliminating the amount of physical cash (coins and notes) circulating in the economy and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.)

The cash policy, which became operational in Lagos in January 2012 was introduced for a number of key reasons, including driving development and modernisation of payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020; ensuring that an efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.

The policy also aims at reducing the cost of banking services (including cost of credit), and drive financial inclusion by providing more efficient transaction options and greater reach as well as improve the effectiveness of monetary policy in managing inflation and driving economic growth.

In addition, the cash policy was targeted at curbing some of the negative consequences associated with the high usage of physical cash in the economy which are high cost of cash; high risk of using cash; high subsidy; informal economy; and inefficiency & corruption among other ills.

Expected Benefits

A variety of benefits are expected to be derived by various stakeholders from an increased utilisation of e-payment systems. For consumers, it would mean increased convenience; more service options; reduced risk of cash-related crimes; cheaper access to (out-of-branch) banking services, access to credit and financial inclusion while for corporations, the impact will be faster access to capital; reduced revenue leakage; and reduced cash handling costs.

The government is not left out in the scheme as the policy is expected to increase tax collections; greater financial inclusion; increased economic development.

Experts Speak

McKinsey & Company Financial Service in a report on the potential of e-payment pointed out that sub-Saharan Africa offers tantalizing potential for mobile financial services, but said there have been few success stories so far. “One hurdle has been the lack of clear numbers on the size of the opportunity”, it said.

According to McKinsey, mobile financial services—often called mobile money—are a high priority for many mobile operators, financial institutions, technology firms, and governments. In regions where financial inclusion is limited, such as sub-Saharan Africa, mobile money promises a lower-cost, more scalable alternative to traditional banking.

In most of sub-Saharan Africa, only a small percentage of upper-income households enjoy the convenience of card-based, online, and mobile banking and payments, while most consumers still pay with cash. One study shows that more than 90 per cent of retail transactions in parts of Kenya remain cash based, and Gallup’s survey of 11 countries in sub-Saharan Africa found that more than 80 per cent of adults there have made bill payments or remittances with cash. Given the lack of digital payment penetration, consumers, banks, and governments in sub-Saharan Africa are still bearing the high cost of cash payments—costs associated with manual acceptance, record keeping, counting, storage, security, and transportation.

Meanwhile, McKinsey has hinted that lack of mobile technology is not the major obstacle to increasing mobile money penetration in the region as two-thirds of adults in sub-Saharan Africa currently use mobile phones. The exception is Kenya where mobile-payment penetration is at 86 per cent of households. The payment digitisation gaps between Kenya and other nations in sub-Saharan Africa still vary widely. Nonetheless, McKinsey noted that regulators in many markets, just like the CBN, are paving the way for e-money and the entry of non-bank operators. The report particularly revealed that business models and systems for electronic remittances—both domestic and international—have already been well tested in other markets around the globe, hoping that together, these factors should make it easier for digital payments to leapfrog the costly development of formal banking by introducing advanced mobile systems in the region.

Group Country Manager, Visa sub-Saharan Africa, Andrew Torre, said electronic payments offered a highway to Africa’s future growth. According to Torre, a Visa-commissioned Moody’s analytics study looked at the impact electronic payments have on economies around the world. The research found that in emerging markets between 2011 and 2015, a one-percent increase in card usage produced a $29 billion increase in consumption.

For Africa, the potential is tremendous going by a World Bank revelation that roughly two-thirds of the adults on the continent remain unbanked and card penetration is low. “By improving access to electronic payments and financial services in general, we will be able to play a part in helping more people contribute actively to robust, sustained economic growth, and improve their lives. It is an ambitious vision of the future. To fulfill it, we will need public-private partnerships, an open playing field and the ability to scale our investments”, the World Bank disclosed.

Torres said public-private partnerships can help societies move away from inefficient cash economies that also lack transparency. He argued that embracing electronic payment system is fundamental in creating investor confidence. “They demonstrate that governments are willing to invest as much as we are to make it successful and support the concept of shared value for sustainable growth.”


To demonstrate its determination to make e-payment work in Nigeria, the CBN said it will henceforth sanction banks and other financial institutions (OFIs) that violate regulations guiding end-to-end electronic payment of salaries, pensions and other remittances, suppliers and revenue collections. “Imposition of constraints to hinder electronic payment into a beneficiary’s accounts contrary to Anti Money Laundering/Know Your Customer (AML/ KYC) and other related regulation attracts the penalty of N1,000 for each transaction thereof not processed on a bank approved e-payment platform due to constraints imposed by a deposit money bank (DMB) or payment scheme.

“Transactions not consummated within the timelines prescribed in the [circular] attract a penalty of N1, 000 per transaction or any part thereof not consummated within stipulated timeline. “For non-return of unapplied funds to payer’s account within 24 hours, funds will be returned at the prevailing MPR for the period and report of infraction in annual report, while other penalty as may be applicable in the Bank Regulation on Operation of Electronic Payment Channels in Nigeria.

“Non-provision of monthly report on end-to-end e-payment of salaries, pensions, suppliers & taxes to the CBN attracts N5, 000 penalty for each day for which report is not provided to the CBN. “Submission of false or inaccurate reports attracts N250,000 fines and a warning letter to the Managing Director (MD). “The use of third party e-payment solution not approved by CBN attracts fine of N2.5 million for a DMB and N1 million for a OFIs on every repeated occurrence, as well as termination of the use of the unapproved end-to-end e-payment solution, and warning letter to the Managing Director.”