How CBN’s new cash withdrawal policy will affect merchants, forex sellers, POS, retail distribution services

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The Central Bank of Nigeria (CBN) earlier in the week ordered commercial banks and other financial institutions in the country to lower the cash withdrawal limit to N100,000 and N500,000 for natural and legal persons, respectively.

In addition, banks have been ordered to only charge N200 or less denomination notes at their ATMs, in a bid to limit the volume of N500 and N1,000 notes in circulation in a bid to control the rising rate of inflation in the country.

The board of directors of the apex bank follows the announcement of the governor, Godwin Emfield, during the November 2022 MPC meeting, when he revealed that higher denomination notes will be reduced in circulation “in the long term to discourage hoarding of naira”.

Highlights of the letter include: People will only be able to make a maximum cash withdrawal of N100,000 per week over the counter. Withdrawals above the N100,000 limit will attract a 5% processing fee charge.

  • Corporate organizations also have a maximum cash withdrawal limit of N500,000 per week over the counter, with a 10% processing fee charged if the limit is exceeded.
  • Third party checks above N50,000 will not be eligible for cash payment over the counter, however the N10 million check limit via clearing for third party account settlement still remains.
  • Only denominations of N200 and below will be charged at ATMs and customers will only be able to make a maximum ATM cash withdrawal of N20,000 per day or a total of N100,000 per week.
  • People will only be able to make a maximum cash withdrawal of N20,000 per day via POS terminals.

This latest move by the central bank will have a widespread effect on commerce, especially businesses that rely on cash transactions, POS transactions, and other forms of electronic payments. Here is a summary of some of the impacts we expect to see;

POS Businesses: Point of sale services have served as a major employer of labor in Nigeria in recent times, especially for the youth who operate small kiosks and shops, mainly in rural areas.

  • POS agents can handle up to N1 million cash in their small shops N1,000 notes with ease, however with the new handling restrictions around N200 notes, it becomes extremely difficult to handle large amounts of cash.
  • For example, N1 million in denominations of N200 will require around 5,000 notes, which could be too conspicuous and consequently lead to theft or attack.
  • The additional 5% interest processing charges that would result from withdrawing more than N100,000 from banks by POS agents would be reflected in their charges in the future.
  • Also, the business of POS as a point of withdrawal and deposit could be negatively affected if more Nigerians adopt mobile banking and are able to transact from the comfort of their homes using their devices.

Electronic Payments: NBISS data reveals that Nigeria processed N345 trillion in the last 11 months compared to N271.9 trillion recorded for all of 2021. Despite this, challenges remain with electronic transactions, as frequent reports of failed transactions reduce the effectiveness of digital payments.

  • With cash transactions decreasing and electronic transactions increasing, we expect an increase in network failures as the digital infrastructure available to most banks and integrators struggles to keep up with demand.
  • Banks and other channel integrators should invest in cybersecurity software applications to guard against an expected increase in fraud in cyberattacks.
  • It is important to add that as competition increases, the cost of making these transfers will plummet in the medium and long term, which will eliminate the profits of the payment platforms.
  • We expect consolidation, such as mergers and acquisitions, as rival platforms compete with each other for market share.

Merchants: Small merchants such as sellers of meat, peppers, tomatoes, and yams, as well as services such as beauty salons, plumbing, and other repair services, which are already accustomed to cash transactions, will face the hassle of receiving payments in the future, as people will be forced to move with less cash and rely on online means of transactions to make payments.

  • These small businesses will have to accept bank transfers as a means of payment from their customers or request POS machines.
  • However, there is a great distrust of banking transactions due to the records of failed transactions and unreverted transfers that have impacted the penetration of online banking in the country.
  • Once again, there is the problem of illiteracy among people living in rural areas of the country, who would prefer to save in cash through local savings collections or in boxes hidden in their homes.
  • Sophisticated business platforms that for years have invested in using technology to bridge the gap between the informal market, major retailers, and consumer goods companies will now have to revamp their entire business models.
  • This could involve investing in its own proprietary payment channel platforms and wallets, while also implementing interoperability with competing companies.

Party/owambe forex traders: A typical business at Nigerian parties called ‘owambe’ is the trading of nairas for those who want to sprinkle. Those involved in peddling the naira at parties often charge interest for giving customers mint coins for their Nigerians, who are known for their lavish parties.

  • Firstly, the business will be affected by the new banknotes for at least 4 months, keeping in mind that the new coins will continue to be minted for at least the first few months, discouraging the need to patronize currency peddlers.
  • Meanwhile, the cash withdrawal limit will also affect the amount you can withdraw for your business. Although, an alternative would be for them to increase their interest charges when selling at a party to accommodate the extra 5% bank fees that banks charge.

Tax relief: The new cash withdrawal limit will have tax implications, especially for individuals and Micro, Small and Medium Enterprises (MIPYMES).

  • Given that the policy will force many people to transact using electronic payments, small businesses that currently operate primarily in cash will be visible to tax authorities.
  • Also, the more transactions people conduct electronically, the more intelligence tax authorities will gain to track their income and net worth, making it easier to spot those who evade taxes.
  • However, PricewaterhouseCoopers (PwC) African Tax Lead and Tax Policy Partner Taiwo Oyedele advised companies to register with the relevant tax authorities and open a separate bank account for their business and avoid mixing business with personal transactions.

Why this matters: The new CBN policy is set to change the financial ecosystem of the largest African economy, which could be a major turning point for the macro, monetary and fiscal economy.

  • Not without pain though, as Nigerians will have to adjust to the impending changes brought about by the new CBN policy.

Why this policy: The new policy of the CBN is based on the redesign of the new naira notes for N200, N500 and N1,000, which is aimed at reducing the money supply and currency in circulation. Nigeria’s broad money supply increased to a record 50.5 trillion naira in the month of October 2022.

  • Between January and October this year, the money supply has grown by a whopping 6.1 trillion naira, while the currency in circulation increased to 3.29 trillion naira, which has been largely attributed to hoarding of currency.
  • The main bank has also adjusted monetary policy tools by raising interest rates several times, which has not been effective in lowering the inflation figures or narrowing the exchange rate disparity between the official and black markets.
  • Meanwhile, the CBN’s new policy to lower the maximum cash withdrawal limit has been seen as a major turning point to control rising inflation, curb corruption and improve the adoption of cashless banking in the country.
  • However, it is imperative to highlight how this new directive will affect average Nigerians and their businesses.
  • We also believe that this policy is also driven by the central bank’s financial inclusion strategy, which is based on currency stabilization.

… How CBN’s New Cash Out Policy Will Affect Merchants, FX Sellers, POS, Retail Distribution Services Read more at … Naijaonpoint.

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