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The Central Bank of Nigeria (CBN) circular to all Deposit Money Banks to limit the cash withdrawals by individuals in banks over the counter (OTC) to N100,000 a week or N20,000 a day will have unintended consequences of slowing ATM transactions to a crawl and crowding out banking halls, senior bankers told MoneyCentral.
The major culprit for this is the directive that only denominations of N200 and below shall be loaded into ATMs.
“Today average ATM transaction lasts 2 minutes per customer that could jump to as high as 10 minutes per person at the ATMs if the N200 note limit is not changed,” they said.
An example of this is that under the current regime someone withdrawing N20,000 of N1,000 notes, would need to wait for the ATM to sort just 20 bills (20 x N1,000), which usually would happen under 2 minutes from the time a bank customer slots in his ATM card.
Under the new rules however a customer withdrawing N20,000 of N200 notes, would need to wait for the ATM to sort 5 times more bills or 100 bills (100 x N200).
If N100 notes were loaded in the ATM machine, then 200 bills would need to be sorted before payment is made (200 bills x N100).
Complicating the matter is the fact that most ATMs usually have a limit to the number of Naira bills they pay at once. This means a customer withdrawing N20,000 of N200 naira bills may need to be paid twice for the same transaction (50 bills of N200 X 2), leading to further delays.
Banking sources tell MoneyCentral that this situation would be a setback for banks as most hitherto ATM customers would likely move into banking halls to avoid delays thereby defeating the purpose of the use of digital channels like ATMs.
“Given the short implementation timeline of 09 January, 2023 there would be a “mad rush” at banks and ATms for cash withdrawals ahead of the effective date and this may also cause undue cash scarcity, especially as banks have limited volume of the new notes at this time and nobody would want to stockpile the old notes,” he said.
“We will likely see value and volumes of ATM transactions drop sharply.”
Between January and August 2020, ATM transactions in Nigeria were worth 12 trillion Nigerian Naira.
Over the last years, the value of transactions increased steadily, as this figure amounted to 3,970 billion Naira in 2015. The overall number of transactions grew as well, adding up to some 840 million in 2019, according to CBN data.
Point of Sales (POS) merchants may however be the main immediate beneficiaries as they could charge a premium for cash withdrawals.
“POS merchants that currently charge N200 for a N20,000 cash withdrawal may hike their services to as high as N800 – N1,000 per N20,000 withdrawals, equivalent to a 5% charge, which is the same penalty the CBN told banks to charge,” the bankers said.
In India, which in 2016, enacted the radical decision to withdraw 500 and 1,000 rupee banknotes low-income earners, and those dependent on ordinary cash bore the brunt of the policy.
“There have been massive queues (lines) outside banks to deposit cash, endless queues outside the ATM machines and these machines have run out of cash,” CNBC reported at the time.
Forcing people to use digital payment methods will require the government to increase the cost of using cash, which will shift the demand curve of cashless mode of payments upwards, according to Indervir Singh an assistant professor at the Department of Economics and Public Policy, Central University of Himachal Pradesh, India.
“The government’s decision to force people to go cashless is based on the assumption that people can be educated about these technologies easily, which is far from reality. The cost of shifting to cashless transactions is much higher for people from economically weaker sections,” Singh said.