The pilot phase of Nigeria's cashless policy launched in April. Dubbed Cash-Less Lagos, it aims to reduce the amount of physical cash in circulation by encouraging electronic transactions in a largely cash-based economy. Huge investment in infrastructure is required for Point of Sale (PoS) terminals, ATMs, and payment solutions. This presents numerous business opportunities for investors in Nigeria.
Cash entails high costs for all parties of the value chain especially the banks. Furthermore, money which is outside the formal economy limits the effectiveness of managing inflation, encouraging economic growth or other monetary policy. On the consumer side, there are also high risks due to cash-related crimes such as robberies. High cash-usage also contributes to fraudulent activities including corruption, leakages and money laundering. In addition, fire and floods also increase the danger of losing notes. By reducing the amount of circulating money, Nigeria can reduce costs and benefit from the investments.
Some of the aspects of the policy applying in Lagos State under Cash-Less Lagos project include are; only CIT licensed companies are allowed to provide cash pick-up services, third party cheques above N150, 000 are not eligible for encashment over the counter, but only through a clearing house. Additionally, there is a ‘cash handling charge’ on daily cash withdrawals and deposits, which occurs when these transactions exceed N500, 000 for individuals and N3, 000,000 for corporate bodies.
The new policy offers great opportunities for companies that offer POS-terminals, ATMs, payment terminals, and software for electronic payments or mobile payment solutions.
With 10% cheque growth annually in Nigeria, cheque truncation solutions are needed. The importance of cheques is rising as well and thereby so is the demand for cheque scanning methods, software and signature solutions. These facts and figures show the huge potential for the industry as a result of the regulations.
The numbers are tremendous: According to the Central Bank of Nigeria, an additional 45,000 PoS terminals will be installed in 2012, and another 350,000 by 2015. The targeted deployment rate of 2.247 machines per 100,000 people would lead to more than 3.5 million machines, based on the current population of 160 million people. Moreover, the number of ATMs is expected to grow to 75,000 by 2015, a dramatic increase of 65,000 compared to the current estimated 10,000.
Overall the banking system is in an important phase of change. This trend should be taken into consideration by investors that are considering foreign expansion. Africa, with its growing population and importance for future business, is a key market for banking solutions particularly cashless solutions. Nigeria will especially have a significant demand for PoS, ATMs and many other banking-related products, such as software or other electronic payment solutions.
Marc-Peter Zander is partner and CEO of consulting firm, XCOM Africa.
XCOM Africa GmbH is focused on Africa and helps companies develop their strategy for the continent. XCOM Africa’s services include market analysis, development of market entry strategies, coaching, selection of partner in Africa and “hands on” implementation of market entry strategies.