There are mixed feelings about the re-introduction of the inter-bank ATM charge. However, to properly evaluate the impact of the policy reversal, it is important to understand the origin and ideas behind ATM charges.
Historically, ATMs where introduced into banking to reduce operating cost, stemming from the idea that computers theoretically should be cheaper to operate and more available than human tellers at a bank branches.
At inception of ATMs over 33 years ago, the banks predominantly covered the cost i.e. the interchange fee, which included a switch fee as well as an annual operating fee to be part of a network.
Later, Banks introduced a surcharge fees to customers using other networks, similar to our Remote-On-Us charges.
In Nigeria, the banking industry has invested significantly in ATMs since their introduction over a decade ago.
There are over 11.39 ATMs for every hundred thousand Nigerians. To maintain a 24/7 operations ATMs, banks incur a cost, which is more significant in Nigeria when you consider the cost drivers for operating ATMs: Power, Network connectivity and technical/operational human capital support costs.
The Bankers Committee in 2012 had certain objectives, which I believe has been achieved. Back then the goal was about eliminating the fees to promote cashless adoption by changing consumer behavior.
Now in 2014, the Bankers Committee has a different objective: preserve the viability of ATM network in Nigeria by making sure that the banks can cover the operating expenses related to their ATM networks.
The push back from stakeholders clearly indicates that the original intention to raise sufficient bank customers’ awareness and gain adoption on the cashless policy has been achieved. Now that POS terminals are now available and in used nationwide, Cardholders have options and alternatives to ATMs today which were not available in 2012. They can bypass the ATMs and engage POS terminals directly by electing to patronize merchants’ offering options beyond cash. It’s interesting to note that other countries, such as the US with less infrastructure challenges, charge higher network surcharge fees, sometimes as much as $3.00 to their customers.
In summary, the policy will have an overall impact of improving ATM network sustainability in Nigeria through revenues now available for ATM upgrade and enhancements that will also offset ATM operating costs for banks.
For consumers, it will trigger the next behavioral change for cashless policy adoption and drive the economy faster towards achieving the objectives of the policy by causing them to look to merchants help to leapfrog the ATM and its fees by offering POS terminals at point of the sale.
The cashless policy in Nigeria has a primary aim or goal to achieve a cashless economy. This is a vision statement.
At present, no nation in the world can claim to have 100% consumer cashless transactions. In Nigeria, policy makers have continued to do what is necessary.
Engage industry participants and stakeholders from all sectors, solicit input on proposed policies, effect such policies and measure for impact and implications on the economy over a season before further adjustments.
This is exactly what happened with the introduction and enhancement of various policies over the last two years, such as the Lagos Cashless Pilot, the adoption across six other states and now the entire nation for POS terminals at Merchants; likewise the ATM Fees withdrawal and reintroduction of ATM Remote-On-Us fees at any financial institutions across the nation.
Other policy adjustments are the various reviews in the deposit and withdrawal fees for cash transactions at banks.
Macroeconomic monetary policy adjustments are not a dash but a marathon. The primary objective now is making the informal sector formal and getting the unbanked banked. After the rebase of our GDP, the informal sector accounts for about 57% of our GDP. This sector is perhaps also the highest employer of labor in the economy.
This is why the cash transactions are still high in the economy. To address it, continual policy adjustments for improvements coupled with strong awareness campaigns targeted towards stakeholders in the informal sector is required.
The sector must be made aware of the benefit of becoming formal, without necessary emphasizing on eliminating cash.
There is a strong motivation for big merchants to adopt POS terminals. For one, the large volume amount of cash transactions that they engage in on a daily basis, even with the withdrawal of deposit
fees for corporates still presents a high cost for merchants due to Cash-In-Transit services cost that is no longer borne by banks that merchants now have to incur.
Others are avoiding robbery, theft and fraud which merchants are highly susceptible to when they maintain a vault like a bank. For big merchants, these costs far outweigh 1.25% being charge for accepting card payment via the POS channel.
Smaller merchants in the formal sector are not structured to evaluate these types of costs and sometimes when they can, the business cannot accommodate the T+1 settlement process associated with POS transactions; cash flow is a daily lifeline for majority of these small merchants.
As a service provider, we at Global Accelerex have observed that when a small business meets the evaluation criteria for a bank such as turnover volumes etc. and qualify for a POS terminal, they still do not use the POS terminals either because of the settlement process or the nature of their customer interaction.
In addition, because the majority of these small businesses deal with the customers and suppliers that live or function in the informal sector with cash preferences, cultivating e-payment habits is challenging.
The major challenge is getting small merchants to wait a day for settlement and part with the proceeds from revenue to move funds electronically. It is a tough sale to any small business.
There have been recommendations by the Nigerian Communication Commission (NCC) to review some of its rules to ensure consumer quality experience in the industry.
Such improvements will have a direct impact on POS Terminal connectivity since the majority of these terminals depend on Mobile Network Operators (MNOs) to back haul connection to the switch and payment network.
The quality of the POS terminal hardware and software solution also plays a major role in service level experienced.
Rigorous testing and certifications is required to ensure that terminal solutions achieve the service level that guarantees business operations’ uptime to merchant and consumers.
For example, Global Accelerex is a CBN fully licensed Payment Terminal Service Provider and as such we provide services on the acquiring side of the payment system to banks and merchants.
From a product perspective, the offer standard and customized POS terminal solution (hardware and software) to banks and merchants that are uniquely tailored to their business requirements.
There solutions have a rich set of application programming interface that enables seamless integration with merchants’ core business systems e.g. ERP Systems, CRM Systems, Business Operations Support Systems etc. so that they have visibility of their Order to Cash or Service to Payment business processes.
It is also recognize that some merchants do not have the IT Operations for such large scale back office system and offer the ability for medium to small scale merchants to connect to our VAS Platform and enjoy similar benefits that large merchants can afford.
The also do this on a pay as you go basis for such merchants. Merchants that subscribe to such services are equipped with Real Time Analysis of their business transactions at a fractional cost.
This is what most small to medium merchants are appealing for easy reconciliation of daily transactions.
As well as provide custom solutions for Agency Banking and IGR Collections. Depending on bank or merchant’s use case, our solutions can also be tailored to integrate our PoS Systems to the merchants’ system on premises or on the cloud.
From a services side, they have Service Level Agreements with merchant acquiring banks to provide terminal agnostic PTSP services to merchants they have acquired.
Our merchant support officers are spreading across the nation armed with tools and technology to help achieve one objective – terminal up time for merchants’ business operations.
They are complemented with tools and technology from our headquarters to help with work order from banks, manage deployments, triage support issues, document resolution and put terminals promptly into service for use.