The bad economy makes a cashless Nigeria more realistic than ever

This article was contributed to TechCabal by Adedeji Olowe.

Anyone who’s been watching the fall of the Naira can only be astonished by how many notes it takes to buy anything these days. Just four years ago, in January 2020, $1,000 was worth about ₦360,000, which meant you’d get 360 pieces of ₦1,000 notes or 3,600 pieces of ₦100 notes. By the way, that’s 3.6kg to log around if you went for the ₦100 notes, and a ₦1,000,000 composed of ten ₦100,000 bundles is 1kg.

Fast-forward to 2024, and $1,000 is now a disastrous ₦1.6 million. To use that cash to make some payments, you need 1,600 pieces of ₦1,000 notes. So, you’d have to count out 16 bundles of ₦100,000. If you want that in ₦100 notes, that’s 16kg to carry around. The weight of this note is a testament to how bad things are for Nigerians.

With so much deadweight to carry around, everyone is looking for more notes to do anything substantial, and many are realising that carrying the volume of cash required to do most things now is simply impractical.

Inflation continues to destroy the value of the Naira and no new higher denominations have been introduced. Even with the smaller notes, when was the last time you saw ₦10, ₦20 or ₦50? It’s almost like they’ve become entirely useless. So, what we’ve seen in recent times is that people are increasingly turning to electronic payments for their everyday transactions, shifting us further away from a cash-driven economy.

Cashless economy: The government’s push vs the economy’s hard shove

I didn’t fully grasp the magnitude of this issue until someone from TechCabal reached out to me to discuss the line items of the national numbers. We saw that the number of electronic transactions had shot up significantly but there was something off with the revenue being paid to the government from what the banks were reporting; it wasn’t commensurate with the volume of transactions.

Everyone expected the increase in electronic transactions to be commensurate with the increase in the government’s earnings from the electronic transfer levy.

Looking at this more closely, we then figured out the reason for this. What has happened is that small ticket transactions are now being done electronically which wasn’t the case before now. Previously, most electronic transactions were for amounts over ₦10,000, which used to be a significant amount of cash to carry. And people would have to pay a N50 electronic transfer levy. Back then, we were primarily paying for small items with physical cash and electronic transactions were larger, which made it easier for the government to collect revenue.

But now, with inflation and the rising costs of living, how much cash can one carry around even to fulfil the most modest transactions? Over the last four years, items that cost ₦1,000 then are now ₦5,000 and above. So, if you withdrew ₦10,000 from the ATM and you could spend ₦1,000 ten times on various items, you need to withdraw ₦50,000 to do the same thing.

Beyond the fact that the average Nigerian is impoverished, they can’t even get the ₦50,000 from the ATM easily. Most ATMs now dispense a maximum of ₦5,000 per withdrawal, if you can get it to give you cash to start with.

It then makes sense for everyone to switch to digital payments. Yes, many of these individual transactions often fall below the threshold for fees like the electronic fund transfer levy.

Naturally, because of this, the government isn’t seeing the expected revenue (and we hope they don’t) because this government will tax a dead man just to raise funds (and possibly waste it on useless expenditures).

The interesting thing is that the Central Bank of Nigeria (CBN) has been pushing for a cashless economy since 2012, but they have not been successful because of half-hearted implementation and multiple policy reversals. But it’s fascinating how the bad economy has led to changes in the trend of transactions, doing what the CBN couldn’t—shoving us ruthlessly and mercilessly toward a cashless Nigeria.

Electronic transactions are becoming increasingly essential, bringing the cashless economy closer than ever. If the government doesn’t introduce higher Naira denominations and keeps us locked at the ₦1,000 note, we might just see all transactions move to electronic and a fully cashless economy may soon become unavoidable. If the situation worsens—say, if a sachet of pure water becomes ₦500 or the exchange rate reaches ₦3,000 to $1 (God forbid)—cash will become practically useless. But we never know, they may decide to introduce a higher-value note.

Implications and benefits of a cashless economy

As electronic payments become more prevalent, physical cash will become less necessary. People won’t need ATMs anymore but unfortunately, businesses in that space will be destroyed. Also, the whole issue of the government frowning against people spraying Naira at parties will vanish because where will the cash come from? Unless they want to spray dollars.

With the transition to electronic transactions, the government will have a much better view of the real economy because all financial movements will have digital footprints.

Additionally, we can expect fintechs to remain very successful as this shift presents significant opportunities for them to thrive as they’ll need to meet the growing demand for digital payments. Banks will also benefit from streamlined operations since they won’t have to handle cash so much and shift their focus to digital transactions instead.

However, there are challenges to consider. Fraudsters will find new ways to exploit the system, especially for those who may take a while to understand how electronic payments work; making easier targets for phishing scams and likes.

What I don’t understand is how kidnappers will demand ransoms. I’m not sure the unavailability of Naira in cash might be enough to deter them. Perhaps they might shift to demanding ransoms in dollars. Whatever they decide to do, I hope they fail miserably and get caught.

But beyond the unfortunate and challenging circumstances driving this, a move towards a cashless economy could offer substantial benefits. Perhaps this is just what we need to give the government a clearer understanding of what’s really going on with our economic activities. And, if managed effectively, this shift could turn a difficult situation into an opportunity for significant improvement in our financial system and the Nigerian economy.

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Adedeji is the founder of Lendsqr, a global loan management software for lenders.