Death by a billion transfers; the immortality of cash is exaggerated

‘Cash is king,’ so says the famous adage. But digital payments have been waging and winning a silent war against cash for years, but nobody seems to be noticing. We all say that cash can’t be knocked off, but we are so wrong because if you expected a bloody revolution where digital payments overtake cash in one fell swoop, you are barking the wrong tree. Digital payment has been like a guerrilla army, silently waging a war of attrition against cash.

In the UK, cash has been on a downward slide for years. In 2015, debit cards overtook cash, and by 2026, cash may join my ancestors. The size population wasn’t a problem before mobile payments exceeded cash usage in China. Bringing out wads of money in the Middle Kingdom would probably earn you an evil stare.

You would expect that a country like Nigeria, being a developing country, is immune to this, but the numbers say otherwise. Nigeria has about 18,000 connected ATMs as seen by industry data, and every month does roughly 72 million transactions valued at N550 billion. ATMs were the earliest and most reliable electronic banking channels in Nigeria, and they came with so much convenience.  Increased ATM usage is also helped by the fact that customers now have the flexibility of using other banks’ ATMs, as most of the banks are part of major interbank networks. Banks find it cheaper to pay fees to these networks as against setting up additional units in expensive-to-deploy areas. ATMs have been hugely successful.

However, the mobile explosion happened. First came mobile apps from Etranzact (native Java apps on Symbian phones) which at one time had 15 banks on its platform. People took to mobile technology in a way that has seemed impossible with financial services and products because people developed functional literacy around mobile phones – how to identify numbers, key in airtime tokens, read balances, etc. It helped that the mobile phone developers made the technology accessible and within reach of everyone, educated or not.  Then, USSD appeared on the scene. In 2014, GTBank, Fidelity Bank, and Zenith were the first three banks to go full scale on USSD banking for ordinary accounts; however, within two years, practically every bank has a full-service USSD banking offering for their customers

At the same time, telcos started expanding data services, and smartphones became cheaper. With improved customer experience and stable apps, the growth of mobile for services grew at over 100% CAGR.

In a pivotal moment in 2017, the launch of Alat by Wema showed what any bank could achieve with a mobile app in Nigeria. Alat, a branchless, paperless bank which provides financial services through its Android, iOS and web applications, is described as ‘Nigeria’s first digital bank.’ Beyond Alat, many successful apps have launched, such as PiggyVest, CowryWise, Carbon (PayLater), Wallet.Africa, etc.

Recent numbers showed that 79% of interbank transfers (an excellent indicator of retail digital finance usage) are driven by mobile phones.

Then the magic happened. In Q4 of 2018, interbank transfers overtook ATM transactions for the first time, and from January 2019, monthly interbank transfers have consistently exceeded ATM transfers. ATM volume shrank 4% in Q1 2019 as against Q1 2018 while interbank transfer grew 67% over the same period.

Quarterly qrowth of digital payments in Nigeria

Quarterly growth of digital payments in Nigeria

It’s clear, the people have spoken: Why travel 100 miles to get cash from an ATM while you can send the money to the recipient immediately from your mobile? Digital payment is particularly essential for financial inclusion as Nigerians in rural areas may not have immediate access to a bank branch but will most likely have access to a mobile phone which they can then carry out banking transactions on.

The implications of this may not be very apparent, but the impact would be cataclysmic for cash and for businesses that drive ATM transactions. Based on projections, transfers would do about 1.4b transactions this year while ATM usage would decline by 10% over the same period. Throw in the rumored reduction of fees; then you can imagine that fintechs that operate within the ATM space (device sellers, switches, card suppliers, etc.) have reached peak business growth.  It also means that as the convenience becomes apparent, there is going to be accelerated growth in transfers. Would this also affect POS and Web where the growth has been at 100%+ CAGR as well?

We also expect this to have an impact on banks and cash handling. But it’s a positive one. Cash operations is a pain for any bank, and the less cash they have to deal with, the longer in minutes the bank workers get added to their lives.

The verdict is in – Digital and mobile platforms are winning customers over, one mobile phone after another.

Comments 2

  1. Hafiz Adewuyi wrote:

    Thanks for the info. Engaging and informative read.

    Last week, I paid for an okada ride by making a transfer to the rider’s account. I was positively impressed that he was open to the option. Just 200 Naira o. And I’m thinking: “this should have been mCash”.

    “… the less cash they have to deal with, the longer in minutes the bank workers get added to their live”. Really struck a chord for me.

    Posted 23 Jun 2019 at 9:16 pm
  2. AT wrote:

    The problem with this analysis is that it doesn’t look at the holistic population, transactions , number of internet transactions , volumes blah blah, is not reflective of the fact that the number of people who are using these modes (even when banked) represent a very small percentage. so you have a very small percentage who are heavy users and people are throwing around figures like it shows some sort of traction against cash. So the true analysis will be to see how many new users mobile and internet banking has , people who didn’t use before who are now using because all the current numbers indicate is that the same people are just using it more.considering the unbanked and informally banked account for a significant amount of the population and studies has shown some of the banked do not even use internet banking etc cash still reigns supreme in Nigeria until they fix the infrastructure and everybody is sure that when i put my card in or my pin in online as long as i have money in my account i will get value

    Posted 02 Jul 2019 at 8:04 pm

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