Automated Teller Machine (ATM) Uses and Challenges in Southwest Nigeria

By IMTFI researchers Oluwatayo Tade & Oluwatosin Adeniyi

On July 1, 2014 the cashless policy introduced by the Central Bank of Nigeria (CBN) became operational in all thirty-six Nigerian states and Abuja. Hitherto, the cashless policy was already in operation in about eight locations, distributed in business zones around the country. The cashless policy in Nigeria aims to engender financial inclusion by limiting the volume of cash transactions. The policy stipulates a "cash handling charge" on daily cash withdrawals or cash deposits that exceed N500,000 (about US$3,030) for individuals and N3,000,000 (approximately US$18,190) for corporate bodies. The new policy on cash-based transactions (both withdrawals and deposits) in banks aims at reducing the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions in payments for goods, services, and transfers, among others.

An Ecobank client uses an ATM. Photo credit: Oluwatayo Tade & Oluwatosin Adeniyi

In designing the policy, the CBN envisioned it as a means of curbing negative consequences that arise from the heavy usage of cash in the economy such as: the high costs of printing, handling, transporting, and storing cash; the high risk of using cash (such as robberies and other cash-related crimes); the circulation of money outside of the formal economy; and inefficiency and corruption, both of which are more easily facilitated with cash. On the basis of the forgoing observations about the use of cash, the deployment of e-banking and e-payments platforms has been touted by the CBN as a veritable "way out of the woods." Setting daily limits on automated teller machine (ATM) withdrawals is an integral part of the CBN’s cashless policy. However, banking and finance technologies such as ATMs are also associated with instances of fraud. Despite this, the victims' perspectives that would allow policymakers to make informed decisions and address emerging challenges associated with crime-related problems stemming from the cashless policy are rarely documented. The problem is phenomenal when considering the number of clients who use ATMs.

ATM cardholders do not usually have just one card. The possession of ATM cards for different banks is a rational attempt to avoid the charges placed by banks on clients from another bank using their machines. Until it was stopped by the former CBN governor, Sanusi Lamido Sanusi, the charge was N100 (about US$0.63) for every transaction. Clients therefore reported that they were conscripted not only to obtain ATM cards for their accounts, but also to use their bank’s own ATMs as they were charge-free. Most cardholders obtained their cards due to coercion, particularly through imposition of charges on manual withdrawals, while others obtained the card voluntarily.

As a banking and payments technology under the cashless policy, clients use ATMs to check account balances, transfer money, withdraw cash, recharge phones, and pay for utilities such as electricity and digital satellite television services, among others. We found that knowledge of this technology influenced the extent to which it could be explored. Despite this, participants in our study reported that their primary motivation for using ATMs was that they more easily facilitate access to cash.

Sensitive to the potential security challenges in using this platform, the study participants altered their routine activities to a "safe period" of the day before using the ATM. The time of day that participants preferred for withdrawals was related to ease of access and security. For instance, withdrawing money very early in the morning was a rational decision because foot traffic would be lower and  participants would have easier access to ATMs. Moreover, very few participants--except those needing money to execute transactions--opted to withdraw cash during the day owing to network problems and long queues. Withdrawing at night had significant security challenges as ATM cardholders risked being robbed or otherwise dispossessed of their cash.

Clients using ATMs at a non-bank location. Photo credit: Oluwatayo Tade & Oluwatosin Adeniyi

At the functional level, ATM usage has reduced long hours of queues in the banking halls emblematic of the pre-cashless policy era, while it has influenced the spending culture of users. With respect to usage, the challenges listed by participants included: cash dispensing errors; infrastructural problems associated with the ATM network, which often deny clients access to their money when they need it; and ATM fraud. Despite these challenges, the availability of money within any locality where ATM machines are located seems to be endearing users to e-payments systems in Nigeria. This development has potential for fostering financial inclusion.  

You can read Oluwatayo Tade and Oluwatosin Adeniyi's full report here.