Banking without Banks: A Dive into the Draft Guidelines for Bank Neutral Cash Hubs
Co-authored with Tolulope Ebiseni
The CBN has released guidelines for Bank Neutral Cash Hubs to ease cash management and deepen financial inclusion. This article examines the compliance touchpoints, the tension with the cashless policy, and the key differences between BNCHs and Agent Banking.
Cash is still a vital payment form and may remain so for longer than envisaged during the Cashless trend among reserve banks. At the heart of the distribution of cash has been Deposit Money Banks and in recent years the Cash-In-Transit and Currency Processing Companies. In recent times, bank failures and branch closures have become prevalent affecting access to cash in cash intensive areas.
The usual explanation for closure of bank branches is the rising cost of management. Cash hubs are a viable way to address this operational cost problem and facilitate access to cash through a shared service model for DMBs where the operational cost is shared. This model had already been piloted in the United Kingdom in 2021.
The Currency Processing Problem and Financial Inclusion
Prior to the increased reliance on digital payments methods, one of the core mandates of the CBN was exercising oversight on cash and currency operations including the minting by privately licensed companies, monitoring of Cash in Circulation, reissuance of and disposal of bank notes.
Over the years, the CBN has also released regulations around Cash-In-Transit operations to forbid Deposit Money Banks from processing cash for high volume/value merchant customers like retail stores, supermarket chains and petrol stations. This gradual decoupling of the cash processing system from the hegemony of banks to the introduction of CITs and Currency Processing Companies has now been extended to the creation of Bank Neutral Cash Hubs in the cash management value chain.
Reconciling the Cashless Policy with the Cash Hub Creation
Although the CBN is bullish on its lofty cashless policy goals, it appears the country is not getting rid of cash soon enough for several reasons. First is that the majority of local businesses and MSMEs still use and accept cash predominantly for payments purposes. The second is that there is still a deficiency of trust for digital payments and accounts systems especially among the informal economy due to the prevalence of fraud, chargebacks and other causative factors.
All these factors point to two concurrent facts. A cashless economy is a progressive ideal that has to happen over a period of time. Second is that businesses relying on cash must be provided the facility to enable them morph into digital processes as the CBN policy requirements progresses.
Importance of Bank Neutrality
The BNCH regulations provide that the cash hubs must be bank neutral by design. The significance of this to payments, especially in rural and financially excluded areas, cannot be overstated. It is an extension of the traditional banking system to these otherwise excluded areas but with the choice of their preferred banking service provider.
Functional Issues
Some of the functional issues yet unaddressed by the exposure draft include the scope of DMB participation, community participation mechanisms, service distribution mandates for rural areas, money laundering and terrorism finance risks, incident reporting clarity, adequacy of employment policy, and transaction threshold review.
On the whole, the BNCH idea is laudable as long as it is backed by effective control measures and clearly defined guidelines beyond what is currently available.
Originally published as a Regcompass Newsletter