Posted on October 22, 2018
Although volume of electronic payments in Nigeria has continued to grow, cash remains king. Hence, hundreds of millions of naira are paid out daily through Automated Teller Machines (ATMs) across the country, but there is a fee of N65 ($0.18) when a customer withdraws cash from another bank’s ATMs. The N65 starts to apply from the fourth transaction at another bank’s ATM every month. However, it does not end there; customers pay N52.50 (VAT inclusive) as monthly card maintenance fee.
Nigerians have complained at different times and called for the fees to be scrapped but a recent social media campaign brought their grievances back to fore, with a lawmaker Senator Gbenga Ashafa moving a motion at the upper chamber of Nigeria’s National Assembly on Wednesday calling for an end to the charges.
With a N65 fee sure after a third withdrawal by non-customers, many Nigerian banks ensure their ATMs do not pay more than N10,000 to increase the number of times some customers would withdraw cash. It has been working well, with fee incoming for most banks in the country growing year on year.
“This is a deliberate ploy to manipulate the ATMs, which are ordinarily manufactured to dispense as much as N40,000 per transaction, in order to attract more bank charges from customers, who are forced to carry out more transactions due to the manipulated machines,” Senator Ashafa told his colleagues in the Senate on Wednesday requesting they take action to protect the average Nigerian.
Thus, the Senate resolved to “direct the committees on Banking, Insurance and Other Financial Institutions, and Finance to conduct an investigation into the propriety of the ATM card maintenance charges in comparison with international best practices and report back to the Senate.” However, pending the result of the investigation, the Senate directed banks to reconfigure their ATMs to be able to pay a maximum of N40,000 per withdrawal. The lawmakers also resolved to invite the Governor of the Central Bank of Nigeria, Godwin Emefiele, to explain the charges which they say are skewed in favour of the banks.
Jobs at Stake
At face value, the move by the Senate is awesome and could save millions of Nigerians a lot of money but it could also cost hundreds if not thousands their jobs.
While Nigeria needs 60,000 ATMs to serve the everyday cash needs of Nigerians, there are only about 18,000 ATMs across the country all owned by banks. However, to ensure the machines keep working fine maintenance is outsourced to companies such as Inlaks Computers, Computer Warehouse Group (CWG), NCR, among others. These companies are paid a fixed fee for the maintenance of each machine which may range from N200,000 to N550,000 per ATM. With competition rising among maintenance companies and independent maintenance engineers, banks have been able to drive down the cost of maintaining their ATMs over the years at the expense of the maintenance companies, some of which are now struggling. Nigeria Stock Exchange-listed CWG’s shares are currently below listing standard. It last traded at N2.54 on July 19, few months after reporting a first quarter profit of N5.7 million ($15,791). In a bid to turn its fortunes around, the company plans to start offering ATM-as-a-service, a plan that will see it install ATMs at banks’ preferred locations while it is responsible for maintaining the machines and the banks only pay rent or a percentage of the profit made from charges related to ATM usage.
A senior staff of CWG who spoke to The Nerve Africa but asked not to be named said if the CBN stops ATM-related charges, things might go worse for companies in the ATM space.
“We may need to let a lot of engineers go because banks are not ready to pay more. When most vendors started servicing banks’ ATMs, they started at a low base to fend off competition, but today we see banks reluctant to increase the rates. Imagine what will happen if they are stopped from charging fees,” the CWG staff said.
We asked about the ATM as a service plan and the CWG staff quipped “you’ve been snooping around”. “I can’t comment on that, but imagine what could happen to the plan if it existed in the first place. What profit are you going to share with the banks? I don’t see how we won’t downsize to remain profitable. We may need to have our engineers cover more sites than they already do while we let some people go to reduce personnel cost.”
Our investigation showed that Guaranty Trust Bank (GTBank) pays the vendor in charge of its Wincor ATMs N250,000 per machine per year while United Bank for Africa pays about N280,000 per ATM per year. Diamond Bank pays over N300,000 per ATM per year to ensure the machines are in good condition.
GTBank has at least 1,165 ATMs across Nigeria, which means it spends at least N291.3 million ($800,278) on maintaining the machines annually, while UBA’s 1,750 machines means it spends at least N490 million on maintenance of its ATMs per year. Diamond Bank could be spending as much as N350 million on maintenance of its ATMs per year as it has more than 1,000 units nationwide. It is, therefore, understandable why banks may be reluctant to increase the amount paid to vendors managing the machines. If the charges they currently enjoy are scrapped, chances are that vendors will have to retain their current rates or look for more innovative ways to drive down cost.
“No matter what you do to drive down cost, if the clamp in the machine gets bad, it costs N106,000 to replace. The EPP costs N350,000. Imagine if you have to bear the cost of changing the EPP,” the CWG staff said without explaining further. He later explained that the EPP is the pad with numbers where customers punch in their PIN and it means Encrypted Pin Pad. He said banks only bear the cost of major repairs or replacements if the vendor can prove beyond doubts that the part needing replacement got bad because of the bank’s negligence.
Feeding fat on fees
The breakdown of how much banks possibly pay vendors maintaining their ATMs shows banks are making a lot of profit through the charges backed by the CBN. Net fee and commission income made up about 27 percent of GTBank’s 9-month profit this year, 48.52 percent of Zenith Bank’s profit and 82.7 percent of UBA’s profit. The fees and commission income by the banks were derived from account maintenance fees, fees from electronic banking channels, ATM charges, commission from letters of credit, remittances fees, card-based fees, fees from brokerage commission, among others.
Nigerian banks have often relied on fees to grow profit, often encouraged by the central bank. If the charges are scrapped in line with the Senate’s resolution, banks will be forced to look for more innovative ways to improve their profit even as net treasury bill issuance by the federal government decline. The Senate may also want to consider stopping the central bank from fixing fees. Charges are not strange in the banking industry worldwide, but regulators only act to ensure fair competition that see customers choose service providers that offer the best value. Banks can become more innovative in their product offerings if they know that the quality of products and services they offer will determine how many customers they get and how much they are able to charge.