CBN Sets Daily Cash-Out Limit for POS Transactions: A Call for Strengthening Fraud Prevention Procedures

On December 17, 2024, the Central Bank of Nigeria (CBN) issued a circular introducing stringent new transaction limits for point-of-sale (POS) cash-out operations. This directive, signed by Oladimeji Yisa Taiwo, the Director of the Payments System Management Department at the CBN, sets a daily cash-out limit of ₦100,000 ($65) per customer, a weekly withdrawal cap of ₦500,000 ($325), and a total daily limit of ₦1,200,000 ($780) for POS agents.

This policy follows a related circular from July 2024 that targeted POS agents, emphasising the need for improved compliance and oversight in agency banking. Together, these measures reflect the CBN’s ongoing efforts to streamline financial operations, foster a cashless economy, and combat fraud. 

However, they also present significant operational challenges for businesses and individuals across Nigeria. This article explores the implications of the new directive, connects it to earlier regulatory moves, and highlights how Smile ID’s suite of identity verification solutions can help businesses adapt.

Key Highlights of the CBN Circular

1. Daily and Weekly Transaction Caps

• Customers are limited to withdrawing ₦100,000 ($65) daily and ₦500,000 ($325) weekly via POS agents.
• POS agents face a cumulative daily cash-out transaction cap of ₦1,200,000 ($780).

2. Enhanced Oversight and Fraud Prevention

• Institutions must monitor accounts linked to agents' BVNs to detect unauthorised activities.
• All agency banking transactions must be routed through designated float accounts to enhance transparency.

3. Real-Time Reporting Requirements

• POS agents must connect terminals to the Payments Terminal Service Aggregator (PTSA) and send daily transaction reports to the Nigerian Inter-Bank Settlement System (NIBSS).

4. Focus on Accountability

• Violations of these directives will attract penalties, including monetary fines and administrative sanctions.

Fraud and Money Laundering in Nigeria

The new directive is not just about pushing Nigeria’s cashless agenda but also about addressing the darker side of cash transactions—fraud, money laundering, and other criminal activities. Cash has long been a tool for fraudsters to launder stolen funds and conduct illegal transactions. For instance, stolen funds often move rapidly through various bank accounts, before being cashed out at POS terminals, where the trail goes cold. This anonymity makes recovery nearly impossible.

By capping cash-out limits, CBN aims to reduce the size of “clean” cash fraudsters can access in a single transaction, forcing more transactions to occur via digital channels where movement can be tracked. This step is critical in combating the widespread misuse of POS terminals in facilitating crimes such as kidnapping ransoms and bribery.

Implications for POS Operators and Customers

• For Individuals, High-value consumers are unlikely to be significantly affected, as they primarily rely on digital channels like bank cards, banking apps, internet banking, USSD, or relationship managers for their transactions. However, artisans they work with may feel the impact due to reduced access to cash, which could push more of them to accept payments via bank transfers.

  At the lower end of the market, where people rely heavily on POS agents for cash, daily essentials like feeding and transport fall within the cash withdrawal limits. So, while their basic needs may not be affected, they’ll have to rely more on transfers for general/business fund movement.

   

• For Agents Agents earn primarily from transaction fees, with cash transactions being the most lucrative due to unregulated fees. This policy caps their earning potential, which may push them to increase cash-out fees to maintain profitability. In response, agents might look for ways to maximise earnings by registering multiple businesses or working with multiple POSs from different organisations.

• For Banks, This policy could either slow down or speed up POS issuance, depending on how good the bank’s KYC and monitoring processes are. The policy mandates monitoring beyond just CAC/TIN—banks are also required to monitor agent activity tied to their BVN. This should lead to increased use of bank transfers as a preferred payment method.

• Boost for Cashless Payments The primary objective of this policy is security. Agents are known to aid bad actors like kidnappers and money launderers. The informal nature of the business also poses a threat to the financial system. There have been cases reported where POS terminals are actively in use but have not been certified by NIBSS. To manage the chaos, the CBN aims to limit overdependence on this channel. This is a major boost for cashless payments, and more payment activity is expected from wallet providers. 

How Smile ID Can Help Businesses Adapt

Imagine a POS agent, Adamu, who operates a bustling kiosk in Kaduna. His customers rely on him for quick withdrawals and deposits, but with the new CBN directive, Adamu faces stricter compliance requirements. To continue running his business smoothly, he must verify his identity, prove the legitimacy of his operations, and ensure his customers' transactions remain secure and compliant.

This is where Smile ID steps in, transforming a potentially overwhelming process into a seamless journey:

1. Biometric KYC: Adamu begins by scanning his fingerprint or taking a selfie using Smile ID's biometric tools. Within seconds, his identity is verified against government records, confirming he’s an authorised agent. This step assures his partner bank that his business is legitimate.
2. AML Checks: Smile ID screens Adamu and his transactions against global watchlists and adverse media to ensure compliance with anti-money laundering regulations. This builds trust between Adamu, his customers, and financial institutions.
3. Document Verification: When Adamu submits his business registration documents, Smile ID quickly verifies their authenticity. This ensures that only valid businesses can operate POS terminals, reducing fraud across the network.
4. Government Database Access KYC: By leveraging Smile ID’s integration with government databases, Adamu's profile is continuously updated and compliant with regulatory demands. His customers also benefit, as their own identities can be validated during transactions.
5. Business Verification: Smile ID helps the financial institution confirm that Adamu's kiosk is a legitimate business with a valid address and operations. This step adds another layer of accountability, ensuring compliance with CBN’s new rules.

Through Smile ID, Adamu can continue to serve his customers confidently, knowing he meets all regulatory requirements while building trust in his community.

 

Bottom Line

The new CBN directive marks a significant shift in Nigeria’s prosperous agency banking scene. While the policy introduces challenges for businesses and customers alike, it underscores the importance of robust identity verification and compliance tools.

This directive also signals the CBN’s determination to address systemic vulnerabilities in Nigeria’s financial ecosystem. By reducing the reliance on cash and enhancing oversight, the policy is a step toward curbing fraud and building trust in digital payment systems. For businesses ready to adapt, Smile ID provides the tools to navigate this transition seamlessly.

Contact Smile ID for help meeting this new directive by booking a demo here.