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1.1.  Background to the study

A cashless economy is referred to as an environment in which money is spent without being physically carried from one place to another. Nigeria’s quest to migrate from cash to cashless economy has been at the fore for quite a while. Prior to introducing a cashless policy, prognosis by various analysts in economics and finance had been made to the fact that it would be difficult to attain the status of a leading economy by 2020 without entirely embracing the electronic payment system. Equipped with this awareness, the CBN which doubles as apex regulator of the banking sector ushered in the cashless policy to check-mate growing dominance of cash in the banking sector and in turn, enhance e-payment system in the economy (Ajayi, 2014),

Cashless policy refers to the system of operating the banking process by highly automatic means so that human intervention is reduced to a minimum. Branch automation is also referred to as platform automation. Nigerian Banks, like their counterparts in the advanced economies, need automation to improve their service delivery.

The apex of financial institution in any economy is the Central Bank of that country and it plays a major role in the economic development process of that nation. De’kock (1998) defines a central  bank as a bank  which  constitutes  the  apex  of    the  monetary  and  banking  structure  of  a  country  and which  performs   as  best  as  it  can  be  in  the  national  economic  interest  the  following  functions  of regulations  of  currency  in  accordance  with  the  requirements  of  business  and  the  general  public, custodian  of  cash  reserves  of  commercial  banks,  custodian  and  management  of  foreign  exchange reserves,  lender of  last  resort,  controller  of  credit, clearing  house  for  transfer and  settlement  and also acts as the banker, fiscal agent and adviser to the government. In Nigeria, the mission statement of the Central Bank of Nigeria (CBN) is to be proactive in providing a  stable  framework   for  economic  development  through  the  effective,  efficient  and  transparent implementation  of  monetary  and   exchange  rate  policy  and  management  of  the  financial  system (CBN,2011).

One  of  the  prerequisite  for  the  development  of  national  economy According to Ajayi and Ojo, (2006)  is  to encourage a payment system that is secure, convenient, and affordable. In this regard, developed countries of the world,  to  a  large  extent,  are  moving  away  from  paper  payment  instruments  toward  electronic  ones,  especially payment  cards  (Humphrey,  D. B. 2004).  In  these  countries,  for  instance,  it  is  possible  to  pay  for  a vending machine snack by simply dialing a number on one‘s phone bill.   In recent times, the evolution and recent developments in information and communication technology has changed the way organizations operate and do business especially in the banking industry.

The advent of IT with reference to the use of electronic banking has in particular brought a complete paradigm shift on the performance of banks and on service delivery in the banking industry (Abubakar and Rasmaini, 2012). The introduction of electronic banking has changed manual and traditional forms of doing business and is being replaced by the sophisticated technology that is based on automation and interconnection of computers and other electronic devices. For instance, ledger books, paper invoice, printed materials and business trips are being replaced with online billing and payments, elaborate website with product information and real-time teleconferencing across continents and time zones.

Information technology has radically changed how banking is done all over the world, the volume and speed of banking transaction has improved tremendously as a result of quantum growth in information technology, which has created business opportunities for banks (Amedu, 2005).  Abubakar et al (2012) observe that Information and communication technology has become the heart of the banking sector, which is the heart of every robust economy.

However, transaction made using these innovative products are accounting for an increasing proportion of the volume and values of domestic and cross border retails transaction. Currency and notes are converted into data which are transmitted through telephone lines and satellite transporters (Ovia, 2002). These new financial services through electronic medium have caused substantial reduction in transaction costs and ease of transfer of funds.

Daniel (1999) describes e-banking as the provision of banking services to customers   through   internet. Electronic banking is defined to include the provision of retail and small value   banking   products and services through electronic channels as well as a large value   electronic payment and other wholesale banking services delivered electronically. Though,   Alsmadi and Alwabel (2011)   expressed   that   the   definition   of   electronic   banking   varies among   researchers   partially   because   electronic   banking   refers   to   several   types   of   services   through   which   bank customers can request information and carry out banking services. Almost all banks in Nigeria offer online, real- time banking services. Banks that are not able to brace up to this new   development   are   rapidly   losing   their customers. Online, real-time banking system has now become commonplace as customers are offered the ease of operating an account in any branch of their bank’s network.

Prior to the advent of this electronic devices in the delivery of banking services in Nigeria, banking operations were marred with ineffectiveness, time consuming bureaucratic, bottleneck, long queues, crowd and such like  complaints  from  the  public.  As  a  result  of  all  these,  the  psychology  or  mental  picture  of  the  average individual towards banking services  has been negatively affected. Some individual seems to prefer to keep their money to themselves or put it in to use anywhere else but not the bank. They prefer to do so as they always encounter  one  problem  or  the  other  whenever  they  go  to  withdraw  money  at  the  bank.

Subsequently, Nigerian bank’s investments in information technology (IT) equipment have grown rapidly in the last ten years.  There   have   been   investments   in   computer   hardware,   software   and   telecommunication   equipment,   the corollary of which has been the introduction of Electronic Bank (E-Banking) in the Nigeria Banking Industry.

Since Nigerian banks gravitation to e-banking, rooted in the urge to completely satisfy the demand of their customers, and improve the efficiency and effectiveness of their operation; customers could transact business anywhere just with a push of a button; 24 hours a day, 7 days a week; enjoy quick service delivery etc. just because, transactions can be processed faster and most conveniently. All these are expected to give rise to higher volume of turnover with its attendant overall profitability to the banks.

From the foregoing, it is crystal clear that, technology is the key driver of change. For the change to be beneficial, the use of technology should be business driven to meet clearly defined goals. Thus, the choice of electronic banking in Nigerian banking system is not a mean stride. This underpins the essence of this research work, which aims at assessing the impact of e-banking on the performance of Nigerian Banks.

  • Statement of the Problem

Some scholars are of the opinion that E-banking has an impact on profitability, while others are of the contrary opinion that the impact of e-banking cannot be felt by the bank customers as the greater percentage of customers are still unbanked as at the period 2014. Thus, the profitability of the Nigerian Financial institutions cannot be said to have been fully realized. The researcher wishes to examine the extent of this profitability due to the adoption of cashless policy by the financial and non-financial institutions using quantitative approach as against earlier studies which have all been on qualitative approach.

Apart from the physical challenges, economic data and indicators are not fully available and reliable. There is a great challenge in attempting to analyze the true impact of the cashless policy on the economy of Nigeria as only few monetary and macro-economic indicators can be traced with relation to the subject matter. Several scholars have attempted to analyze the cashless system or e-banking.

However, it becomes clear that few studies present a comprehensive evaluation of cash-less banking implications in developing countries. Most ignore its economic benefits of the equation while some do incomplete examination of its negative implications. This is often due to unreliable panel data for monetary and macroeconomic indicators. Although, this study focuses on Nigeria, it is difficult to translate cashless studies from one country to another. Even payments instruments that look similar across countries on the surface may be different due to historical and legal variations (Daniel et al, 2004).

1.3.  Objectives of the Study

The   main objective of the study is to examine the Impact of CBN’s cashless policy on the banking service delivery: the Nigeria experience. Other specific objectives are:

  1. To determine   the   impact   of   automated   teller   machine   (ATM)   transaction   on   the   performance of Nigerian deposit money banks (NDMBs).
  2. To find out the contribution of SMS Alert (SMSA) on the performance of Nigerian Deposit money banks (NDMBs).
  3. To investigate the contribution of Mobile Banking (MB) on the performance of Nigerian deposit money banks (NDMBs).
  4. To determine the challenges of Point of sales (POS) on the performance of Nigerian deposit money banks (NDMBs).

1.4.   Research Question

  1. What is the impact of automated teller machine (ATM) transaction on the performance of Nigerian deposit money banks (NDMBs)?
  2. What are the positive effects of SMS Alert (SMSA) on the performance of Nigerian deposit money banks (NDMBs)?
  • What are the benefits of Mobile Banking (MB) on the performance of Nigerian deposit money banks (NDMBs)?
  1. What are the challenges of Point of sales (POS) on the performance of Nigerian deposit money banks (NDMBs)?

1.5      Research Hypothesis

In line with the objectives of the study, the following hypotheses have been formulated in the null form:

H01: cashless policy has no significance impact on the profitability of Nigerian Deposit Money banks NDMBs

H02: cashless policy has significance impact on the profitability of Nigerian Deposit Money banks (NDMBs)

  • Scope of the Work

The study examines the Impact of CBN’s cashless policy on the banking service delivery: the Nigeria experience. In pursuance of the objective of the study; attention shall be focused on the implementation of cashless policy through the use of electronic banking and other information technology tools on the profitability of financial and non-financial institutions in particular banks. The period of the study is from the year 2008-2014. The independent variables for cashless policy are proxies by ATM, SMS Alert, Mobile Banking, POS and ROI is use as proxy for profitability (performance)

1.7      Significance of the Study

The study will give various insights into the various implications the introduction of the cashless policy has on the Nigeria DMBs. Through examining this, the study will aid future decision making on how to boost the performance of financial institutions by the regulatory bodies (CBN). The student of research too will find this useful as it will assist to engage in further research through inclusion of more various or adoption of a different methodology. The customers too will find this useful as it will enhance their confidence into the buy-in of the so called cashless policy.

1.8    Plan of the study

In addition to the introductory chapter, the study will have four chapters with chapter two as review of relevant literatures and empirical studies while chapter three and four will forth the research methodology and data analysis/presentation respectively. Finally chapter five will draw conclusion from the findings and make appropriate recommendations.

1.9      Definition of Terms

Cashless policy: Cashless policy refers to the system of operating the banking process by highly automatic means so that human intervention is reduced to a minimum. Branch automation is also referred to as platform automation.

ATM Card – An ATM card (also known as a bank card, client card, key card, or cash card) is a payment card provided by a financial institution to its customers which enables the customer to use on an automated teller machine (ATM) for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.

CBN – Central Bank of Nigeria.

Chip Card – Also known as an integrated circuit (IC) Card. A card containing one or more computers chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.

Electronic Data Interchange (EDI) – The transfer of information between organizations in machine readable form.

Electronic Money – Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Internet Banking– This is a product that enables the Bank leverage on the Internet

Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.

Mobile Banking – This is a product that offers Customers of a Bank to access services as on the go. Customers can make their transactions anywhere such as account balance, transaction enquiries, stop checks, and other customer service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balance, updates and history, Customer service via mobile, Transfer between accounts etc.

Payment System – A financial system that establishes that means for transferring money between suppliers  of fund, usually by exchanging debits or Credits between financial 0institutions.

Point of Sale (POS) Machine – A Point-of-Sale machine is the payment device that allows credit/debit cardholders make payments at sales/purchase outlets. It allows customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement etc.

Smart Card – A Card with a computer chip embedded, on which financial health, educational, and security information can be stored and processed.

Transaction Alert – Customers carry out debit/credit transactions on their accounts and the need to keep track of these transactions prompted the creation of the alert system by the Bank to notify customers of those transactions. The alert system also serves as notification system to reach out to customers when necessary information need to be communicated


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