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Full Project – Effect of CBN cashless policy on the performance of deposit money banks in Nigeria

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CHAPTER ONE

INTRODUCTION

1.1 Background of Study

A cashless economy is a society where no one uses cash, all payment being made are by cheques, credit cards, charge cards, or movement of money from one bank account to another through mobile banking. The cashless policy was intended at limiting a number of negative effects connected with the utilization of physical currency in the economy, including the huge cost of cash, increase risk of using cash, high subsidy, theft, incompetence as well as fraud (Olajide, 2012).

A cashless economy is a financial system where business can be done without necessarily using physical cash as a means of exchange of transaction but rather with the use of credit or debit card for payment of goods and services. The cashless economy policy programme of the Central Bank of Nigeria (CBN) is a move to develop the financial terrain but in the long-term sustainability of the policy will be a function of adoption and compliance by end users (Adegbaju & Olokoyo, 2008).

The cashless society anticipated here points to the comprehensive use of computer technology in the financial system. The cashless policy introduced by The CBN in 2012 kicked off with the commencement of the mobile payment, Nigeria is only keying into a swift-developing global payment system. The mobile money structure is a technology-driven payment system that will open up several other businessopportunities in the economy. The mobile money payment system permits clients to make payments with their GSM phones. It is a transfer and savings system that changes GSM phones into a savings account platform, permitting the owner to accumulate money in it and from which withdrawals or transfers could be made. Under the payment system, users could do their normal basic financial transactions daily by making payments for goods and services or by engaging in person-to-person transfer directly on their GSM phones (Olajide, 2012).

Traditionally, performance in deposit money banking has been measured through costs, time, and quality, which highlight production orientation in the banking (Omotayo & Dahunsi, 2015). According to the “triple constraint”, a policy is considered to be successful if the service is delivered at the right time, for the right price and quality (Adu, 2016). In this former way of thinking, services were in the dominating position, the crucial field of know-how was production, and the customer was seen as a passive receiver of the building in the end of the construction value chain.

However, this production related assessment does not describe the present state of the construction. On the contrary, banking affiliates strongly with customers’ orientation in which case services delivered by the banks is emphasized alongside the traditional success factors. Regarding the level of customer satisfaction, the negative factors appear towards the end of commercial banks services.

It is well described by the fact that in less successful projects, all sectors of the project are seen as poor, and if a project succeeds in one sector, it is likely to succeed in another as well. What is noteworthy here is that co-operation and banks qualities of services are not separate dimensions but interwoven with the central processes of banking. Furthermore, direct and indirect relationships can be perceived between the factors of customer satisfaction. In this regards, the study offers new perspectives for customer-centered development of banks (Adu, 2016).

Practically, a good number of targets for development are related to communication and handover methods of a banking service. Should these methods be developed, it will be a step in the right direction for commercial banks to eliminate factors causing dissatisfaction, thereby improve their operations in addition to customer orientation. Customer satisfaction as a research subject is based on service quality and marketing research which showed that the traditional quality indicators cannot be used in measuring the quality of services.

The cashless policy was conceptualized by the apex bank to migrate Nigeria’s economy from cash based economy to a cashless one through electronic payment system, not only to enable Nigeria monetary system being line with international best practices or discourage physical movement of cash, but at the same time increase the proficiency of Nigeria’s payment system which will in turn improve the quality of service being offered to the banking public (CBN, 2012). The introduction of the policy in Nigeria therefore brings up issues that touch on security, privacy, crime and computerization. Cashless policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including high cost of cash, high risk of using cash, high subsidy, informal economy, inefficiency and corruption (CBN, 2011).

However,with accelerating development of the financial systems as a result of deregulation, globalization and new information system, new ways of handling money appeared among banks and their customers (Adegbaju & Olokoyo, 2008). The use of e-card, internet banking facilitates the ease and convenience in handling transactions. E-banking customers have possibility to access online or electronic banking for 24 hours which allows them to view historical banking transactions, transfer money between accounts, make savings, perform other operations at everywhere. Moreover increase in knowledge and ability to manage internet banking, banks and ATMs have resulted in more independent bank customers no longer requiring bankstaff (CBN, 2011).

1.2Statement of the Problem

The pilot scheme of implementation of cash policy was carried out in Lagos state which commencedin January 2012. By March 2012, the CBN introduced some service charges on cash transaction to deter customers from cash-based transactions. The implementation of cashless policy took effect in the remaining states of the federation on July 1, 2014.

Omotayo & Dahunsi, 2015Observed has however revealed that many purchasers of goods and services still make large purchases and do payment for goods and services using cash. This thereby bring about high cost of cash, high risk of using cash, high subsidy, informal economy, inefficiency and corruption (Omotayo & Dahunsi, 2015).There are so many problems observed that are associated with Nigerian’s cash based economy, which include: delays in financial transactions which can be caused by queue in the bank or ATM to collect cash, spread of bacteria through handling physical cash, high rate of crime,illegal drug trade, terrorism, illegal immigration, human trafficking, corruption, due to its cash-based economy, people are always faced with the challenges of violent crimes (insecurity) such as, bank and ATM robberies, store holdups, armed robberies, employee cash theft, armor car heists, kidnap for ransom, and purse snatching as the system of physical cash been used is non-traceable, unaccountable, easy to hide or lose, steal, counterfeit and spend without a trace, as such paper cash has allowed all sorts of criminal activities to thrive, and too much cash in circulation which causes inflation to rise, and as inflation rises, it diminishes the purchasing power of consumers, making it undesirable to hold cash.

Adeoti and Oshotimehin (2012) reported that despite the general increase on the rate of adoption of e-payment instruments in Nigeria, other issues around the cashless system like the poor nature of telecommunication service, poor time interval between resolution of transaction dispute and fraudulent online transactions are yet to be totally eliminated from the system. Infact they have been increasing cases of bank card frauds since the introduction of the cashless policy. The high cost of acquiring and maintaining internet data, computers, lack of adequate infrastructure,low internet penetration, network failure, absence of open standards or trust among banks and providers, awareness ofPOS availability, frequent power outage, limited numbers of POS per merchant store where theyare available, preference for cash, as well as security of communication over the network also continue to reduce the general performance of banks (Ayo & Babajide, 2006; Adeoti, 2013, NIBSS, 2015).

1.3 Objectives of study

The aim of this study is to examine the effect of CBN cashless policy on the performance of listed deposit money banks in Nigeria. The specific objectives are;

To assess the effect of ATM on the return on equity of deposit money banks in Nigeria
To assess the effect of POS on the return on the equity of deposit money banks in Nigeria.
To assess the effect of Mobile banking on the return on equity of deposit money banks in Nigeria.

1.4 Research Questions

This study seeks to proffer answer to the following research questions;

To what extent do total ATM transactions effect the return on equity of deposit money banks in Nigeria?
To what extent does total POS transactions effects return on equity of deposit money banks in Nigeria?

To what extent does Mobile banking transactions effects the return on equity of deposit money banks in Nigeria?

1.5 Research Hypotheses

In order to arrive at conclusion on the proposed research questions, the following hypotheses stated in null form are tested;

H01: ATM have no significant effect on the return on equity of deposit money banks in Nigeria.

HO2: POS have no significant effect on the return on equity of deposit money banks in Nigeria.

HO3:Mobile banking have no significant effect on the return on equity of deposit money banks in Nigeria.

1.6 Significances of Study

The finding of this research would be of immense importance to policy makers in the country’s financial sector. This is because the study would provide them with the effect of past policies on the cashless economy and how the various banks have fared in regards to the policies.

Furthermore if the recommendations of this research are implemented, there would be an improvement in bank performance regarding the cashless policy in both the short and long term.

1.7 Scope of the study

The research work is to analyze the effects of the CBN cashless policy on the performance of deposit money banks. The research specifically focused on the effect of ATM, POS and Mobile banking on the performance of deposit money bank. The study covers a period of 2011 to 2020.

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