Impact Of Cashless Policy On Profitability Of Commercial Banks In Nigeria

Project and Seminar Material for Economics

Impact Of Cashless Policy On Profitability Of Commercial Banks In Nigeria


This research work examines the impact of cashless policy on the profitability of commercial banks in Nigeria. Thus it analyses critically to the very beginning, the introduction of cashless policy in banking business in Nigeria. The cashless system has become necessary to promote the use of electronic means of transaction towards making Nigeria a cashless economy in the nearest future, where clumsy and expensive-to handle coins and notes are replaced by efficient electronic payments system. It discusses how the new policy directs banks to cease cash-in-transit lodgement services hitherto rendered to merchant customers. The banks are to engage the services of the Central Bank of Nigeria (CBN) licensed cash-in-transit ( CIT) companies to aid cash movements to and from their banks at mutually agreed terms. The CBN has stipulated appropriate sanction against banks that flout the ban on cash-in-transit lodgement services. Thus research objectives, questions and hypothesis were formulated, questionnaire were distributed to fifty staff of fidelity bank Jos main market Plateau state. According to the data analyzed the findings shows that cashless policy has significant impact on commercial banks profitability, growth of commercial banks and development of the economy.

Chapter One


1.1 Background of the Study

The importance of managing the economy effectively cannot be over emphasized. ICT has the power to change, transform lives, influence economic activities and the society. The banking sector is not an exception of this whole change and transformation. Just as the entrance of God’s word gives life, the entrance of information technology into the banking industry gives life and definition to banking operations. It is on this premise that we say that banks cannot decline information technology, because it plays a very important role in making sure they are always at their peak, maintaining competitive edge both locally and globally, and that most banks’ cash flows are intricately linked to their adoption of information technology. Information and communication technology in the banking sector gave birth to electronic banking (e-banking) and it’shas become a huge task to deal with to all banks. Information technology (IT) has become a necessity for both local and global competitiveness. This is because it has a huge impact onthe management decisions, plans, and products and services to be rendered by banks. It also changes the way banks and corporate relationships are organized worldwide and the variety of innovations to service delivery.

The saying that the banking system remains the major means for monetary control still stands and remains unchanged. Regrettably, it is estimated that about 65 percent of the cash in circulation in the Nigerian economy is outside of the banking system, therefore seriously inhibiting the impact of the CBN’s efforts at price and economic stabilization (CBN 2011). Due to this reason, the amount of money as of deposits available to banks for the creation of more money is reduced. The profitability of the banks to a large extent rests on the amount of money at their disposal for lending, is therefore affected by the large size of this informal sector.

Electronic banking has been formally acknowledged to play a vital role in economic development on the bedrock of its ability to create liquidity in the economy through financial intermediation between the surplus and deficit sectors of the economy. E-banking provides a platform where (commercial) banks’ products and services can be easily accessed and used with ease, encouraging banking culture and serving as catalyst which will speed up economic growth.

The banking institutions as major asset in the process of financial intermediation, and important economic agents in the payment system, must be extremely equipped with the important and needed information technology that would stimulate trade, commerce and industry while fostering globalization by easing global access to fund without any constraint. The Central Bank of Nigeria (CBN) in collaboration with the Bankers Committeebrought the cashless policy fashioned to provide mobile payment services which aims to breakdown traditional constraintscombating the financial inclusion of millions of Nigerians, secure and make convenient financial services to urban, semi-urban and rural areas across the country into play.

Howbeit, implementing the cashless policy requires that commercial banks make huge and solid investments on ICT and other technologies that would foster the proper implementation of the cashless system. For banks that barely survived recapitalization, and several others that were forcefully merged, this policy may also affect their performances positively or negatively depending onthe solidity of the individual commercial banks. Therefore, this study seeks to analyze the impact of this policy on Nigerian commercial banks in relation to their profitability.

1.2. Statement of the General Problem

The vast majority of the recent literature on electronic money and banking suffers from a narrow focus. It generally ignores internet banking entirely and equates electronic money with the substitution of currency through electronic gadget such as smart cards and virtual currency. For example, Freedman, (2000) proposes that internet banking and electronic money consist of three devices; access devices, stored value cards, and network money. Internet banking is simply the use of new access devices and is therefore ignored. Electronic money then is the sum of stored value (smart) cards and network money (value stored on computer hard drives). What is most fascinating and revealing about this apparently popular view is that internet banking and electronic money are no longer functions or processes, but devices.

Within this rather narrow scope for internet banking and electronic money, there are nonetheless many research that address one or more of the challenges facing it. Santomero and Seater (1996), Prinz (1999), and Shy and Tarkka (2002), and many others present models that identify conditions under which alternative electronic payments substitute for currency. Most of these models indicate that there is at least the possibility for electronic substitutes for currency to emerge and flourish on a large scale, depending on the characteristic of the various technologies as well as the characteristics of the potential users.

Berentsen (1998) considers the impact that the substitution of smart cards for currency will have on monetary policy, arguing that although electronic substitutes for currency will become widespread, monetary policy will continue to work as before because this currency substitution will leave the demand for central Bank reserves largely intact. Goodhart (2000) discusses how monetary control would work in an economy in which Central Bank currency has been partially or completely replaced by electronic substitutes.

1.3. Aims and Objectives of the Study

The main objective of the study would be to examine the impact of the cashless policy on the profitability of Nigerian banks. Other aims of the study would be to;

  1. To examine the relationship between the growth of commercial banks and the cashless policy in Nigeria.
  2. To determine the benefits of cashless policy to a developing economy like Nigeria.
  3. To examine the advantages of cashless to the banking sector of Nigeria.
  4. To recommend ways banks can profit more from the cashless policy in Nigeria.

1.4. Research Questions

  1. What is the impact of the cashless policy on the profitability of commercial banks in Nigeria?
  2. What is the relationship between the growth of commercial banks and the cashless policy in Nigeria?
  3. What are the benefits of cashless policy to a developing economy like Nigeria?
  4. What are the advantages of cashless to the banking sector of Nigeria?
  5. In what other ways can banks profit more from the cashless policy in Nigeria?

1.5. Research Hypothesis

  • H01: Cashless policy does not have a significant impact on the profitability of commercial banks in Nigeria

1.6. Significance of the study

The study will aid commercial banks in Nigeria to understand banking in a new dimension. Findings from the study will highlight the various benefits of central bank of Nigeria’s cashless policy and how these measures if properly taken can reduce operations cost and increase profitability of commercial banks in Nigeria. The study would also be of immense importance to students, researchers or scholars who are interested in further studies on the CBN’s cashless policy and its effect on commercial banks in Nigeria.

1.7. Scope of the Study

The study is restricted to the impact of the CBN’s cashless policy on the profitability and growth of commercial banks in Nigeria using fidelity bank plc as a case study.

1.8. Limitation of the Study

Financial Constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time Constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9. Definition of Terms

Cashless Policy:

A policy that involves cashless designating or of financial transactions handled as by means of credit cards, bank transfers, and checks, with no bills or coins handed from person to person: some say we are headed toward a cashless society.

Internet Banking:

Is an electronic payment system that enables customers of a financial institution to conduct financial transactions on a website operated by the institution, such as a retail bank, virtual bank, credit union or building society. Online banking is also referred as Internet banking, internet, virtual banking and by other terms.


Central Bank of Nigeria


The state or condition of yielding a financial profit or gain. It is often measured by price to earnings ratio.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

In this study, we set out to empirically evaluate the impact of cashless policy on the profitability of Commercial Bank of Fidelity Bank Plc. In Nigeria. The study was conducted to ascertain how cashless policy affects Fidelity Bank Plc in Nigeria. Primary and Secondary data were used; the source of data included Fidelity Bank Plc. annual financial statement (2017). In order to achieve the objectives of the study, three research question were formulated and one hypothesis.

The major findings of the study are summarized below:

  1. The researcher observed that the implementation of the mobile payment system via SMS is a simple and easy-to-use payment system for anyone that has a phone and knows how to send and receive SMS.
  2. Also the implementation of the payment system from the researcher’s observation will improve hygiene on site.
  3. The payment system from the findings will facilitate transaction by reducing the queue in payment points and stress of cash economy.
  4. Mobile payment system if implemented from the researcher’s observation will eliminate the crimes associated with cash economy and check inflation by reducing the amount of cash in circulation.
  5. Finally the study will enhance CBN new policy on cashless economy if implemented.

5.2 Conclusion

In conclusion, cashless economy is rather sophisticated means of solving the problems associated with the use of cash payment system, bearing in mind that payments are central to the growth of modern civilizations. The study developed a prototype of mobile payment system which simulates the implementation of cashless economy as payment system in every economy is a reflection of the efficiency of the banking sector. The study also assessed the level of usage of cashless economy in Nigeria and the general method acceptable by all uses of phone without any barrier like the type of phone that can be used to effectively implement cashless economy. Mobile payment system carried out in this research is a result oriented, domestic payment system that can compete out other country who has implemented cashless economy.

5.3 Recommendation

To make for the smooth implementation of the cashless system in Nigeria, the following measures are recommended.

  1. There is the need to intensify the public enlightenment programme about the cashless system so that everybody will be acquainted with the system before its introduction since it will affect everybody.
  2. Since there is a high rate of illiteracy, and all people must be brought into the system, the government should design special enlightenment programmes for the non-literates, using probably signs and symbols to educate this segment on how to operate the cashless system.
  3. Nigeria should make concerted efforts to design an internet security framework to check online fraud so that the public can be assured and protected against cyber attack and fraud.
  4. There should be a careful study of the system to determine the number of point of sales terminals that will ensure its smooth running in Nigeria so as to prevent unnecessary friction in the system.
  5. There should be adequate legislation on all aspects of the operations of the cashless system so that both the operators of the system and the public can be adequately protected.

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