Operationalization Of The Cashless Economy System In Nigeria
Operationalization Of The Cashless Economy System In Nigeria
Abstract
This study was carried out on Operationalization of the Cashless economy system in Nigeria. Financial sector reform is an essential ingredient in the economic growth and development process. This is clearly underscored in the literatures linking financial sector growth with economic growth. In recognition of this fact, managers of the Nigerian economy have targeted the banking sector as a channel for implementing economic policy reforms and policy shift. The recent of such economic reforms in the financial sector is the formal introduction of cash-less financial policy in January, 2012. The Central Bank of Nigeria in order to level up to the global standards began practising cashless policy in the Nigerian economy. What are the benefits and challenges of this policy vis-à-vis the cash based policy? Specifically, will other Point of Sales card acceptance services stakeholders attract a significant part of banks’ income in cash-less economy? This is the central thrust of this paper. To address this, secondary data were collected and content analysis applied in data analysis. After factoring in other POS stakeholders share of income, the study found banks’ income higher in cash-less setting than in cash based arrangement. Thus, the cash-less policy offers immense benefits to the banking sector. It is recommended that appropriate infrastructures and legal support be provided to facilitate the religious implementation of the policy.
Chapter One
Introduction
1.1 Background to the Study
The world is evolving every day. Gone are the days when communication was limited to face to face, signals or by postage. Today communication can take place between two or more people from any distance in the world through telecommunication or internet or other technological means. But the technological world is not stopping at that rather, new innovations are coming out, making life easier and of course more and more sophisticated.
These innovations as they come makes serious impacts on the way things are being done all over the world and whatever is dictated as the new trend by the technological power house becomes the target of every nation. Thus, the trend of e-payment that began in the United States of America decades ago has become the next big thing for developing countries. For many years, developed country like Canada, United Kingdom, Sweden, France among others, have run their economy trough electronic payment without hitches. Interestingly, a lot of other African countries have keyed into this system, embracing electronic system of payment while dealing with less of cash. Countries like Kenya, Tanzania, South Africa, and Ghana among others have become reference point in the continent in terms of electronic payment system. Kenya for instance had introduced the M-PESA, a small value electronic payment and store of value system that is accessible from ordinary mobile phones. It has been exceptional growth since its introduction by mobile phone operator Safaricom in Kenya in March 2007 and has already been adopted by 9 million customers which is about 40 percent of Kenya’s adult population. Again several electronic payment system has been introduced in Ghana in recent times with the most significant being e-zwich smart card payment system, a national domestic smart card payment system meant to reduce the large amount of cash held out side the banking system. Already it is showing the signs of reversing the trend of majority un-banked population in the country as more people embrace it.
In this regard, it is not surprising that Nigeria having successfully transverse the world of Global System for Mobile Communication (GSM) is now set to test the waters of a cashless economy. A key factors in the adoption of this new system, according to the Central Bank of Nigeria (CBN) is the fact that Nigeria economy is too heavily cash-oriented in transaction of goods and services, a development which is seen as a negation to global trend considering Nigeria’s ambition to be amongst the top 20 economies of the world by the year 2020. Besides, it is also targeted at reducing the huge volume of cash transactions which imposes tremendous cost to the banking sector and, consequently the customer, in terms of cash management, frequent printing of currency notes, currency sorting and cash movements. A cashless economy or an e-payment system is a situation where there is little or very low cash flow in a given society, thus every other purchases and transaction will be made by electronic channels, examples of which are direct debit electronic fund transfer, while payments, multi-functional ATMs, internet banking and a significant increase in point of sales (POS) penetration and usage. In other word, it simply refers to the widespread application of computer technology in the financial system. Payments under this new system will range from a list of options such as cheques, wine transfer. Debit and credit cards, online transactions and mobile banking (Central Bank of Nigeria, transition to a cashless economy in Nigeria. May, 2011).
As a result of this new technological change in the banking system world over and Nigeria’s consideration to be amongst the top 20 economies of the world by the year 2020, the this new system Central Bank of Nigeria(CBN), lead by its Governor Sanusi Lamido Sanusi, has put forward a policy requiring that all cash withdrawals and deposits be set at a daily limit of a maximum of N150,000 while pegging that of corporate entities at N1,000,000 with penalty fees of N100 per extra, N1,200 per extra, N1,000 imposed on individuals and corporate defaulters respectively (Central Bank of Nigeria, Transition to a cashless economy in Nigeria, May 10, 2011).
In this study, the preferred channels of operation of the Central Bank of Nigeria (CBN) cashless policy will be analyzed.
1.2 Statement of the Research Problem
Indeed the effort towards a better baking as regards to settling utility bills, payment for goods and services and money transfer can only yield the desired result if there are reliable and efficient payment system in place and this is the trust of the cashless economy system as initiated by the Central Bank of Nigeria (CBN). Despite that fact that the Central Bank of Nigeria and other indigenous banks are spearheading financial system reforms, we are yet to make a significant breakthrough in the acceptability, efficiency and reliability on non-cash payment system in Nigeria because, cash still remains the most popular transaction payment instrument, even cashless system is being contemplated.
1.3 Objectives of the Study
This study attempts to tackle issues on the operationalization of the cashless system through the various e-payments schemes available, its acceptability, contribution to the reduction of physical cash payment system and the possible challenges of its hitch free operation. The following objectives are outlined.
- To find out the channels of operation
- To find out the most preferred channels of operation
- To find out its procedures of operation.
- To find out challenges/problems of operation.
1.4 Research Question
The e-payment system even though has been in use in other advanced countries in the world and most recently in some African countries, it is a relatively new in the Nigerian financial system. Therefore, this e-payment system and it various channels of operation needs to be clearly explained to all stakeholders/users for there to be a clear understanding of how this system works and the enormous economic benefits to be gained if the system actually works as described by the Central Bank of Nigeria (CBN).
For this study, the following are the research questions:
- What are the channels through which the cashless system can be operated?
- What are the most preferred channels of the system’s operation?
- What are the procedures of the system’s operation?
- What are the challenges/problems of the operation of the system?
1.5 Scope of the Study
This study aims at analyzing the cashless system, its preferred channels of operation, the procedures and some potential challenges that many stand as an impediment against the smooth running or operation of the cashless system in Nigeria. Also, references will be made with other channels of operation in other countries of the world. The list of the available channels through which the system can be operated world over is in exhaustive. Some selected channels of means through which is system can be operationalized. Another important issue that this study will be also focus is the Nigeria perception about this relatively new trend (cashless system) in the financial system by the apex bank.
1.6 Significance of the Study
The primary informal nature of Nigeria’s economy, however, requires a heavy reliance on cash transaction in both the retail and commercial sectors. The enormous negative effect of a high usage of physical cash includes: cash related crimes and robberies, increasingly high cost of cash exchanging hands and enabling corruption, high cost of maintenance and money laundering just to mention a few. All these has a considerable effect on the Nigeria financial system. Thus the cashless policy through effective and efficient channels of operation will reduce these problems to the barest minimum.
This study is designed to examine the operationalization of the cashless system in Nigeria through its preferred channels, thereby creating more awareness about the system and the various available channels of operation to the general public. Thus this study including its conclusion and recommendations of the research findings will be very useful to all stakeholders (including customers, corporations and government) bringing to their knowledge, have full understanding of the cashless system, its benefits and the role of these stakeholders to ensure the effectiveness of this system.
1.7 Limitations of the Study
One of the major limitations of this study is relatively small sample size and this is as a result of cost and timeliness. Another limitation encountered in the course of this research is the fact that some respondent were unwilling to fill the questionnaire administered, reason being either they were too busy and or uninterested.
1.8 Organization of the Study
The study is divided into five chapters. Chapter one deals with the study’s introduction and gives a background to the study. Chapter two reviews related and relevant literature. The chapter three gives the research methodology while the chapter four gives the study’s analysis and interpretation of data. The study concludes with chapter five which deals on the summary, conclusion and recommendation.
Chapter Five
Findings, Recommendation and Conclusion
5.1 Theoretical Findings
From the discovered literature, cashless policy was introduced in Nigeria in the year 2012. However, the cashless economic system has not been fully actualized. This means that the Assertion of the technology acceptance model which connotes that’s end users tends to take up new technological innovations has not been fully actualized in Nigeria. Prior to the implementation of the cashless policy, Nigeria was a huge cash-based economy.
5.2 Empirical Findings
The results obtained from the tests reveal that the independent variables employed in model 1 (automated teller machines, point of sale transactions, web banking and mobile banking) explain about 97% of the systematic variation in the dependent variables. Also, the explanatory variables explain 27% of the dependent variable in model 2.
Automated teller machines have a positive significant impact on currency in circulation, POS and MOBILE have an insignificant impact on currency in circulation while WEB has a negative and insignificant impact on currency in circulation.
Automated teller machine is also the most patronized electronic banking tool and this is seen from the descriptive analysis. ATM has the highest average amongst all other variables.
The electronic banking tools also have no significant impact on economic growth.
5.3 Recommendations
From the analysis conducted in this study, it is important that the following recommendations be made to improve the output performance of sectors in Nigeria.
Public enlightenment programs and awareness programs on the cashless system should be put in place by the Central Bank of Nigeria to foster conversance with the system. This will create awareness and entice the unbanked people into the banking system.
Although on the average, ATM is the most patronized during the period of study, more awareness should be embarked upon and transaction charges reviewed downwards to encourage more patronage, and this will enhance e-payments.
The central bank of Nigeria should adopt new policies that will encourage business owners and companies to settle transactions electronically. This will help create a vehicle of change needed to drive the cashless economic system.
E-Banking products must also be re-engineered to make electronic payment effortless which will stir the country toward a cashless economy. Some of the product are point of sale machines, web/online banking, mobile banking should have added features which will make them more attractive for use by Nigerians and hence, promote the cashless system. This is because they have an insignificant impact on currency in circulation.
The banks and e-payment service providers should ensure that materials are not tampered with and also promote effectiveness while delivering services. New platforms can also be created to enhance delivery of services.
5.4 Conclusions
This study has finally concluded that cashless policy is very important to the Nigerian economy and therefore, the platforms for achieving this policy must be promoted. This platform consists of automated teller machines, point of sale machines, web banking and mobile banking.
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