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PROJECT MATERIAL IN BANKING AND FINANCE:
AN APPRAISAL
OF THE ECONOMIC IMPLICATION OF ELECTRONIC BANKING IN OPERATIONS OF BANKS IN
NIGERIA (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)
PROPOSAL
This research project is an “Appraisal of the economic
implication of electronic banking on operation of banks in Nigeria”. (A case
study of first bank of Nigeria plc).
Electronic
banking more commonly called the electronic funds/monetary transfer system
refers to the application of computer technology to banking especially the
payment (deposit trasfer aspects of banking). The major distinct pieces of
hardware that comproses it are the automated teller machine (ATM), the point of
scale (POS) system and the automated clearing houses (ACH). These hardwares
carryout significant functions in banking activities.
This
research project sets out to achieve the following stated objectives amongst
others:
(1)
The extent of
automation in the payment system.
(2)
The various
electronic instruments of the bank under study.
(3)
The major
problems associated with the developmenet of electronic banking system in
nigeria economy.
(4)
The effect of
electronic banking system on bank profitability and operational efficiency.
(5)
The effects of
such system on branch banking and bank customer relationship.
(6)
The impact of
electronic payment system on monetary control in the Nigerian economy.
In order to ensure a thorough and well guided
research, a number of hypotheses were made.
These include:
(1) There is no correlation between electronic banking
system and operational efficiency in banks.
(2) Data were collected from both the primary and
secondary sources. Thee were analysed using the simple percentage method and
chi-square (x2) for the hypothesis testing.
In this
project write up;
Chapter one discusses the introduction which comprises:
(a)
The background of
the study
(b)
Statement of
problem
(c)
Objectives of the
study
(d)
Statement of
hypothesis
(e)
Scope and
limitation
(f)
Significance of
the study
Other
chapters will be formulated and discussed subsequently after research on them
in due course.
Finally, chapter five will discus the summamry,
conclusion and recommendation.
TABLE OF CONTENTS
TABLE OF CONTENTS
Title page ii
Certification iii
Dedication iv
Acknowledgement v
Proposal vii
Table of contents x
Chapter one: Introduction
1.1
Background of the
study 1
1.2
Statement of the
problem 5
1.3
Purpose/objective
of the study 6
1.4
Research
questions 7
1.5
Research
hypothesis 8
1.6
Significance of
the study 9
1.7
Scope,
limitation/delimitation 10
1.8
Definition of
terms 11
Reference 13
Chapter two:
Review of related literature 15
2.1
Introduction 15
2.2
The Nigerian
monetary transfer system 17
2.3
Overview of the
electronic
monetary
transfer system 21
2.4
Electronic
payment instruments 24
2.4.1 Automated teller machine 24
2.4.2 Electronic funds transfer point of sale 26
2.4.3 International money transfer 27
2.4.4 Computerized inter-bank funds transfer 28
2.4.5 Internet payment 28
2.5
Problems
associated with the development
of
electronic banking system in Nigeria. 34
2.6
Implications of
the electronic banking system 35
Reference 38
Chapter
three:
Research design
and methodology 40
3.1
Areas of study 42
3.2
Sample and
sampling techniques 42
3.3
Instruments of
data collection 43
3.4
Methods of data
presentation 43
3.5
Methods of data
analysis 45
Reference 47
Chapter
four:
Data presentation and analysis 50
4.1
Data presentation
50
4.2
Data analysis 63
4.3
Test of
hypothesis 68
Chapter
five:
Findings, recommendation and conclusion 73
5.1
Summary of
findings 73
5.2
Conclusion 76
5.3
Recommendation 78
Bibliography 80
Appendix
86
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Prior to the banking emergence of a
modern banking system in Nigeria, the payment or settlement of economic
transaction was through the barter system. Goods and services purchased them
were settled by the exchange of commodities as money was not in existence.
However,
owing to the deficiencies inherent or associated with a barter economy, the
need for a generally acceptable medium of payment arose.
Consequently,
between 1850 and 1882 the introduction of British silver coins was possible
through which the Nigerian economy was monetized.
Following
the introduction of British coins, the Bank of British West Africa (BBWA) was
established in 1892 to facilitate the distribution of these coins. This
eventually ushered in a rudimentary form or commercial banking in Nigeria. In
1912 however, the West African Currency Board (WACB) was established to take
over the responsibility of the (BBWA) of currency distribution in the then West
African region comprising of Nigeria, Ghana, Sierre-leone and Liberia.
As
economic activities began to rise and the need for financial services emerged
banks began to spring-up in the country and between 1892 and 1959 a total of
(39) banks were established but for the fact that this was a banking era, a
good number of these banks collapsed. The colossal fall of the monetary system
consequently led to the introduction of the banking ordinance or 1952, 1959
(subsequent amendment) to further boost the monetary system, the central bank
of Nigeria (CBN) was established in 1959 to act as the “Apex” banking
regulatory authority.
Also,
the banking acts or 1969, the counterfeit currency (special provisions) decree
1974 and the bills of exchange Acts cap 35 laws of the federation of Nigeria
1990 was promulgated. All these efforts were aimed at ensuring safety,
stability and restoring confidence in the monetary system.
When in
1961, the CBN established the Nigeria banks clearing house in Lagos, the use of
cheques became a dominant instrument in the payment processed daily in the
clearing house. An average of five million (5m) cheques were reported to be
processed annually between 1961 and 1970.
According
to CBN annual report, 1999, a number of procesed cheques however, increased to
11,005.2 million in 1999. This increase eventually led to an ever-mounting
flood or paper that has to be shuffled from place to place before payment is
fully effected. Thus, because of frequent indirect routine, it has been
estimated that each cheques written is currently handled an average of 10 times
and passes through 2 1/3 commercial banks before being returned to its source
(journal of Banking and finance 2000). The banking industry thereby incurs
record-keeping and processing costs averaging about 20 percent per cheques, a
figure that does not reflect the full cost of the present system.
Eventually,
this increase in the cost of cheques processing undermines the efficiency,
reliability and cost effectiveness of the electronic banking system and with
the geometric increase in the volume of cheques as to the likely reduction no
clear indication costs of the processed cheques.
The
expectation that cheque processing cost will continue to soar, roughly in
proportion to cheques volume is the chief motivation spuring commercial banks
and the central bank of Nigeria to institute a more economical and efficient
mechanism. For as long as cheques remain the dominant mode of payments, the
system is intrically too labour intensive to permit much more cost cutting
through further automation (Lawrence 1996:295). As a result, the only remaining
way to make a meaningful impact on cost is by switching a large part of the
burden to an entirely different payments methods, one that can be designed from
the groudn up to take full advantage of computage technology namely the
electronic banking. (Electronic money transfer system).
Finally,
according to Anyanwu (2000), electronic banking which is more commonly called
the Electronic Funds Transfer System (EFTS) refers to the application of
computer technology to banking especially the payments (deposit transfer)
aspect of banking. The major distinct pieces of hardware comprices the Automated
Teller Machine (ATM), the Point Of Sale (POS) system, and the Automated
Clearing Houses (ACH). He stressed that the major merit of electronic banking
lies in its ability to reduce costs given the number of cheques written in the
economy each year.
1.2
STATEMENT OF THE PROBLEM
As earlier pointed out, the present
payment system is saturated with large volumes of paper work. This obviously is
responsible for the delay in cheques clearance in the house. Hence, the need
for the adoption of an electronic banking. However, the introduction of
electronic banking in place of the existing system has some propounding
implications.
First,
such a payment mechanism will involve nationwide computer networks linking
together virtually all households, business firms and government units. These
pre-suppose investing a chunk or large amount of financial resources in
computer technology. Obviously, the resource is in short supply in Nigeria,
coupled with the high level of poverty.
For an
efficient functioning of electronic payment system, the availability of
infrastructural facilities such as electricity and telecommunication network
are indispensable. However, power supply is epileptic and there is still
constant failure links in Nitel lines.
Thirdly,
Lawrence (1976) and Uche (2000) noted that the introduction of electronic
banking system by banks may lead to a decline in the importance of branch
offices and eventual closure of some branches. This likely development is what
Woheren (2000) called “Brandless banking system”. A development which wills not
angur well for the banking industry as it may affect banking customer
relationship.
Finally,
the introduction of electronic banking system will alter the definition of
money supply and the behaviour of velocity thereby creating problems for the
CBN in formulating a sound monetary policy.
1.3
OBJECTIVES OF THE STUDY
This study is set out to find out the following:
(1)
To determine the
extent of automation in payment of the bank.
(2)
To identify the
various electronic payments of the bank under study.
(3)
To evaluate the
major problems associated with the development of electronic banking system in
the Nigerian economy in the bank.
(4)
To examine the
effect of electronic banking system on banks profitability and operational
efficiency
(5)
To evaluate the
impact of electronic payment system on monetary control.
1.4
RESEARCH QUESTIONS
In order to elicit information from respondents, the
following research questions were formulated.
1.
To what extent
has automation enhanced the payment system of the bank?
2.
What are the
various electronic payment instruments of the bank?
3.
What are the
major problems associated with the development of electronic banking system in
the bank?
4.
What effect has
this system on the bank’s profitability and operational efficiency?
5.
How has this system
affected branch banking and the bank’s customer relationship?
6.
What impact has
this system on monetary control of the bank?
1.5
RESEARCH HYPOTHESIS
On the basis of the objectives of the study the
following hypothesis have been formulated.
Hypothesis 1
Ho: Autemation does not enhance the payment
system of the bank.
H1: Automation enhances the payment system
of the bank.
Hypothesis 2
Ho: Automated Teller Mcachine (ATM) does
not facilitate payment.
H1: Automated Teller Machine (ATM)
facilitates payment.
Hypothesis 3
Ho: The V-SAT online-realtime does not
constitute a major problem to transfer payment system.
H1: The V-SAT online-realtime constitute a
major problem to transfer payment system.
Ho
– null hypothesis
H1
– alternative hypothesis
1.6
SIGNIFICANCE OF THE STUDY
In the era of electronic banking, automated money
transfer system in our economy is a welcome development.
The
desired impact of this research on the Nigerian society is over-whelming and
cannot be over-emphasized. So, the work is significant in so many respects as
thus:
1.
It would expose
vividly the strength and weakness of electronic banking.
2.
It would expose
motivate banks and other economic agents to computerize their services.
3.
It provides a
practical suggestion to and policy formulation by monetary authorities.
4.
Knowledge in the
area of electronic banking (monetary transfer) will be advanced.
5.
Apart from
contributing to the knowledge of electronic banking, it forms a reference for
future research in this area.
1.7
SCOPE, LIMITATION AND DELIMITATION
An
evaluation of a particular influence on a research situation like the Nigerian
economy requires an observation of some entities or economic agents. Such
economic agents and government limits which include banks, business fims and
households.
In this
research endeavour, the topic had been restricted to first bank of Nigeria plc
in Enugu metropolis. Hence, banks are the major agents of electronic
banking/monetary transfer, the bank has been considered and approved for this
project.
Furthermore,
there are some delimitations or constraints associated with this study as
follows:
The
time required to distribute questionnaires within the bank in Enugu was a
scarce resource given the congested nature of academic work on campus.
Collection and collation of materials for the project
write-up was an up-hill task owing to the fact that some materials pestinent to
the work were not easy to get and the researcher is left with no better option
than to do with what is obtainable.
The
financial back-up with which to execute the work also constituted a major
constraint.
1.8
DEFINITION OF TERMS
i.
Cheque –
according to Orjih (1996) p 48 “A cheque is an order in writing drawn on a
banker, signed by the drawer, requiring the banker to pay on demand a sum
certain in money to the order of a specific person or to the bearer, and which
does not order any act to be done in addition to payment of money”.
ii.
Automation – this
is the use of automatic equipment in an industry.
iii.
Automated
clearing System – according to (Ikamenam, (2001) p. 193. This is a system of
clearing where all the banks are linked with the CBN and the clearing
settlements are made within 24 hours.
iv.
Electronic
banking – according to Anyanwu (2000) this refers to the application of
computer technology to banking especially the payment (deposit transfer)
aspects of banking. It is also defined as a system of banking with an
electronic communication network which permits on-line processing of the same
day credit and debit transfers of funds between member institutions of a clearing
system.
v.
Point of sale
System(POS) – this is an electronic or computer based mode of payment a system
which involves goods and services being paid for at the point of sale.
REFERENCES
Anyaneu J.C. (1999): Concept and theoritical frame
work of the Nigerian payment system; Onitsha, Hybrid pub. Ltd.
Anyanwu J.C.(2000) Monetary Economics Theory,
policy and Institutions.
Evans E. woherem (2000): Internation Technology in
the Nigerian Banking industry, Ibadan, spectrum books ltd.
Orjih J. (1998) Seminar in banking and finance
Enugu; bot bullion publishers.
Orjirh J. (1999) Business Research methodology.
Enugu; meteson publishers.
Orjih J. (1996): Banking operations in Nigeria,
Enugu; Je-Hohi publishers.
Ubaka J.O. (1999): International to project writing
Ukaemenam C.O. (2001) Pratise of banking for
students and professionals Enugu; Oktek publishers.
CHAPTER TWO
LITERATURE
REVIEW
2.1
INTRODUCTION
One important reason for financial
liberalization and deregulation is the need to develop a virile payment system
which promotes an appropriate mechanism for efficiency in mobilizing and
allocating financial resourced in the economy. The payments system occupies an
important place in the development of a country’s economy. Infact, the level of development of a
country’s payment system is a reflection of the state or condition of the
country’s economy. Nigeria payment system is paper-based and this accounts for
the high level of cash in the economy (cash outside bank). The American payment
system Hi-tech, little wonder, there is efficient mobilization and allocation
of funds.
The concept “payment system” or
monetary transfer system has variegated meanings among writers. The definition
range from a more simple to a more complex definition.
Okafor
(1998) defined the payment system as the mechanism for the settlement of
personal and business transactions. By this definition, a system is equated
with mechanism. Though, this is not quite correct, the essence of a payment
system, which is the settlement of claims was clearly stated.
Humphery (1984) described the United
States of America payments system by focusing on the composition and
evaluationary brief of the system. He viewed the payment system as an entity
that provides for the trasfer of funds between economic agents.
Balino et al (1996), however provided
a more sound definition. The payment or monetary trasfer system comprises the
instruments, organization, operating procedures and information and
communication system used to initiate and transmit payment information from
payer and payee to settle payment that is, money transfer. By this definitions,
payment system is a collection of related structure of institutions and
instruments settling payments and transactions. The system is the apparatus used
to safely and effiecient transfer monetary value in exchange of goods, services
and financial assets.
It is deducible from all these
definition that the payments system is made up of two components viz; the
institutions and the instruments. The instruments are made through which
payments are effected. These include:
currency, cheques, credit cards, money order and voucher. Other
instruments of the payment system include the electronic fund transfer (EFT)
automated teller machine (ATM) smartcard etc. These later instruments are
collectively refered to as electronic money in financial parlance.
The institutions involve all those
organizations concerned with the creation and transfer of these instruments.
They include the central banks, commercial banks, merchant banks, and other
retail financial institutions.
2.2
NIGERIA MONETARY TRANSFER SYSTEM
One major feature of the payment
system in Nigeria is its dominance by cash as a means of payment.
Paradoxically, the country remains a “cash and carry” society despite the
serious problems associated with it such as theft, high cost of intermediation,
money laundering and fraud.
A
cash economy implies that much cash for transaction is held outside the banking
system which otherwise would have been available for lending to more productive
sectors of the economy. The currency component of money (M2)
recorded a sharp rise from 22.1% in 1980 to 35.4% in 1994 which implied a
corresponding decline on the deposit ratio of M2 (CBN, annual
reports). In newly industrialized economic such as Malaysia, Thailand and Korea
the ratio of currency to money supply has settled below 10%.
Similarly, mobilizing financial
resources remains an ordous task in Nigeria. Mobilization of financial savings
as measured by the savings to GDP ratio declined from the annual average of 17.2% growth recorded
between 1983 and 1988 to below 8% in 1996 and there after. The comparative
ratios for South Africa, Kenya and USA in 1996 were 29.7%, 37.9% and 30,5%
respectively. The low level of domes to savings in Nigeria caused by the low
level of income had impacted adversely on the level of investment and capital
formulation while the overall payment system has been hindered by cultural
values which encourage excessive reliance on cash transaction with various
limitation for economic management.
Similarly, Nigeria’s present currency
structure consisting mainly of small denominations N5, N10, N20, and N50 notes in no small way contributed to high
intermediation cost. Banks have had to employ more cashiers, purchase billion
vans, cast sorting machines etc in order to meet the cash requirements of their
customers and other clients.
The
state of our payment system obviously calls for the attention of all and
sundry. For a better economy, an efficient system must be developed. A system
that is cost effective and economic growth induced. These is the electronic
monetary transfer system.
Table
1
RATIO
OF CURRENCY OUTSIDE BANKS TO AGGREGATE MONEY SUPPLY
Period:
(1992-1998) vol.23 No2 April/June
Years
|
Nigeria
|
S.
Africa
|
India
|
Chile
|
Korea
|
Mexico
|
1992
|
28.7
|
5.1
|
19.2
|
8.2
|
8.9
|
13.0
|
1993
|
29.2
|
5.3
|
20.0
|
8.1
|
10.8
|
12.7
|
1994
|
35.0
|
5.2
|
20.1
|
8.3
|
9.9
|
12.8
|
1995
|
34.0
|
5.2
|
21.6
|
7.8
|
9.8
|
11.4
|
1996
|
31.0
|
5.3
|
20.8
|
7.1
|
8.7
|
11.1
|
1997
|
28.2
|
6.0
|
19.7
|
7.0
|
7.6
|
10.5
|
1998
|
26.4
|
4.6
|
20.1
|
6.2
|
6.0
|
9.5
|
Average
|
30.4
|
5.1
|
20.2
|
7.5
|
8.8
|
11.6
|
Source:
CBN Bullion (1999) vol.23 No.2 April/June
Table
2
RATIO
OF CURRENCY OUTSIDE BANKS TO AGGREGATE MONEY SUPPLY.
Period:
(1992-1998)
Year
|
Nigeria
|
Ghana
|
Cote
D’ivore
|
Senegal
|
Uganda
|
Tanzania
|
1992
|
28.7
|
34.8
|
30.4
|
27.8
|
36.1
|
31.6
|
1993
|
29.2
|
33.4
|
33.0
|
27.6
|
36.0
|
29.0
|
1994
|
35.0
|
38.1
|
32.4
|
31.2
|
35.8
|
31.6
|
1995
|
34.0
|
40.1
|
31.6
|
30.3
|
36.1
|
32.2
|
1996
|
31.0
|
40.2
|
31.8
|
25.3
|
33.2
|
31.4
|
1997
|
28.2
|
38.8
|
35.6
|
25.5
|
30.8
|
31.1
|
1998
|
26.4
|
30.5
|
25.0
|
24.1
|
27.1
|
28.8
|
Average
|
30.4.
|
36.6
|
32.8
|
27.4
|
33.5
|
30.4
|
Source:
CBN Bullion (1999).
2.3
OVERVIEW OF THE ELECTRONIC MONETARY TRANSFER SYSTEM
(EMTS) ELECTRONIC BANKING SYSTEM
The
recent world wide inter-linking of trade (globalization) deregulation of the
financial markets, progress in information and telecommunication, technology
and growing competition among financial institutions have all contributed to a
variety of financial innovations, especially in the provision of computer-based
mode of payment Electronic Monetary transfer system. (EMTS)
The electronic monetary transfer
system is an electronic communication network which permits on-line processing
of the same day credit dn debit transfers of funds between member institutions
of a clearing system. It is a payment system, which involves development of
modern information and telecommunication technologies. The EMTS, which is in a
stored value card, smartcard, and internets are often referred to by a variety
of terms including electronic money or E-money, digicash, electronic purse etc.
there are three broad categories of such system stored value card, network
based system and hybrid systems.
The Basle committee on Baning
supervision (1997) refers to electronic money as stored value or prepaid
payment mechanisms for executing payment via point of scale (POS) terminals,
direct transfers between two devices or over open computer networks such as
internet. This type of financial instruments include the all states trust bank,
Electronic Smartcards Accounts (ESCA) and Dimond Bank Paycard. These cards can
be carried around like credit cards. The network based system tend to use the
internet as the means of payment. This allows non-face to face transaction to
be carried out anywhere in the world. The use of the wide area network (WAN)
technology. The society for worldwide interbank financial telecommunication
(SWIFT) transmits approximately 2.5 million messages per day, 580 million per
year and has 1.35 member countries and 5300 users (Agene 1999).
Swift processes about one thousand
transactions per second. On the internet, there, are currently an estimated
12.8 million lost locations and 61.9 million users who generate more than a
billion E-mail messages per day (IMF survey 2000).
Lastly, the hybrid system is a system
with both the smartcard and computer based system features. It allows
smartcards and computer based system to work together. The electronic money
system could technolocally be used for large-value payments as well as smaller
value. Currently, payments by customers are typically limited by maximum
balance allowed on the device, although larger transfers may be necessary
between merchants and their banks. The all States Trust Bank ESCA, for
instance, enables the holder to move up to N16 million in his own personalized
smartcard and pay for goods and services at ESCA designated merchant outlets
without physical movement of cash. The EMTS brings higher level of security and
flexibility and outputs an end to problems such as cash handling cost, long
delay in payment and theft.
The
holder of this card can also withdraw up to the total balance on their card or
even pay a bankdraft. The system (EMTS) is all encompassing and
multi-functional.
2.4
ELECTRONIC PAYMENT INSTRUMENTS IN NIGERIA
Having
given an overview of the electronic payment system, it is pertinent to discuss
the various instruments that make up the system.
2.4.1 AUTOMATED TELLER MACHINE (ATM0
The
automated teller machine (ATM) is an automatic machine for dispensing bankking
services to customers. It is a payment instrument that offer a 24 hour (round
the clock) services in several aspects of banking including:
-
Cash withdrawal
-
Acceptance of
deposit
-
Confirmation of
account balance on screen or paper slip
-
Statement
ordering facility and
-
Loan arranging.
With
the above services, the ATM may be said to be a self-service terminal designed
to perform the function of a cashier. Users of this facilities do not need to
visit a bank office before enjoying financial services. Immediate payment for
goods and services purchased can be effected with mere touch of a button or
insertion of a magnetic plastic card into the machine terminal. To enable
customers access the ATM, number (PIN) which is only known to the individual
owner.
The
use of ATM in Nigeria commenced 15 years ago (1985) with the introduction of
the societe general bank “cashpoint 24” at its broad street and Apapa Lagos
branch. Five years later (i.e. 1991) First Bank introduced its own brand of the
machine with code name “First Cash”. Inspite of all these, this mode of payment
is not yet widespread in our payment system as it is in the western world.
2.4.2
ELECTRONIC FUNDS TRANSFER POINT-OF-SALE (EFTPOS) /
SMARTCARD
This is the latest mode of payment
instrument in the payment system. The EFTPOS is an electronic or computer based
mode of payment, which involves goods and services being paid for at the point
of sale. The EFTPOS instrument has similar features with the ATM. It can be
used to withdraw money, transfer funds from one account to another and settle
financial claims. To enable customers access the EFTPOS terminal, a personal
identification number (PIN) is issued to the customers.
The EFTPOS is in various forms
including plastic cards, electronic purse (smartcard) pass card and affinity
card.
The
electronic purse (SMARTCARD) is a device which holds the equivalent of cash
commonly accepted as payment for economic commodities. It can only be used or
valid when these is still value on the card that is, the holder still has
sufficient money in his account. The card can be loaded and re-loaded when
exhausted or set up. It is not a credit facility. Examples of electronic purse
include All States ESCA, Dimond Bank pay card and UBA value card.
2.4.3
INTERNATIONAL MONEY TRANSFER
In
recent time, the monetary transfer system in transaction may be referred to as
electronic commerce (e-commerce) or better still electronic banking in
financial parlance.
Why,
it may be asked, do more and more people opt for cyberspace as a means of
purchasing goods and services and for transacting financial and other types of
business? It is simply because of the ease, convenience and incredibly wide
range of choices and better deals they get through mode of payment is still at
a tender stage in Nigeria monetary transfer system.
2.4.4
COMPUTERIZED INTER-BANK FUNDS TRANSFER (CIFT)
The computerized inter-bank funds
transfer is an on-line real time system which there is still a dearth of the
use of technologies to improve products, enhance delivery channels, target the
most profitable customers and strengthen services quality.
So, mainly due to lack of funds, the
rate of IT adoption in Nigeria payment system is generally low. Most of the
financial institutions cannot afford ATMS, credit card, electronic wallet, CIFT
systems and modern networks. Even if they can, they have to ensure that the
technology or product will start yielding a positive net profit within the
first year, or else the idea will be jettisoned.
2.4.5
INTERNET PAYMENT
The greatest innovation in the realm
of information technology has been the development of the information super
high way – the internet. The internet is made up of an amorphous group of
commercial and non-commercial networks, linked together through the help of
telephone lines.
Today, a growing number of people from
all works of life are turning to the internet and world-wide web (www) to
select the goods and services they wish to purchase and to make payments
through the same medium. This type os business communication links, which
depend on the services of the national public telecommunication, the Nigerian
telecommunications (NITEL). Other problems include power failure, system
breakdown and inappropriate problems is briefly described below:
2.5.1 SYSTEM DOWNTIMES
Thes
are a chronic feature of Nigeria’s telecommunications infrastructure. While
banks have WANS through which they can provide on line real-time payment
services to their clients nationwide, they find that they cannot do so most of
the time due to constant failure links from Nitel lines, which are often as a
result of spikes and surges caused by NEPA’s inconsistent electronic power
supply. The reasons adduced by Nitel usually have to do with noisy carriers,
damaged cables, damaged equipment and slow communication speeds.
LACK
OF ADEQUATE INVESTMENT CAPITAL
Funds
that can be used to buy new information technologies and for modernizing
existing systems are generally in short supply. Whilst there are a number of
modern banking applications in use, they are mainly the integrated banking
system.
Nigeria
has continued to experience innovations in terms of product development.
Specifically, there has been tremendous improvement in the speed with which
funds are transferred within and outside the domestic economy – international
money transfer.
International
money transfer enables beneficiaries in Nigeria which could be individuals,
families and corporate bodies to receive money sent from abroad. Indeed, it is
a unique service delivery that enables fast delivery and safe payment of money.
Interesting too, these services which are equally based on reliability and efficiency
is predicted on effective management of information.
Today,
a good number of banks in Nigeria after this kind of payment facility. Tops on
the list are First Bank Western Union money transfer. The advantage of this
facility over the crude paper based payment instruments include; safety speed
convenience, cost effectiveness and reliability.
2.5.2 LACK OF KNOWLEDGE ON HOW TO DEVELOP ITS SYSTEMS
INTERNALLY
In
all the banks, most of the systems in use were developed externally or are off
the shelf banking applications. There is need to create an I.T. or computer
department in these institutions to facilitate the development of an internal
or in-house system.
2.5.3 LACK OF MAINTENANCE CULTURE IN NIGERIAN PUBLIC
NETWORKS.
This
has led to frequent breakdowns in most of the equipment required from
information exchange, with its attendant efficiencies, in the banking sector.
2.5.4 LACK OF THE BASIC INFRASTRUCTURES AND FACILITIES FOR
THE EXCHANGE INFORMATION
Standard
packages for the technical exchange of digital information are generally
lacking in Nigeria as a whole and not just in the payment system. This includes
sophisticated and modern telecommunication exchanges, internet gateway and
backbones, internet pipes and backbones, satelites ISDN (integrated digital
system network) packet switching system etc. (Woherem, 2000). In such an
environment, even the most sophisticated bank – specific IT system will perform
sub-optimally.
2.5.5 UNHEALTHY GOVERNMENT ACTION
Government
polities and decrees have been known to be counter productive to the
development of certain key private telecommunication projects. Examples are the
government face-off with AITS ltd and the slow pace of government approvals for
satelites and radio and radio transmission licences. Years after the enabling
decree was promulgated.
2.5.6 BANKS RELUNCTANCE TO COLLABORATE
As
a result of the problem with Nigeria telecommunication services, especially the
problem of incessant link failure or downtimes and the inability of the banks
to keekp their systems up and running most of the time, the banks have started
thinking or using electronic wallets based on the smartcard technology to
obviate the need to carry physical cash or rely on the availability of on-line,
real-time systems. The parochial attitude of banks in the country however, is a
limitation to the possibility of ensuring that the banks jointly or in a
concested manner. The experience of other countries is very different. In South
Africa, the ABSA bank standard bank, Nedbank and First National bank came
together in 1995 to determine the standard they would have to adopt with
regards to introducing smartcard technology in the nations banking system. They
put in place a project with staff from each of the banks, agreed on the
standard of operation, and implemented a few prototypes of teh desired product.
Here
in Nigeria, the banksk see any new product as a means for acquiring a
competitive edge over their competitors and would generally prefer not to share
it. What this means is that the country’s merchant who desire electronic point
of sales (EPOS) would end up with a motley of different EPOS system from each
of the competing banks. The result would be largely impracticable as no
merchant would want to be saddled with different EPOS equipment that are in any
case, too expensive to run and sustain.
2.5
PROBLEMS ASSOCIATED WITH ELECTRONIC MONETARY TRANSFER
SYSTEMS) IN NIGERIA
The development of an efficient
monetary transfer system in Nigeria has been hampered by so many factors. These
problems which are information and telecommunication technology related may be
said to be responsible for the increase cost of operating the system.
Studies
have revealed that most of the problems are directly traceable to problems with
the public telephone network and services which are the backbone of the EMTS
allows for switching of funds trasfer institustions from transfer or bank to
transfer bank. In other words, the system enables bank to effect their transfer
and settlement of money to each other. As a payment instrument, it fulfils the
three “S” of speed, security and satisfaction, which are measures of efficiency
and effectiveness. The CIFT was introduced by the Nigerian Inter Bank
settlement schem plc to facilitate funds transfer within the payment system. So
far, the system has lived up to expectation.
2.6 IMPLICATION
OF THE ELECTRONIC MONETARY TRANSFER SYSTEM
Although, widespread electronic
payment system is still a matter of the distant future in Nigeria when it does
fully come, it would have far-reaching implication for monetary and banking
industries.
It might therefore be worthwhile to
begin to plan now in order to adequately anticipate its impact and implications
for policy.
On implication is the need to build
regulatory supervisory capacity appropriate for an electronic payment system.
In this regard, competencies built up in autiting through computer – based
system should be to help in designining an appropriate surveillance frame work
for an electronic payment system.
A second implication is that an
electronic payment system has a significant expansionary propensity and
therefore inflationary repercussion. This state of affair arise because of the
need to hold minimal cash balance for transaction purpose. The replacement of
trade credit with bank credit, increase the deposit base of banks and thereby,
enhance the ability of banks to create money through lending.
A third implication is that in the
simple equation exchange model, the monetary authorities can ensure stable
price by controlling money supply and bank deposit base.
However, with the advent of innovative
products such as credit card, smartcard and EFTPOS in the payment sysem, the
constancy or stability of velocity of money might become unstable even if money
supply (m2) remains unchanged.
A fourth implication is that
computer-based system of payment should result in improved data generation and
processing, thereby enhancing the operational efficiency of banks towards
customers, in terms of delivering services. This invariably will improve the
formulation and implementation of policy as data required by banks and policy
makers is easily obtained.
A fifth implication of electronic
payment is a large expansion of the market and the improved banking habit of
Nigerians.
However,
it may lead to branchless banking when customers fully embrace the system. That
is to say, the introduction of electronic monetary transfer system in Nigeria
may reduce the importance of branch banking and eventual closure of branches as
happened in Sweden, recently (Uche, 2000) electronic payment system does not
require customers to visit their bank offices before enjoying banking services.
This, may eventually result to financial disintermedation.
No doubt, the introduction of
electronic payment system in Nigeria will change the whole gamut of banking but
requires huge capital investment in computer technologies and stable financial
system to reap its dividend.
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D.B. 91984): The U.S. payment system: costing, pricing, competition and risk;
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ET AL (199).: The payment system reforms and monetary policy; UK,
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C.E. (1999): The Nigerian payment system evolution, problems and prospects;
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Balino
et al (1996): “Payment system reforms and monetary policy” finance and
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J. (1999): Business Research Methodology Enugu; Meteson Publishers.
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J.O. et al (1999): Introduction to project writing: for business and
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Aneke (1998): Introduction to academic researcher methods; Enugu; Gostak
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R.G. (1998): “Electronic banking in Nigeria and the automation of the financial
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