CHAPTER 1 INTRODUCTION 1.1 Background of the Study

Banks are the linchpin of the economy of any country. They occupy central  position in the country’s financial system and are essential agents in the development process.  By  intermediating  between  the  surplus  and deficit savings units within an economy, banks mobilize and  facilitate  efficient  allocation  of  national  savings, thereby  increasing  the  quantum  of  investments  and hence national output. In a developing economy such as Nigeria, financial sector development has been accompanied by  structural  and institutional  changes and the sector  generally  has  long  been  recognized  to  play  a crucial role in the economic development of the nation.

Monetary Policy is the regulation of the money supply and interest rates by a Central  Bank  in  order  to  control inflation and stabilize currency. The Central Bank of Nigeria  (CBN)  undertakes monetary  policy  in  order  to maintain Nigerian’s external reserve, safeguard the international value of  the legal  currency,  promote and maintain monetary stability. Similarly, it acts as a sound and efficient financial system in Nigeria, as a banker and financial  adviser  to  the  Federal  Government  and  as lender of last resort to the banks. Consequently, in pursuance of its functions in compliance with the core mandate, the CBN as a result of change which is a constant factor, has engaged in series of  reformations aimed at both making the financial system formidable and enhancing the overall economic performance of Nigeria so as to  place it  on the right  path in tune  with  global trends.

The payments system plays a very crucial role in any economy, being the channel through which financial resources flow from one segment of the economy to the other. Therefore, it represents the major foundation of the modern market economy. Essentially, there are three pivotal roles for the payments system namely; the Monetary Policy role, the financial stability role and the overall economic role (CBN, 2011).

The cashless policy introduced by the CBN is aimed at achieving a cashless economy. 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 from paper payment instruments towards electronic ones (Humphrey, 2004).

The policy was conceptualized by the apex bank to migrate Nigeria’s economy from a cash based economy to a cashless one through electronic payment systems (e-payment), not only to enable Nigeria’s  monetary system fall in line with international best practices or discourage movements of huge cash manually, but at the same time, increase the proficiency of Nigeria’s payment systems which will in turn improve the quality of service being offered to the banking public.

The Nigerian cashless system of payment has been evolving in line with the global payments evolution. Cashless system of payments and instruments are significant contributors to the broader effectiveness and stability of the financial system. Innovations in technology and business models have implications for the efficiency and safety of cashless system of payments.

Cashless system of payment is defined as a society where transactions is functioning, and operated or performed without using coins or banknotes for money transactions but instead using credit cards or electronic transfer of funds (Reverso Dictionary).

Cashless economy is an economy where transactions can be done without necessarily carrying physical cash as a means of exchange of transaction but rather with the use of credit or debit card payment for goods and services. From the foregoing therefore the study seeks to examine the impact of CBN’s Cashless Policy on the development of the Banking Sector of Nigeria.

1.2 Statement of the Problems

The nation’s quest of migrating from cash to cashless economy has been on the front burner. Analysts have posited that to meet the target of becoming one of the leading world economies by the year 2020, efforts must be made to embrace electronic payment system in its entirety. It was in this consciousness that the CBN, which is the apex regulatory body of the banking sector, came up with are form of policy to check the increasing dominance of cash in the banking sector in order to enhance e-payment system in the economic landscape. Nigeria’s preparedness in adopting this new policy has been questioned by stakeholders given her socio-cultural milieu and other social vices associated with electronic payments that drive cashless policy.

Against this backdrop, the study sought to examine the impact of CBN’s Cashless Policy on the development of the Banking Sector of Nigeria with a view to exposing the issues relating to it, the possible challenges to be faced by it, as well as the prospects of the policy on the industry.

1.3 Purpose of the Study

The main objective of the study is to examine the impact of cashless policy on the development of the Banking Sector of Nigeria. The specific objectives are as follows:

1. To examine the extent to which Point of sale terminals associate with the development of the Banking Sector of Nigeria.
2. To examine the extent to which Automated teller machine (ATM) influence the development of the Banking Sector of Nigeria.
3. To examine the extent to which Mobile banking relate to the development of the Banking Sector of Nigeria.

1.4 Research Question

The following research questions are posed to guide the study:

1. To what extent does Point of sale terminals associate with commercial banks profitability in Nigeria?
2. To what extent does Automated teller machine (ATM) influences commercial banks profitability in Nigeria?
3. To what extent does Mobile banking relates with commercial banks profitability in Nigeria?

1.5 Statement of Hypotheses

The following research questions are postulated to guide the study:

HO1: There is no significant relationship between Point of sale terminals and commercial banks profitability in Nigeria.

HO2: There is no significant relationship between Automated teller machine (ATM) and commercial banks profitability in Nigeria.

HO3: There is no significant relationship between Mobile banking and commercial banks profitability in Nigeria.

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 419+15hands 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 Scope and Limitation 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. The study covers the period of 2007 to 2017.

The research of this magnitude can never be successfully completed with the researcher experiencing some difficulties which include the following:

In the courses of carrying out this research there was shortage of fund which restricted the researcher’s movement and made him or her not to be able to cover the expected areas of interest. The researcher experienced some difficulties in the area of getting information business organizations that are supposed to provide the researcher some vital information refuse as a result of fear of been victimized (in ability to disclose information). The time allocated for the researchers to carried out the researcher work was limited.

1.8 Organization of the Study

The first chapter which is the introduction to the study seeks bring to fore the antecedents that preceded the current state of electronic banking operations. The section introduces the topic under study; electronic banking and the performance of deposit money banks in Nigeria. The objective as well as research questions of the study are outlined in this chapter. The limitations of electronic banking are also captured in this chapter.  Chapter two reviews the publications and various literature treated by various authors that are relevant to this area of research.

Chapter three presents the organized research methods that are generally used in such studies. The chapter also identifies the selected sampling method to be used. Chapter four will treat the analysis and interpretation of the data obtained from the field which will be fed into the scientific system process of analysis. At this stage the analysis of the

Data will be done by use of the SPSS software that will organize the data and present graphical results of responses by the respondents.

The  last  chapter  of  the  study  will  conclude  the  analysis  of  the  data used in the study. Recommendations will also be made at this stage regarding to the research work findings.

1.9 Definition of Terms

Cashless policy

It is a policy established in the year 2012 by the Central Bank of Nigeria to curb excesses in the handling of cash in Nigeria.

Economic Development

Economic development is the process by which a nation improves the economic, political, and social well-being of its people. The term has been used frequently by economists, politicians, and others in the 20th and 21st centuries. The concept, however, has been in existence in the West for centuries.

Banking Sector

The banking sector is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth and the regulation of those activities by government agencies.