Electronic Banking And The Performance Of Deposit Money Banks In Nigeria (1990-2016)


Electronic Banking And The Performance Of Deposit Money Banks In Nigeria (1990-2016)

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CHAPTER 1 INTRODUCTION 1.1 Background to the study

Electronic banking development in Nigeria can be traced to 1986 when the banking sector was deregulated. The result of this deregulation brought far- reaching transformation through computerization and improved bank service delivery (Oluwatolani, Joshua and Philip, 2011:63). Competition with new products became keen within the system while customer sophistication posed a challenge for them, hence the reengineering of processing techniques of business accounts encourage the automation of financial services especially among new generation of commercial and merchant banks (Oluwatolani, Joshua and Philip, 2011:63). The 21st century has witnessed a dramatic evolution in the financial service industry as a result of the rapid advancement in technological transformation which has become known as e-developments(Fonchamnyo, 2013:166). These changes have engulfed all areas of financial intermediation and financial markets such as e-finance, e-money, electronic banking (e-banking), e-brokering, e-insurance, e-exchange and e-supervision(Fonchamnyo, 2013:166). This new information technology (IT) is turning into the most important factor in the future development of banking, influencing bank’s marketing and business strategies. As a result of rapid advances in IT and intensive competition in the banking sector, the adoption of e-banking is being increasingly used as a channel of distribution for financial services (Fonchamnyo, 2013:166). Electronic payment system is becoming more acceptable as the world makes shift towards cashless society. An undeniable trend towards the use of electronic cash has been observed in the literature especially in the last two decades (Ayo, C.K., Adewoye, J.O., & Oni, A.A. 2010:37). The world of electronic cash is slowly squeezing out the coins and paper cash (naira, pounds, dollars, rupee, cedi etc,) that we know. The whole society is moving towards a cashless system in which we won’t be dealing with the paper-cash but rather develop new method of electronic transaction in form of smart cards, debit cards, credit cards, ATM cards etc (Hassan, S.U., Mamman, A., & Farouk, M. A. 2013:138).According to Ashaolu, A. (2004:23)banks in Nigeria had augmented their distribution networks with transactional websites, which allow customers to open accounts, apply for loans, and check balances and transfer funds over the internet. This view corroborates the arguments of Brown and Cronin (1995:101) that electronic payments could substitute strongly for currency and other paper-based instruments. It is difficult to see how those paper media could undergo any improvements that would allow them to compete with electronic media. The world has witnessed an increase of electronic payment instruments meant to facilitate trade and simplify payments before the introduction of electronic payment into Nigerian banking system; customers had to walk into the banking hall to do transactions of all kind. They had to queue up and spend more hours to talk to a teller to make their transactions. Inconveniences caused by these long queues discourage most customers who sometimes renegade from the queues in annoyance. For many years, bankers, IT experts, entrepreneurs and others have advocated for the replacement of physical cash and the introduction of more flexible, efficient and cost effective retail payment solutions (Oladejo 2016:2).Technology-based products give opportunities to have significant cost advantages, increasing profitability and facilitate lower risk than traditional banking products. In addition, studies show that if there is enough customers demand the technology-based products of the bank there will be the return of investment on this field in short time. Empirical studies made on various countries, reveals that electronic banking services improve the performance of banks(Oladejo 2016:2). However, the expected results are not seen in some less developed and developing countries because of infrastructure investment could not do enough and customers prefer traditional branch-based banking(Oladejo 2016:2). The use of e-banking products grew notably in the year 2009 as the volume and value of the transactions stood at 114.6 million and N645.04 billion respectively (CBN, 2009). The CBN notes that the volume and value of electronic card transactions increased significantly from 195,525,568 and N1, 072.9 billion in 2010 to 355,252,201 and 16,714.4 billion in 2011, an increase of 81.5 per cent and 55.8 per cent respectively. ATMs account for 97.8 per cent, followed by web-payments (1 per cent), POS and mobile payments (0.6 per cent) in terms of volume. In value terms, ATMs accounted for 93.4 per cent, web (3.5 per cent), POS (1.9 per cent) and mobile (1.2 per cent). The CBN’s policy of promoting electronic cards and channels is driven by the objectives of reducing banking industry costs by 30 per cent. It estimated the total direct cost of cash management in the Nigerian banking industry as N114.5 billion ($715.6 million) as at 2009, with cash in transit costs (24 per cent), cash processing cost (67 per cent) and vault management costs (9 per cent). The CBN projects numerous benefits including enhanced tax revenue, increased economic growth, increased financial inclusion, reduced robberies and cash-based fraud, reduced operating cost for increased payment system efficiency and increased banking penetration.



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