A STUDY INTO THE ACCEPTANCE AND ADOPTION OF THE CBN CASHLESS POLICY IN PORT HARCOURT, NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
One of the prerequisites for the development of national economy according to Ajayi et al, 2006 is by encouraging a payment system that is secured, convenient, and affordable. The world today is moving away from paper payment system to electronic means, especially payment cards (Humphrey, 2004). In most countries, for instance, it is possible to pay for a snack through vending machine by simply dialing a number on one’s phone bill. In Nigeria, like most developing countries, cash is the main mode of payment and a large percentage of the populations are unbanked (Ajayi et al., 2006) thus making the Nigerian economy to be heavily cash-based.
Recently, the Central Bank of Nigeria (CBN, 2011) revealed that the direct cost of cash management is estimated to reach a staggering sum of one hundred and ninety two billion naira (N192bn) in 2012. Other challenges resulting from high-cash usage among others include: armed robberies and cash-related crime, revenue leakage arising from too much of cash handling, inefficient treasury management due to nature of cash processing, high subsidy, high inflation etc (Akpan, 2009). Against these backdrops, the CBN introduced the cashless policy in April 2011 with the objective of promoting the use of electronic payment channels instead of cash. This no doubt led the CBN into conducting a pilot scheme of the cashless policy in Lagos in January 1st 2012. So far, implementation of the policy in Lagos has not gained expected reaction. Hence a rollout across the country has been substituted with phase implementation in Port Harcourt, Kano, Abia and the Federal Capital Territory (CBN, 2012).
A cashless economy is one where purchases and transactions are done mainly by electronic means and seldom by cash. The policy, introduced by the CBN in April 2011, states that individual and corporate customers are restricted to a daily cash withdrawal and lodgment of N500000 and N3m respectively. By implication, individuals, who make cash withdrawals above the limit will be charged N100 on every N1000 while a corporate organization that exceeds the limit will be charged N200 on every N1000 (Ezio, 2008).
According to the CBN and the Bankers Committee, the economy will be better off with the policy. For instance, it will reduce the dominance of cash in the system, thereby reducing cases of armed robbery and cash related crimes. It will moderate the cost of cash management; encourage the use of electronic payment channels and reduce lending rates to further make credit accessible to big and small business. The committee’s findings showed that running a cashless economy could save the CBN about N192bn, which is the projected direct cost of managing cash for 2012. While Nigerians could not deny the need to prevent too much cash in circulation among other benefits of the scheme; many still believe that the cash limit is too low and query how the CBN arrived at the benchmark. Some also express the need for a gradual transition to the new policy order; while others think that Nigeria is not even ripe for it. As laudable as the cashless idea is, an assessment of the usual inconsistencies in the operation of the Automated Teller Machine (ATM) leaves many stakeholders wondering if the same system could produce a better result. Realizing this potential threat, the CBN recently directed banks and independent service providers to deploy more ATMs and ensure their efficiency to ensure a smooth implementation of the policy. The most outstanding cashless banking channels world over according to Siyanbola (2013) are Mobile banking; Internet banking; Telephone banking; Electronic card implants; POS terminals, and ATMs.
The word mobile is related to mobile business which connotes the possibilities of having access to business activities anywhere and anytime in the world and which is managed by computer mediated network. The facility makes service availability location possible. Mobile
Banking involves the use of mobile phone in carrying out financial transactions. This is more or less fund transfer process between customers with immediate availability of funds for the beneficiary. According to Siyanbola (2013), it uses card infrastructure for movement of payment instructions as well as secured SMS messaging for confirmation of receipts to the beneficiary. It is very popular and exciting to the customers given the low infrastructure requirements and a rapidly increasing mobile phone penetration in the country. In the banking industry, services that are finance-related which involves mobile telecommunication technologies are known as Mobile financial services. These services are therefore categorized into mobile payment and mobile banking (Alex, 2010). Services covered by this product include account enquiry; funds transfer; recharge phones; changing password and bill payments (Tiwari & Buse, 2007).
Internet banking involves conducting banking transactions on the internet (www) using electronic tools such as the computer without a customer having to visit the banking hall. Internet or electronic banking is also a system by which transactions are settled electronically with the use of electronic gadgets such as ATMs, POS terminals, GSM phones, V-cards etc, handled by e-holders, bank customers and other stakeholders (Edet, 2008). These innovations in the banking system no doubt have greatly facilitated e-commerce mostly in effecting payments. Internet banking, like mobile banking, also uses the electronic card infrastructure for executing payment instructions and final settlement of goods and services over the internet between the merchants and the customers. Commonly used internet banking transactions in Nigeria are settlement of commercial bills and purchase of air tickets through the websites of the merchants or service providers.
Electronic card on the other hand is a physical plastic card that uniquely identifies the holder used in transacting business on the internet, automated teller machine (ATM) and point of sales (POS) terminals (Carow and Staten, 2000). This includes debit and credit cards with debit cards linked to local bank accounts and offer immediate confirmation of payment while credit card can be used for assessing local and international networks. As credit cards are widely accepted in most countries, the underlying infrastructures and operational rules are often provided by global trust scheme (such as visa and master card) in addition to local lines.
Debit cards are the dominant cards in Nigeria, otherwise known as ATM cards and their usage is wider than POS transactions given the current limited deployment of POS terminals.
Point of Sale (POS) or Point of Purchase (POP) terminals is the location where a transaction occurs. A POS or POP is generally referred to the hardware and software used to check out, the equivalent of an electronic cash register. A POS manages the selling process by a salesperson as an accessible interface while allowing the creation and printing of receipts.
Automated Teller Machine is a computerized device that provides the customers of a financial institution with access to financial transactions in a public place without a need for assistance from bank teller or any bank official (Migdadi, 2008). It is the commonest form of electronic banking which has gained popularity among Nigerians including the illiterate bank customers.
Notwithstanding the benefits posited by cashless economy from the foregoing, these alternative payment channels are still faced with enormous challenges. According to Wales (2013), challenge is a general term referring to things that are imbued with difficulty and victory. Thus, there are many difficulties associated with the actualization of the cashless economic policy among the Nigerian populace especially the illiterate family members; those living mostly in rural areas and the unemployed as well.
The Port Harcourt community is among the elite class of the Nigerian society who by virtue of their positions are bound to embrace the cashless policy, giving the presence of commercial banks available at their disposal. To this effect, the study would determine the acceptability and adoption of the cashless policy in Port Harcourt.
1.2 STATEMENT OF THE PROBLEM
According to the Global FINDEX Survey in 2011, around one-third of Brazilians and South Africans with debit cards use e-payments, compared with one in ten Nigerians: the 2% of Nigerian adults who currently make e-payments represent a small fraction of the 19% holding debit cards (which is used as a proxy for a type of account more likely to provide e-payment functionality). Similarly, data from EFInA’s Access to Financial Services in Nigeria 2012 survey (A2F, 2012) highlight Nigerians’ limited acceptance and adoption of electronic payments and services to date, with 0.7% of banked adults using POS terminals, 0.8% of banked adults using the internet, and less than 2.5% using mobile phones for banking transactions. The policy has since been affected by many factors namely ineffective sensitization campaign exercise; inadequate protection of the interest of merchants and people in the informal sector; non availability of Point-of-Sale (POS) terminals as well as other technological challenges. Thus, these challenges have seriously affected the implementation of the policy. It is therefore the belief that the move is too idealistic in a country like Nigeria where a larger percentage of their population has low level of functional literacy skills and resides in rural areas where compelling them to travel long distances in order to use these services. It therefore becomes pertinent to examine the level of acceptability and adoption of the cashless economic policy in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The broad object of the study is to determine the level of acceptability and adoption of the CBNs cashless policy in Port Harcourt metropolis. The specific objectives are as follow.
1. To determine the level of acceptability and adoption of the CBNs cashless policy in Port Harcourt.
2. To find out the advantages, benefits and implications of accepting and adoption of the CBN’s cashless policy in Port Harcourt
3. To Determine the challenges facing the use of internet and mobile banking services/POS and the disadvantages of CBN’s cashless policy in Port Harcourt
4. To find out the factors that can improve the level of acceptability and adoption of the CBN’s cashless policy in Port Harcourt.
1.4 RESEARCH QUESTION
1. What is the level of acceptability and adoption of the CBNs cashless policy in Port Harcourt?
2. What are the advantages, benefits and implications of accepting and adoption of CBN’s cashless policy in Port Harcourt?
3. What are the challenges facing the use of internet and mobile banking services/POS and the disadvantages of CBN’s cashless policy in Port Harcourt?
4. What are the factors that can improve the level of acceptability and adoption of the CBN’s cashless policy in Port Harcourt?
1.5 HYPOTHESIS
The following hypotheses were formulated to guide the study and were tested at level of significance of 0.05.
Ho: The people of Port Harcourt has not significantly accepted and adopted the CBNs cashless policy
HA: The people of Port Harcourt has significantly accepted and adopted the CBNs cashless policy
1.6 SIGNIFICANCE OF THE STUDY
This study is targeted at determining the level of acceptability and adoption of the CBNs cashless policy in Port Harcourt considering the factors and challenges facing the use and the acceptability and adoption of the policy, therefore this study will educate the general public on the need for the acceptance and adoption of the cashless policy educating the general public of the advantages of the policy. Furthermore, this study will also educate stakeholders in the financial sector on ways to solve the problems limiting the acceptance and adoption of the CBNs cashless policy.
Lastly, the outcome of this study will increase the volume of the literature in the area of acceptability and adoption of the CBNs cashless policy.
1.7 SCOPE AND LIMITATION OF THE STUDY
In ascertaining the level of acceptability and adoption of the CBNs cashless policy, this study will cover all the Local Government area in the city of Port Harcourt.
1.8 LIMITATIONS OF STUDY
Limitations experienced in the course of this study are basically centered on problems relating to:
1. Difficulty in generating reasonable, adequate and reliable information from respondents- Respondents tend to provide information which they feel the researcher would be pleased to get, which may not be the right information.
2. 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).
3. 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
Payment- the action or process of paying someone or something or of being paid
Economy- the state of a country or region in terms of the production and consumption of goods and services and the supply of money.
Transactions- an instance of buying or selling something.
Cash- money in coins or notes, as distinct from cheques, money orders, or credit.
Internet- a global computer network providing a variety of information and communication facilities, consisting of interconnected networks using standardized communication protocols
CHAPTER TWO
2.0 Review of related literature
In line with global trends, the Central Bank of Nigeria (CBN) in 2011 introduced cashless Policy to the Nigerian economy. This Policy which aims at reducing the amount of physical cash circulating in the economy whilst encouraging the use of alternative electronic products and channels for financial transactions is already operational in Lagos State and set to take off in other major parts of the country by June 1, 2012. The choice of Lagos state as the starting point is explicable given that 65% of commercial transactions in the country take place in the State.
The Policy, which has been endorsed by the Bankers Committee, pegs the daily limit for withdrawal and lodgment of cash in deposit money banks at N150, 000 and N1, 000,000 for individuals and corporate bodies respectively. Where individuals and corporate bodies choose to withdraw or lodge more than the set limit, cash handling charges would be incurred.
According to the apex body, the Policy became necessary to discourage the high usage of cash across the economy which has a number of negative consequences including high cost of cash. In 2009, the direct cost of cash management to the banking industry was set at N114.5billion, and may be as high as N192billion in 2012. This spiraling cost of cash management, most of which is passed onto the consumer in the form of bank charges and lending rates, is as a result of the cash dominant economy existing in Nigeria. For example, Currency-In-Circulation (CIC) rose by a 20.36% increase from December 2008 to N1.184 trillion in December 2009. As at December 31, 2010 the total CIC value stood at N1.378 trillion, showing an increase of 16%5. Further reports show that about 90% of daily withdrawals by bank customers are below N150, 000, thus, only about 10% of bank customers are responsible for the heavy cost of cash management borne by all bank customers.
Furthermore, the present levels of cost and inefficiencies in providing banking services and the poor quality of services experienced by the majority of the banking public is set to be addressed by the new Policy. This is in view of the fact that customers would have several electronic alternatives for carrying out transactions and thus would avoid dealing with the banks inefficiencies on a regular face to face basis.
The Policy will also curb an informal economy where the effectiveness of monetary policy tailored at managing inflation and encouraging economic growth is limited. According to the CBN data, unbanked money in the informal sector is estimated at N1.2 trillion, coupled with the fact that about 74% of the adult Nigerian population does not operate any form of banking services, while 85% of adult females have never operated banking services. On the other hand, 61% of those without bank accounts would prefer to have one, according to the CBN data. Mobile money is the easiest way to win these accounts. In addition, given that an efficient and modern payment system is positively correlated with economic development, this Policy would be a key enabler for economic growth.
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