OVERVIEW OF ELECTRONIC PAYMENT SYSTEM IN NIGERIA-ACCEPTABILITY AND RETAIL PAYMENT SYSTEM

CHAPTER ONE

1.0.            INTRODUCTION

1.1.            Background of the Study

Since the overthrown of barter as a form of transaction in the history of mankind, transactions usually require the interchange of goods or services for a comparable abstract value such as money. On a daily basis, a large number of transactions are initiated by a wide range of economic actors in a given economic system. Every transactions, whether they include the procurement of products, monetary resources or services have two main settlement elements which are: the delivery of the products or services, and the release of funds. Consequently, a payment is a transfer of moneys which releases an obligation from a payer vis-à-vis a payee. A payer is the partner to a business transaction who issues the payment request or subscribes to the transfer of moneys to the payee. A payee, also known as the beneficiary is the final recipient of the moneys.

A study by Sadeghi and Schneider (Asaolu, Ayoola & Akinkoye, 2011) explains that system for making payment has been in existence since after the creation of cash as the unique method for representing value.  In a more restricted sense, payment system is used as a synonym for “interbank funds transfer system” but in a general level, it refers to the complete set of instruments, intermediaries, rules, procedures, and interbank funds transfer systems which facilitates the circulation of money in a country or currency area. As contained in a glossary of terms used in payment and settlement systems (Committee on Payment and Settlement Systems, 2003), a payment system is made up of a set of instruments, banking procedures and, typically, interbank funds transfer systems and these guarantee the flow of money in any economy.

A payment system is composed of payment activities which are usually carried out by following laid down plan for actions. The effectiveness of payment activities is fully dependent on how actions that facilitate fund transfer between members are arranged.Therefore, payment systems consist of networks that link the members with established rules and procedures for the use of the available structure. A Payment System normally requires the following:

              i.            A standard approach/method for the transmission of payment messages between parties involved.

            ii.            An acceptable channel/medium/means through which the claim can be transmitted between parties involved in a transaction.

          iii.            Operational rules and procedures common to members.

Payment system is a vital part of the economic and financial structure. The key contributing factors to the overall performance of an economy is the effective functioning and safety of a payment system. To promote economic growth and development, an efficient payment system that offers actors in the economy an opportunity to complete transactions on time should be adopted. A payment system should be founded on a strong functional legal systems (such as laws, standards, rules and procedures) laid down by legislator, courts, regulators, system operators, and central bank overseers.

Payment system is gradually transiting form traditional payment system to electronic payment system due to technological improvement in computing and telecommunication. In the 1960s, the use of electronic distribution network for the transfer of large sum of money constitutes a frequent practice in the banking and business sector. Overtime, important technological developments have taken place, which on one hand have expanded the possibilities of electronic payment systems and on the other hand have created new business and social practice which make the use of these systems necessary. The definition of electronic payments is evolving depending on the needs of each period and this is as a result of the continuous growth and development in technological. The term electronic payment can narrowly be described as e-commerce; a payment for buying and selling of goods or services offered through the Internet, but in a broad term electronic payment refers to any type of electronic funds transfer. According to Sumanjeet (2009), any payment made to businesses, bank or public services from citizens or businesses, which are executed through a telecommunications or electronic networks using modern technology is known as electronic payment.

 Electronic Fund Transfer (EFT) was the first electronic based payment system, which does not depend on a central processing intermediary. An electronic fund transfer is a financial application of Electronic Data Interchange (EDI), which sends credit card numbers or electronic cheques via secured private networks between banks and major corporations.

(Ojo, 2004) and (Ovia, 2002) in paper presentations disclosed that Nigeria is mainly a cash-based economy with over 90% of funds residing outside the banking sector. This is against the backdrop in developed world such as UK and US where the volume of money in circulation is 4% and 9% respectively. The ability to instantly convert cash to alternative forms of values without the intermediary of any financial institutions and the tendency to go unidentified and untraceable in the case of unethical transactions are perceived as the major reasons there is such a high volume of money in circulation in the country.

However, the Central Bank of Nigeria (CBN) has adopted numerous plans so as to reduce the volume of cash in the economy, promote the adoption of electronic payments and boost the Nigeria payments system. Electronic payment is a fairly new phenomenon in Nigeria. It was first introduced to Ministries, Departments and Agencies by Federal Government because of the overwhelming allegations of corruption in Federal Civil Service. Through a circular with reference No TRY/A8 & B8/2008 of 22nd October, 2008, the Federal Government had instructed that all payments from its Ministries, Department and Agencies be made electronically as from 1st January, 2009. Electronic payment has grown from its initial usage to an extensive range of use in Nigeria yet most transactions in the nation are still cash based.  Poor awareness of e-payment solutions, poor banking principles, lack of confidence, ignorance and the preference to hold money have been fingered to be responsible for the low  reception of non-cash transactions among Nigerian.

Asaolu, Ayoola & Akinkoye (2011), defined e-payment in the Nigerian context as effecting payments from one end onto the next end with the use of computer as a medium and without manual interference apart from inputting the payment information.  In addition, it is also referred to as the ability to pay the suppliers, merchants and staff salaries electronically at the touch of a computer keys. To drive Nigerian toward the use of electronic payment, the CBN has instituted a cashless policy which is expected to decrease the magnitude of cash in circulation by replacing existing payment system with e-payment options.

This research study therefore seeks to create a general outline of the Nigerian e-payment systems in order to empower individual customers and companies with adequate knowledge of an alternative system and as such eliminate or decrease a percentage of the issues that characterize the settlement and payment process. Nwaolisa & Kasie (2012), clarified that the orderliness in the operation of a country’s banking and financial system, its economy and the reputation of the national bank is completely subject to the unwavering quality and proficiency of its payment system. In spite of the recent notable achievements in e-payment in Nigeria, the country’s electronic payment system still requires a ton of improvement in order to promote non-cash based payment systems. If one decides to go cashless or cash-lite in Nigeria, it is expected that he/she should have the knowledge of what payment/transaction options are available in Nigeria and how they function hence the study is necessary.

1.2.            Statement of the Problem

With the rapid growth in Information and Communication Technology (ICT) across the globe, techniques for completing business transactions are quickly moving from a conventional system to an electronic system. Electronic commerce now acts as an outlet for carrying out business transactions through the use of electronic means such as Internet connections (Anik & Pathan, 2002).

Notwithstanding, it has been observed that despite the recent developments and initiatives by the CBN to automate the Nigerian payment system, the use of cash is still dominant among the residents of Minna. It is on this background that the research is conducted to discover the user acceptability of electronic retail payment system in Minna. 

1.3.            Aim and  Objectives of the Study

The aim of the study is to provide a general summary of the electronic payment system in order to bring to knowledge the reasons why people still prefer cash-based transactions to the use of e-payment channels in Nigeria despite the problems associated with cash-based system.  The objective of the study is as follows:

1.      To identify the various types of e-payment channels available in Nigeria.

2.      To identify the frameworks that supports the Nigerian e-payment system.

3.      To evaluate the user acceptability of electronic retail payment system in Minna.

4.      To ascertain the possibility of achieving cashless Nigeria with the available e-payment system.

Research Questions

1.      What e-payment options are available in Minna?

2.      What is the level of participation in the usage of e-payment options in Minna?

3.      How do merchants respond to the use of e-payment option by customer?

4.      How does this system help to accomplish the new CBN cashless policy?

1.4.            Justification for the Study

As rightly noted, the keenness by relevant bodies to make Nigerians adopt electronic payment system has prompted the introduction of various policies and several channels of e-payment in order to shift their attention to e-payment system. Nevertheless, several people still prefer to go about their businesses with cash. Poor awareness and high level of illiteracy are among the major challenges facing e-payment system in Nigeria Agbaje & Ayanbadejo (2013). Because the system requires the transfer of money without the presence of the parties involved, security assurance to customers is a paramount issue but according to Ayo & Babajide (2006) the problem of the country’s e-payment system is not the technical know-how to safeguard a secure e-payment transaction but attitudinal.

Therefore, the importance of the research is to create more awareness about electronic payment system in Nigeria so as to provide a general knowledge on Nigerian electronic payment system, in order to facilitate the adoption of the cashless policy.  The study is expected to provide individuals with necessary knowledge regarding the e-payment options and provide understanding on how to use them for daily transactions.  The research will enable relevant agencies to take actions in the right direction so as to facilitate the achievement of vision 2020.

1.6.            Scope of the Study

The primary focus of this study will be on the e-payment options that are functional in Nigeria.  The study will give emphasis on payment techniques that employ the services of banks for example ATMs, Internet banking, mobile money, credit and debit cards, etc. It is impractical to capture all the paramount details relating to the Nigerian e-payment system in this research; nevertheless , an insight into some selected payment options can be beneficial in assisting individuals to understand the distinctive e-payment solutions available for them.

Meanwhile, the survey part of the study will concentrate specifically on electronic retail payment systems as obtainable in Minna.

1.7              Operational Definition of Terms

a)                  Electronic payment mechanism/instrument: A method or tool used to execute payments electronically.

b)                  Electronic payment system:  A set of functional groups that ease the transfer of monetary values from one bank account to another using electronic means.

c)                  Electronic payment: Payment executed through a telecommunications or electronic networks.

d)                 Payment channels: Any medium that aids the transfer of money from one account to another without any intermediary e.g. ATM, Mobile device etc.

e)                  Payment institution: An institution that provide payment services.