Project – An assessment of electronic payment systems and POS usage influence business transactions and financial inclusion among SMEs in Yaba, Lagos

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The adoption of electronic payment systems (EPS) has transformed business transactions globally, offering faster, secure, and more convenient methods of conducting financial operations (Kendall et al., 2010). Electronic payment systems include mobile money, card-based transactions, online transfers, and point-of-sale (POS) terminals that allow merchants to accept digital payments from customers. These systems are essential for enhancing efficiency, reducing cash handling risks, and improving record-keeping for businesses, particularly small and medium-sized enterprises (SMEs) (Ozili, 2018).

In Nigeria, the Central Bank of Nigeria (CBN) has implemented policies to promote electronic payments and reduce cash dependency, including the introduction of POS devices, mobile banking platforms, and incentives for digital transactions (CBN, 2020). Lagos State, as Nigeria’s commercial hub, has witnessed rapid adoption of EPS among SMEs, especially in business districts such as Yaba. SMEs in this area range from retail shops, restaurants, and service providers to technology startups, making the adoption of EPS crucial for seamless transactions and customer satisfaction.

Electronic payment systems have significant implications for business performance and financial inclusion. For SMEs, EPS and POS usage can increase transaction speed, enhance cash flow management, and expand the customer base by accommodating clients who prefer digital payments (Adebayo & Olufemi, 2019). Financial inclusion is also promoted as digital transactions integrate previously unbanked entrepreneurs into formal financial systems, enabling access to credit, savings, and other financial services (Ozili, 2018).

Despite the clear advantages, challenges persist in the adoption of EPS among SMEs. High transaction costs, poor network connectivity, limited digital literacy, and perceived cybersecurity risks can hinder effective usage of POS devices and other electronic payment methods (Eze et al., 2020). Additionally, some SME operators remain skeptical about transitioning from cash-based transactions due to concerns about reliability, fraud, and cost-effectiveness. Understanding these factors is crucial for evaluating the impact of EPS on business transactions and financial inclusion.

Yaba, Lagos, has emerged as a prominent commercial and technological district, housing a concentration of SMEs and tech hubs. The area provides an ideal context for studying EPS adoption due to the diversity of business types, high customer traffic, and increased digital payment demand. Examining the influence of POS and other electronic payment systems on SME transactions and financial inclusion in Yaba provides insights into the broader challenges and opportunities of digital financial integration in Nigeria.

Despite numerous policy initiatives and increasing EPS adoption, there is limited empirical research evaluating the impact of electronic payment systems and POS usage on business performance and financial inclusion among SMEs in Yaba, Lagos. This study, therefore, seeks to assess how EPS and POS usage influence business transactions and financial inclusion among SMEs in the selected study area.

1.2 Statement of the Problem

The growth of electronic payment systems and POS technology has reshaped business transactions in Lagos State, yet SMEs continue to face challenges in fully integrating these innovations. While POS devices and other EPS platforms are designed to enhance efficiency, increase transaction security, and improve customer satisfaction, SME operators often experience barriers to adoption, including poor network coverage, high transaction fees, lack of technical skills, and fears of fraud (Eze et al., 2020).

In Yaba, where SMEs operate in a competitive commercial environment, inadequate adoption or underutilization of EPS may limit the efficiency of business transactions and constrain financial inclusion. Some SMEs remain largely cash-based, which restricts access to banking services, reduces record-keeping accuracy, and limits the ability to participate in digital financial ecosystems. Consequently, businesses may struggle to expand, access credit facilities, or integrate into larger value chains.

Moreover, while EPS adoption has been promoted as a driver of financial inclusion, there is a lack of empirical evidence regarding its effectiveness among SMEs in Yaba. It is unclear to what extent POS usage enhances transaction efficiency, improves financial management, and facilitates inclusion in formal financial systems. Without such evidence, policymakers, financial institutions, and SME support organisations may struggle to design effective interventions that increase EPS adoption and improve SME performance.

Therefore, the problem addressed by this study is the limited understanding of the impact of electronic payment systems and POS usage on business transactions and financial inclusion among SMEs in Yaba, Lagos.

1.3 Purpose of the Study

The purpose of this study is to assess the influence of electronic payment systems and POS usage on business transactions and financial inclusion among SMEs in Yaba, Lagos.

1.4 Research Questions

1. What electronic payment systems and POS devices are used by SMEs in Yaba, Lagos?

2. How does the adoption of electronic payment systems and POS usage affect business transactions among SMEs in Yaba?

3. What is the influence of EPS and POS usage on financial inclusion of SMEs in Yaba?

4. hat challenges do SMEs face in adopting and using electronic payment systems and POS devices?

1.5 Research Hypothesis

H₀: Electronic payment systems and POS usage have no significant influence on business transactions and financial inclusion among SMEs in Yaba, Lagos.

1.6 Significance of the Study

The findings of this study will benefit SME operators, policymakers, financial institutions, and researchers. SME owners will gain insights into the benefits and challenges of EPS adoption. Policymakers and financial institutions can use the findings to develop strategies and policies that enhance digital payment adoption, improve SME performance, and increase financial inclusion. Additionally, the study contributes to academic literature on digital finance and SME development in Nigeria.

1.7 Scope of the Study

This study is limited to SMEs operating in Yaba, Lagos State, and examines their adoption of electronic payment systems, including POS devices. The focus is on assessing the impact of EPS on business transactions and financial inclusion. Large corporations and SMEs outside Yaba are excluded from this study.

1.8 Operational Definition of Terms

• Electronic Payment Systems (EPS): Digital methods for executing financial transactions, including mobile money, online banking, and card-based payments.

• Point of Sale (POS): Electronic devices that enable merchants to accept card payments and other digital transactions.

• SMEs: Small and medium-sized enterprises engaged in retail, services, or small-scale manufacturing in Yaba, Lagos.

• Business Transactions: Commercial activities involving the exchange of goods, services, and payments.

• Financial Inclusion: The extent to which businesses have access to formal financial services such as banking, credit, and digital payment systems.

Project – An assessment of electronic payment systems and POS usage influence business transactions and financial inclusion among SMEs in Yaba, Lagos