Project – The Influence of Cashless Policy Adoption on Customer Retention in FinTech Companies in Lagos State (Opay and Kuda)

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The advancement of financial technology has significantly transformed the banking and payment systems globally. In recent years, many countries have adopted cashless policies to modernize financial transactions, reduce dependence on physical cash, and improve economic efficiency. According to Mishra (2016), a cashless economy is one in which financial transactions are conducted mainly through electronic channels rather than paper currency. These electronic channels include mobile banking, internet banking, Point of Sale (POS) terminals, debit cards, and mobile wallets.

In Nigeria, the Central Bank of Nigeria (CBN) introduced the cashless policy in 2012 to reduce the volume of cash in circulation and encourage electronic payment systems (CBN, 2012). The policy was also designed to reduce the cost associated with cash handling, increase transparency in financial transactions, minimize corruption, and promote financial inclusion among citizens. Since the implementation of the policy, electronic banking and digital financial services have grown rapidly across the country, particularly in Lagos State which serves as Nigeria’s commercial center.

The emergence of Financial Technology (FinTech) companies has further accelerated the adoption of the cashless policy in Nigeria. FinTech companies use technological innovations to provide financial services that are fast, accessible, and convenient for users (Lee & Shin, 2018). Among the leading FinTech companies operating in Lagos State are Opay and Kuda. These companies provide digital payment solutions such as money transfers, mobile banking, savings services, bill payments, and online transactions that support a cashless economy.

Opay has gained popularity through its efficient mobile payment platform, agent banking services, and affordable transfer charges, while Kuda has positioned itself as a digital bank offering zero maintenance fees, budgeting tools, and seamless banking experiences. The services provided by these FinTech companies align with the objectives of the cashless policy because they reduce customers’ dependence on physical cash and encourage digital transactions.

Customer retention has become a major concern in the competitive FinTech industry. Customer retention refers to a company’s ability to maintain long-term relationships with customers by continuously satisfying their needs and expectations (Kotler & Keller, 2016). According to Reichheld and Schefter (2000), customer retention is essential for organizational growth because loyal customers contribute to increased profitability and business sustainability. In the FinTech sector, factors such as service quality, transaction speed, convenience, security, and trust play significant roles in retaining customers.

The adoption of cashless payment systems has influenced customer behavior and financial transactions significantly. Many customers now prefer digital transactions because they are faster, easier, and more convenient than traditional banking methods (Ayo, Adewoye, & Oni, 2011). However, despite the increasing acceptance of electronic payment systems, challenges such as cyber fraud, failed transactions, poor internet connectivity, and inadequate customer support still affect customer satisfaction and loyalty.

In Lagos State, where numerous FinTech firms compete for market share, retaining customers has become increasingly difficult. Customers can easily switch from one platform to another whenever they experience dissatisfaction or discover better alternatives. Therefore, understanding the relationship between cashless policy adoption and customer retention has become important for FinTech companies seeking sustainable growth and competitive advantage.

Several studies have examined electronic banking and digital payment systems in Nigeria. For example, Ezejiofor, Anusiem, and Nwakoby (2021) found that electronic payment systems positively influence customer satisfaction and financial inclusion in Nigeria. Similarly, Taiwo and Agwu (2017) observed that the adoption of cashless transactions improved banking efficiency and customer convenience. However, limited studies have specifically focused on how cashless policy adoption influences customer retention in FinTech companies such as Opay and Kuda in Lagos State. This gap in literature forms the basis for this study.

1.2 Statement of the Problem

The implementation of the cashless policy in Nigeria has contributed significantly to the growth of electronic payment systems and digital banking services. FinTech companies such as Opay and Kuda have emerged as major players in promoting cashless transactions through innovative financial technologies. Despite the rapid growth of these companies, customer retention remains a major challenge within the Nigerian FinTech industry.

Many customers adopt digital payment platforms because of convenience, speed, and lower transaction costs. However, retaining these customers over time has become increasingly difficult due to challenges such as failed transactions, delayed transaction reversals, cyber insecurity, poor customer service, and network failures. According to Oluwatolani, Joshua, and Philip (2011), technological failures and poor service delivery negatively affect customer confidence in electronic banking systems.

In Lagos State, the FinTech market is highly competitive, with several digital financial service providers competing for the same customers. As a result, customers can easily switch from one platform to another whenever they encounter dissatisfaction or poor service quality. This switching behavior poses serious threats to customer retention, profitability, and long-term sustainability of FinTech companies.

Furthermore, trust and security concerns continue to discourage some customers from fully embracing electronic payment systems. Cases of online fraud, unauthorized transactions, and data breaches have weakened customer confidence in digital financial services (Akinola, 2020). Customers who perceive electronic payment platforms as insecure are more likely to discontinue usage and move to competing alternatives.

Although previous studies have examined electronic banking and cashless transactions in Nigeria, most of these studies focused on traditional commercial banks rather than FinTech companies. There is still limited empirical evidence on how cashless policy adoption influences customer retention in FinTech companies such as Opay and Kuda, particularly in Lagos State where digital financial activities are highly concentrated.

It is against this background that this study seeks to examine the influence of cashless policy adoption on customer retention in selected FinTech companies in Lagos State, with particular reference to Opay and Kuda.

1.3 Objectives of the Study

The main objective of this study is to examine the influence of cashless policy adoption on customer retention in FinTech companies in Lagos State.

The specific objectives are to:

1. examine the effect of electronic payment systems on customer retention in Opay and Kuda;
2. determine the relationship between transaction convenience and customer loyalty in selected FinTech companies;
3. investigate the effect of service quality on customer satisfaction and retention;
4. examine the influence of security and trust on customers’ continued usage of FinTech platforms.

1.4 Research Questions

The following research questions will guide the study:

1. What effect do electronic payment systems have on customer retention in Opay and Kuda?
2. What relationship exists between transaction convenience and customer loyalty in selected FinTech companies?
3. How does service quality influence customer satisfaction and retention?
4. To what extent do security and trust influence customers’ continued usage of FinTech platforms?

1.5 Research Hypothesis

H₀: There is no significant relationship between cashless policy adoption and customer retention in FinTech companies in Lagos State.

H₁: There is a significant relationship between cashless policy adoption and customer retention in FinTech companies in Lagos State.

1.6 Significance of the Study

This study will be beneficial to FinTech companies, customers, researchers, policymakers, and the academic community. The findings of the study will help FinTech companies such as Opay and Kuda understand the factors influencing customer retention in a cashless economy. The study will also provide insights into how service quality, transaction efficiency, and customer trust can improve customer loyalty.

The study will assist policymakers and the Central Bank of Nigeria in evaluating the effectiveness of the cashless policy in promoting digital financial services and customer satisfaction. Furthermore, the research will contribute to existing literature on FinTech and customer retention and serve as a reference material for future researchers.

1.7 Scope of the Study

This study focuses on the influence of cashless policy adoption on customer retention in FinTech companies in Lagos State. The study is limited to selected FinTech companies, specifically Opay and Kuda. The research will examine how electronic payment systems, transaction convenience, service quality, and security influence customer retention among users of these platforms in Lagos State.

1.8 Limitation of the Study

The researcher may encounter limitations such as inadequate access to company data, time constraints, financial limitations, and respondents’ unwillingness to provide complete information. However, efforts will be made to ensure that these limitations do not affect the reliability and validity of the study.

1.9 Definition of Terms

Cashless Policy: A financial policy that promotes electronic transactions and reduces the use of physical cash in economic activities.

Customer Retention: The ability of a company to maintain continuous patronage and loyalty from its customers over time.

FinTech: Financial technology companies that use technology to provide financial services and solutions.

Electronic Payment System: A digital method of making financial transactions without the use of physical cash.

Customer Loyalty: The commitment of customers to continue using a company’s products or services consistently.

Project – The Influence of Cashless Policy Adoption on Customer Retention in FinTech Companies in Lagos State (Opay and Kuda)