Project – The effect of e-payment system on economic growth – evidence from Nigeria
CHAPTER ONE
INTRODUCTION
Background to the Study
The impact of e-payment systems (EPSs) on economic growth has been a topic of interest to researchers and policy makers particularly in developing countries (Ehiedu, et al.., 2023). The digitalization of finance and transactions represent a modern phenomenon in the world of finance. E-payment systems play a critical role in modern economies due to globalization and technological advances being made all around the world. The continuous advances in the internet technology have brought huge impact on business operations and have in particular brought about a paradigm shift in banking operations. In Nigeria, banks have invested greatly in technology, and have widely adopted electronic and telecommunication networks for delivering a wide range of value-added products and services in order to meet up with global growth and improve the quality of service delivery, and reduce transaction cost (Zwingina, et al., 2023).
Electronic payment system is a way of making transactions or paying for goods and services through an electronic medium without the use of check or cash. It’s also called an electronic payment system or online payment system. The electronic payment system has grown increasingly over the last decades due to the widely spread use of internet-based banking and shopping. As the world advance more on technology growth, a lot of electronic payment systems and payment processing devices have been developed to increase, improve and provide secure e-payment transactions while decreasing the percentage of check and cash transaction. E payment economy does not mean an outright elimination of cash transactions in the economic setting but one in which the amount of cash-based transactions is kept to the barest minimum (Josephine, 2021).
In recent years, the introduction of e-payment systems has provided a medium through which money circulates conveniently. Bagudu and Okolie (2022) stated that cashless system of payments and instruments contribute significantly to the broader effectiveness and stability of the financial system. For example, in South Africa and Kenya small electronic payment systems have been introduced and adopted by millions of Kenyans and hundreds of thousands of South Africans. The introduction of these platforms has provided a cheaper alternative for low-income families to carry out transactions. This has eliminated the cost of travel and bank charges for these users and low-income families (Josephine, 2021).
The federal government of Nigeria introduced a policy based on cash less transactions in January 2012. One of the main reasons this policy was introduced was to develop and modernize payment systems in Nigeria. This was in line with the National Payment Systems Vision 2020 (PSV 2020) with the primary objective of the policy being, to create a safe, efficient and effective mechanism for conveniently making and receiving all types of payments from any location at and at any time through various electronic channels. The policy through the advanced use of information technology facilitates fund transfer, thereby reducing time wasted in Banks (Bagudu & Okolie, 2022). E-payment systems have provided the platform to which Nigeria transitions to a modern market economy.
A well-functioning e-payment system has been recognized to have much relevance on financial stability, monetary policy and overall economic activity (Josephine, 2021). Electronic Payment Systems (EPS) apart from their convenience and safety also have a significant number of economic benefits which include mobilizing savings, and ensuring most of the cash available in the country are with banks. This will make funds available to borrowers both businesses and individuals (Zwingina et al., 2023). Although Nigerian e-payment systems have continued to develop and advance, there has been limited impact on the economic growth and growth due to various inefficiencies on the side of the federal government. Ehiedu et al. (2023) stated that it is impossible to fully absorb the benefits of payment systems due to poor internet access and unreliable electricity supply, especially in rural areas as many modern payment platforms require access to the internet. Inadequate infrastructure such as roads and railways have also limited the benefits for payment systems as goods that have been paid for will need to be transported between states or borders, ignorance of the population has also played a part due to the average Nigerian’s love for cash which had been the status quo for payments and transactions before the cash less policy by the Central Bank of Nigeria. Outdated financial policies coupled with a high rate of corruption have also hindered the role payment systems play in the economic growth of Nigeria. The purpose of this study is therefore to examine the impact of e- payment systems on economic growth in Nigeria.
1.2 Statement of the Problem
Over the years, the use of payment systems in Nigeria has been increasing considerably but its impact hasn’t been adequately translated to the economy. One of the main reasons for this is the reluctance and ignorance of Nigerian’s to use the internet for transactions due to the fear of fraud. The tech savvy nature of some payment systems also hinders the ability to capture a majority of the population. Another major issue hindering the possibilities of payment systems is the banking and finance sectors ability to capture a majority of the population on these platforms. The facilities that will be used for efficient financial transactions by the available deposit money banks in Nigeria may not be able to carry the load of the electronic system; ATM’s, Point of Sales system, mobile banking and other mediums have to dramatically expand to touch at least 80% of the whole country before any efficient financial intermediation can be achieved (Ehiedu et al., 2023).
Customers also complain of network failures alongside ATM failures. Implying that network and the ATM machines must be improved dramatically to accommodate for smooth operations of financial activities (Ibekwe, 2021; Deekor, 2021). Zwingina et al (2023) highlighted the unavailability of POS at purchase centers, poor internet access, lack of knowledge on how to use payment systems, transaction difficulties, limited ATM machines, ATM robbery and lack of access to funds as some of the challenges affecting the actualization of the cashless policy and shift toward electronic systems of payment. It is also impossible to fully capture the population due to high rate of illiteracy in the country. For citizens to fully enjoy the benefits of e-payment systems, they must know how to read and write and also possess basic ICT literacy (Ifunanya & Njideka, 2022). Josephine (2021) attributed the usage of mobile money and internet/web services or platforms to internet connectivity and cost of bandwidth, low internet connectivity and high cost of band width as a major issue affecting the use of mobile money and internet/ web services in Nigeria.
More so, most of the past studies on e-payment system such as Ehiedu et al. (2023), Gbanador (2023), Hassan et al. (2023), Umugwaneza and Kising’u (2023), Sharma (2023), Bagudu and Okolie (2022), Ifunanya and Njideka (2022), Okonkwo and Ekwueme (2022), Deekor (2021), Tadesse and Bakala (2021), Wibisono et al. (2019) among others focused on its effectiveness in banking operations, on customers’ satisfaction or improve performance of deposit money banks. Little empirical evident exist on how e-payment system improve economic growth of a developing economy like Nigeria. in line with this, this study focused on the effect of e-payment system on economic growth of Nigeria. In addition, mixed reactions on the effect of e-payment system in relation to the economy or its components were recorded in the growing literature. In line with the conflicting empirical evidences necessitate the need for further studies on the effect of e-payment on economic growth of Nigeria.
1.3 Research Questions
From the statement of the problems, the research questions expected to guide this study are followed as:
How has automated teller machine affect economic growth in Nigeria?
In what ways does point of sales service affect economic growth in Nigeria?
Does mobile banking affect economic growth in Nigeria?
To what extent does online banking affect economic growth in Nigeria?
Objectives of the Study
The broad objective of this study is to examine the effect of e-payment on economic growth with specific focus on Nigerian economy, while the specific objectives are to:
examine the effect of automated teller machine on economic growth in Nigeria;
access the effect of point of sales service on economic growth in Nigeria;
analyze the effect of mobile banking on economic growth in Nigeria;
examine the effect of online banking on economic growth in Nigeria.
access gradual casually test growth in Nigeria
Hypotheses of the Study
From the objectives stated, the hypotheses shall be in null forms:
H01: There is no significant relationship between automated teller machine and economic growth in Nigeria;
H02: Point of sales service has no significant relationship with economic growth in Nigeria;
H03: There is no significant relationship between mobile banking and economic growth in Nigeria.
H04: Online banking has no significant relationship with economic growth in Nigeria;
Significance of the Study
It is well documented that financial and business transactions through payment systems have a direct relationship with rising growth of an economic growth and growth of a country economy (Josephine, 2021). There is no economy that will survive without the transactions of goods and services. The study will contribute in the following ways:
Firstly, the findings will shed more light on the importance of e-payment to the Nigerian economy and the benefits that can be derived from investigating this study. The findings will provide information that will guide policymakers in making decisions on appropriate policies that will improve the use of e-payment systems in order to capture the money in circulation within the banking system and formal market.
Secondly, this work will be of importance to the private sector and general public as it will educate the public and potential investors on the growing potential of payment system users and the potential market they can capture for their businesses or markets. In addition, It also aids security agencies in tracking down and tracing kidnappers and robbers as it places a limit on the cash flowing in the system therefore, making it difficult for them to carry out their nefarious activities and also less attractive to pursue the trade. With the growing level of insecurity in the country, the use of e-payment systems enables the ease of movement and transaction without cash, thereby preventing incidences of robbery and extortion by ill vices in Nigeria. Future researcher will benefit as this study will add to the retinue of literature.
Scope of the Study
The scope of this study is to examine the effect of e-payment on economic growth in Nigeria. The study will use annual time series data covering the period 2009-2022. The base year 2009 preside the year data on electronic payment were reported in the central Bank of Nigeria Statistical Bulletin while the inclusion of 2022 will allow the study to know the prevailing trend on the subject matter. Data on automated teller machine, point of sales, mobile banking, online banking and economic growth were employed and obtained from CBN bulletin, 2022.
Operational Definition of Terms
Automated Teller Machines (ATMs): these are specialized computer terminals, which are connected online to the bank’s Central Computer. ATMs are sometimes known as Auto-banks or cash dispensers. They are normally located outside the bank building, so that they can be accessed outside normal banking hours.
Bank Performance: Bank performance is the achievement of bank objectives measured against known standards, totality and costs.
Cashless Policy: Cashless policy is the ability to carry out transactions without the use of banknotes. It is a policy introduced by the Central Banks to reduce the amount of physical cash in circulation, thereby encouraging the use of electronic platforms for settlement or payment of goods and services.
Deposit Money Banks: Deposit money banks are the most important savings mobilizing and financial resource allocation institutions which are also known as commercial banks are financial institutions that provide services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of activities deposit.
E-banking: Is the use of electronic signals or information technology to provide banking services, such that banks’ customers can consummate certain financial transactions without visiting the bank. E-banking can be also referred to as online banking, cyber banking, virtual banking and net banking.
Electronic Payment (e-payment): This is the way of making transactions or paying for goods and services through an electronic medium, without the use of cash or cheques.
Information Technology (ICT): is the technology which supports the activities involving the creation, storage, manipulation and communication of information together with their related methods, management and application.
Mobile Banking: Mobile banking is an e-banking service provided by a bank or other financial institution that allows its customers to conduct financial transactions remotely using a mobile device such as a smartphone or tablet
Online Banking: Internet or online banking is a financial service that involves conducting banking transactions through the internet. Internet banking is the banking applications that allow customers to access and conduct their financial transactions using the World Wide Web, Wi-Fi technologies and the internet, at a time and place of their choosing.
Pont of Sales (POS): POS is a portable device or machine that enables payment for goods and services using a bank card.
Technology: is a collection of practices, procedures, techniques and devices used in collecting, storing, retrieving, processing, distributing and delivering information and knowledge that foster speed and accuracy in doing things.
Economic Growth
Economic growth as used in this study as an aggregate output that a country can produce within a year in consonance with the market price of the products excluding the cost of production and net income from abroad.
Project – The effect of e-payment system on economic growth – evidence from Nigeria