The Impact of Cashless Policy on the Performance of Small and Medium-scale Enterprises in Nigeria
Chapter One
Objectives of the Study
The primary objective of this study is to examine the impact of the cashless policy on the performance of SMEs in Nigeria. Specifically, the study seeks to:
- Investigate the impact of the cashless policy on the profitability of SMEs in Nigeria.
- Assess the influence of the cashless policy on customer satisfaction among SMEs.
- Identify the challenges associated with the adoption of cashless transactions by SMEs and their effects on business performance.
CHAPTER TWO
LITERATURE REVIEW
Conceptual Review
Concept of Cashless Policy
The cashless policy is a financial framework aimed at minimizing the use of physical cash for transactions while promoting the adoption of digital payment systems. According to Ovat (2023), the Central Bank of Nigeria (CBN) introduced the cashless policy in 2012 to modernize the payment system, enhance financial inclusion, and reduce the cost of banking services. This policy encourages the use of electronic channels such as Point of Sale (POS) systems, mobile banking, internet banking, and Automated Teller Machines (ATMs) to facilitate transactions.
The primary objectives of the cashless policy include reducing the risks associated with handling large sums of physical cash, improving payment efficiency, curbing money laundering, enhancing transparency, and fostering economic growth (Taiwo et al., 2023). Additionally, the policy aims to drive financial inclusion by providing convenient access to financial services for underserved populations, particularly in rural areas (Smedan, 2022).
Despite its objectives, the cashless policy has faced criticisms. Siyanbola (2024) argues that infrastructural challenges, high transaction fees, poor internet connectivity, and limited digital literacy are significant barriers to successful implementation. Furthermore, Umanhonlen et al. (2015) highlight that the policy may inadvertently exclude individuals and businesses without access to digital technologies, thereby widening the financial exclusion gap.
The relevance of the cashless policy to Small and Medium Scale Enterprises (SMEs) cannot be overemphasized. According to Taiwo et al. (2023), the policy provides SMEs with opportunities to enhance operational efficiency, reduce transaction costs, and access broader markets through electronic payment systems. However, Simon & Thomas (2024) note that the challenges associated with adopting cashless transactions, such as security concerns and high maintenance costs, may hinder SMEs’ effective utilization of the policy.
The limitations of the cashless policy include technological inadequacies, lack of adequate awareness, cyber-security risks, and the reluctance of some business owners to transition from cash-based systems (Ovat, 2023). These limitations suggest the need for ongoing improvement in infrastructure, education, and regulatory support to maximize the benefits of the cashless policy for SMEs.
CHAPTER THREE
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METHODOLOGY
Research Design
This study adopted a quantitative survey research design. According to Saunders, Lewis, and Thornhill (2019), quantitative research involves the systematic collection and analysis of numerical data to identify patterns, relationships, or trends. The choice of a survey research design is justified by its suitability for collecting large amounts of data from a significant population within a relatively short period (Creswell & Creswell, 2018). Moreover, the survey approach is considered appropriate for this study as it provides a structured method for gathering factual data and opinions from respondents through standardized questionnaires. This approach allows for statistical inference, enhancing the reliability and validity of the findings (Frankfort-Nachmias, Nachmias, & DeWaard, 2021).
Study Settings
The study was conducted in [mention the specific location or geographical area, e.g., urban and rural areas of Ogun State, Nigeria]. This area was selected because of the increasing adoption of cashless policies and the high concentration of small and medium-sized enterprises (SMEs) actively involved in various economic activities. Additionally, the region’s diverse socioeconomic composition provides an ideal setting for examining the determinants of e-commerce adoption and the performance of SMEs (Bell, 2022).
Population of the Study
The target population for this study consisted of 2000 respondents, primarily SME owners, managers, and employees who are directly involved in the adoption of cashless policies in their business operations. The selection of this population was justified by their firsthand experience and knowledge of the research phenomenon, making them suitable participants for this study (Saunders, Lewis, & Thornhill, 2019). The study focused on SMEs because they constitute a substantial portion of the Nigerian economy and their performance is critical to economic growth and development (Gray, 2018).
CHAPTER FOUR
DATA PRESENTATION ANALYSIS AND DISCUSSION
Data Presentation
Demographic Distribution of Respondents
Table 4.1: Data Analysis on the Demographic Information of Respondents
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary of Findings
This study aimed to examine the impact of the cashless policy on the performance of Small and Medium Enterprises (SMEs) in Nigeria. The research sought to address three key areas: the influence of the cashless policy on the profitability of SMEs, its effect on customer satisfaction, and the challenges faced in implementing cashless payment systems. Through the administration of structured questionnaires and statistical analysis using SPSS27, the findings have been systematically presented and analyzed.
The first research question focused on the impact of the cashless policy on the profitability of SMEs. The findings from the survey indicate that the adoption of cashless payment systems positively influences the profitability of SMEs. A significant proportion of respondents agreed that cashless transactions have improved business efficiency by reducing operational costs associated with handling cash and enhancing financial management practices. Additionally, the adoption of various electronic payment channels such as mobile banking, online transfers, and Point-of-Sale (POS) systems has increased sales and revenue generation for businesses. The results from the one-sample t-test analysis confirmed that the impact of the cashless policy on profitability is statistically significant, demonstrating that the adoption of cashless transactions contributes to improved business performance.
The second research question examined the effect of cashless transactions on customer satisfaction. The findings reveal that the implementation of cashless systems has enhanced customer satisfaction in various ways. Respondents indicated that cashless transactions have made business operations more convenient and efficient, thereby improving customer experiences. The availability of multiple payment options was identified as a critical factor contributing to customer satisfaction. Customers are increasingly preferring cashless payment methods for their transactions due to the speed, convenience, and safety associated with such systems.
However, the findings also reveal that certain factors negatively affect customer satisfaction. Specifically, delays in processing cashless transactions were noted as a significant challenge. Technical issues such as network downtime, poor connectivity, and system errors often result in prolonged transaction times, which frustrate customers and diminish their overall experience. Despite these challenges, the findings indicate that businesses that have successfully adopted cashless systems enjoy higher levels of customer retention and satisfaction. The statistical analysis further supports the assertion that the influence of the cashless policy on customer satisfaction is significant.
The third research question addressed the challenges faced by SMEs in implementing cashless payment systems. The findings highlight several barriers that hinder the smooth adoption and operation of cashless transactions. One of the most prominent challenges identified is poor network coverage, which affects the efficiency of electronic payment systems. Many respondents reported that network failures during transactions lead to delays, interruptions, and dissatisfaction among customers.
Another significant challenge is the high transaction charges associated with cashless payments. SMEs often face difficulties in managing the costs of processing payments through POS systems, mobile banking, and online transfers. High transaction fees can significantly reduce profit margins, particularly for small-scale businesses that operate with limited financial resources. The findings indicate that reducing transaction costs is essential to improve the profitability and sustainability of SMEs under the cashless policy framework.
Furthermore, limited knowledge of cashless systems among customers was highlighted as a barrier to widespread adoption. A considerable number of respondents reported that some customers are not fully aware of how to use various electronic payment channels. This knowledge gap often results in customers avoiding cashless transactions, thereby reducing the overall effectiveness of the policy. Educating customers about the benefits and usage of cashless systems is essential to drive broader acceptance and enhance business performance.
Technological infrastructure inadequacies also emerged as a major challenge. SMEs operating in areas with limited access to technological facilities and reliable internet services are at a disadvantage when it comes to implementing cashless transactions. The lack of adequate infrastructure not only affects transaction speed but also increases the risk of fraud and other security-related issues.
In addition to technological challenges, regulatory policies were identified as another factor complicating the adoption of cashless systems. Some respondents expressed concerns about the complexity of compliance requirements, especially when dealing with tax-related issues and data privacy regulations. The findings suggest that simplifying regulatory processes and providing adequate support for SMEs could enhance the successful implementation of cashless policies.
The results of the one-sample t-test analysis further confirm the significance of these findings. All three research questions produced statistically significant results, indicating that the impact of the cashless policy on profitability, customer satisfaction, and business performance is substantial. The challenges identified in the study need to be addressed to fully realize the potential benefits of cashless systems for SMEs.
Overall, the findings of this study suggest that the adoption of the cashless policy has positively impacted SMEs in Nigeria by enhancing profitability, improving customer satisfaction, and streamlining business operations. However, several challenges remain, particularly in terms of network reliability, transaction costs, technological infrastructure, customer education, and regulatory compliance. Addressing these challenges will be critical to ensuring the long-term success and sustainability of the cashless policy in enhancing the performance of SMEs across the country.
Implications of the Findings
The findings of this study have significant implications for various stakeholders, including SMEs, policymakers, financial institutions, and technology service providers. The implications are centered on profitability enhancement, customer satisfaction improvement, technological infrastructure development, cost management, and policy formulation.
Firstly, the positive impact of the cashless policy on the profitability of SMEs suggests that businesses can enhance their revenue generation and financial management by adopting cashless payment systems. The reduction in operational costs associated with cash handling, improved transaction speed, and enhanced record-keeping are critical factors contributing to profitability. SMEs that embrace cashless transactions are likely to experience better financial management and accountability, making them more attractive to investors and financial institutions for funding opportunities. Therefore, business owners and managers should be encouraged to adopt and optimize cashless payment systems to enhance profitability.
Secondly, the finding that cashless systems contribute positively to customer satisfaction has implications for improving service delivery and competitiveness among SMEs. Customers’ preference for convenient, secure, and efficient payment methods highlights the need for businesses to diversify their payment options and enhance their service quality. SMEs should prioritize investments in reliable electronic payment systems to attract and retain customers. Providing multiple payment channels, including POS systems, mobile banking, and online transfers, can enhance customer experiences and loyalty. Additionally, educating customers about the usage and benefits of cashless systems is essential to foster broader acceptance and adoption.
However, the study also highlights critical challenges faced by SMEs in implementing cashless payment systems. Poor network coverage, high transaction charges, limited customer knowledge, inadequate technological infrastructure, and complex regulatory policies are significant barriers to the effective adoption of cashless transactions. Addressing these challenges requires a collaborative effort between various stakeholders.
For policymakers, the findings imply the need to establish favorable regulatory frameworks that support the seamless adoption of cashless systems. Simplifying compliance requirements, particularly in areas of taxation, data privacy, and fraud prevention, is crucial to promoting the growth and sustainability of SMEs under the cashless policy framework. Policymakers should also consider providing incentives to SMEs that adopt electronic payment systems, such as tax breaks or reduced transaction charges, to encourage broader adoption and ease financial burdens.
Financial institutions and technology service providers also have critical roles to play in improving the effectiveness of cashless transactions. High transaction charges remain a major concern for SMEs, and financial institutions should consider introducing more affordable transaction packages tailored to the financial capacity of small businesses. Moreover, enhancing network reliability and reducing downtime during transactions are essential to ensuring customer satisfaction and business efficiency. Collaborating with internet service providers to improve network coverage, particularly in rural areas, would go a long way in boosting the success of cashless systems.
From a technological standpoint, there is a pressing need for continuous innovation and the development of more robust and user-friendly electronic payment platforms. Technology service providers should focus on improving the accessibility, security, and usability of these systems to minimize transaction errors and security breaches. Additionally, integrating training and awareness programs into the deployment of cashless systems will help bridge the knowledge gap and enhance user experience.
Furthermore, the findings underscore the importance of customer education as a critical component of the successful implementation of cashless policies. SMEs and stakeholders should organize campaigns and workshops to sensitize customers on the benefits of cashless transactions, how to use various payment platforms, and safety precautions to adopt when making electronic payments. Educating customers will not only enhance their satisfaction but also promote widespread acceptance of cashless systems.
Overall, the findings imply that while the cashless policy holds substantial potential for improving the performance of SMEs in Nigeria, several challenges must be addressed to maximize the benefits. Collaborative efforts between the government, financial institutions, technology providers, and SMEs are necessary to ensure that cashless systems are accessible, affordable, efficient, and widely accepted. Addressing the highlighted challenges will be essential for achieving the intended objectives of the cashless policy, thereby contributing to the growth and sustainability of SMEs in the Nigerian economy.
Conclusion
The findings of this study have demonstrated that the adoption of cashless policies has a significant impact on the performance of Small and Medium Scale Enterprises (SMEs) in Nigeria. The results from the hypotheses tested reveal that cashless transactions positively influence the profitability and customer satisfaction of SMEs. The use of electronic payment systems has improved efficiency, enhanced service delivery, and promoted business growth among SMEs. Additionally, the availability of multiple payment options has contributed to higher customer satisfaction and retention rates.
However, the study also identified critical challenges hindering the effective implementation of cashless systems. These challenges include poor network coverage, high transaction charges, limited knowledge of cashless systems, inadequate technological infrastructure, and complex regulatory frameworks. Addressing these challenges will be essential for maximizing the benefits of cashless policies for SMEs.
Overall, the study concludes that while the cashless policy presents substantial opportunities for enhancing SME performance in Nigeria, efforts must be made to address the identified challenges. Collaboration between the government, financial institutions, technology providers, and SMEs is crucial to ensure a smooth transition to a cashless economy, thereby contributing to the growth and sustainability of SMEs in Nigeria.
Recommendations
Based on the findings of this study, the following recommendations are made:
- Improvement of Technological Infrastructure: The government, in collaboration with telecommunication companies and financial institutions, should invest in improving network infrastructure to enhance the efficiency and reliability of cashless payment systems. Expanding network coverage and ensuring stable internet connectivity will minimize transaction delays and improve user experience.
- Reduction of Transaction Charges: Financial service providers should consider revising transaction charges associated with cashless payments, making them more affordable for SMEs. Regulatory bodies should also monitor and regulate fees to ensure fairness and encourage wider adoption of cashless systems by businesses.
- Awareness and Training Programs: Comprehensive awareness campaigns and training programs should be organized to educate SMEs and their customers about the benefits, usage, and security of cashless payment systems. Financial literacy programs can also be incorporated to build confidence and promote the effective use of these systems.
- Strengthening Regulatory Frameworks: Policymakers should streamline regulatory policies related to cashless transactions to reduce complexity and enhance compliance. Clear guidelines and supportive policies that encourage innovation and address existing challenges should be established to facilitate a smooth transition to a cashless economy.
- Collaboration Between Stakeholders: Effective collaboration between government agencies, financial institutions, technology providers, and SMEs is essential to address challenges and optimize the benefits of cashless transactions. Public-private partnerships should be promoted to enhance the adoption and sustainability of cashless policies across the country.
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