Banking and Finance Project Topics

Assessment of Cashless Banking in Nigeria Challenges, Benefit and Policy Implementation

Assessment of Cashless Banking in Nigeria Challenges, Benefit and Policy Implementation

Assessment of Cashless Banking in Nigeria Challenges, Benefit and Policy Implementation

Chapter One


The following are the primary objective of this study:

  1. To assess the challenges of cashless banking in Nigeria
  2. To examine the benefits of this cashless banking in Nigeria
  3. To assess the policy implication of cashless banking in Nigeria




In examining the implications of cash-less system, it is necessary to review how conventional money has evolved over time. Money performs a number of roles in economic activity; it is a unit of account, store of value, medium of exchange and means of deferred payment. Also, money has evolved over the centuries to minimize the friction of transaction costs that are involved in mediating exchange. In fact, the process can be observed from the development of the very first monetary products. For instance, conducting economic transactions in barter economies involved high transaction costs as considerable time and effort was required in finding suitable partner. Subsequently, another facet in the evolution of money was the need for fungibility and divisibility. Hence, the advent of study money (notes and coins) made the process less costly by allowing people specialize in production based on their strengths and by enabling the monetary authorities to mint coins in convenient denominations, thereby creating divisibility (Baddeley, 2004). However, there has been drift towards electronic money, which is quite difficult to define because it blends technological and economic characteristics (Basel Committee, 1998; BIS, 1996). According to ECB (1998), electronic money is broadly defined as an electronic store of monetary value on a technical device that may be widely used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transactions, but acting as a prepaid bearer instrument. Analogous to this definition is that of cashless economy wherein there exist no notes and coins issued by central banks but by private financial institutions (Costa and De Grauwe, 2001). Several scholars have attempted to analyze the cashless system or e-banking. However, it becomes clear that few studies present a comprehensive evaluation of cash-less banking implications in developing countries. Most ignore its economic benefits of the equation while some do incomplete examination of its negative implications. This is often due to unreliable panel data for monetary and macroeconomic indicators. Although, this study focuses on Nigeria, it is difficult to translate cashless studies from one country to another. Even payments instruments that look similar across countries on the surface may be different due to historical and legal variations (Daniel et al, 2004). On theoretical side, early studies in this regard attempted to explain the root cause of price indeterminacy, some of which are Fisher (1896) and Patinkin (1965). It established the following basic result: for any given real demand for money, there are infinitely many combinations of money stock and price levels that will do the job of bringing about money market equilibrium. In other words, economic agents do not care whether additional money desires are realized by increases in money stock or declines in price level. Also, Humphrey and Berger (1990) present one of the earliest attempts to comprehensively estimate the private and social costs for nine separate payment instrumentscash, cheques, credit cards, money orders, point of sale (POS), Automated Clearing House Transfers (ACH), ATM bill payments, travelers‘ cheques and wire transfers. They find that from a social cost perspective, cash is the cheapest payment instrument, followed by ACH, POS and ATM bill payment. From a private perspective, cheques emerge as the cheapest payment method followed by cash, ACH and POS bill payments. However, the influence of government intervention was prematurely considered as there was no calculation of net benefits of such payments instruments (Daniel et al, 2004). In recent times, there is a consensus that central banks have the capacity to control the price level. One of the approaches is through controlling money supply (advocated by monetarists) and has led many central banks to implement money-supply-targeting procedures (Claudia, 2001). Another approach is the Taylor-principle, which is, adjusting short-term interest rate in response to movements in expected inflation and state of economic activity, as shown in Taylor (1993), Clarida et al (1997) and Woodford (2003). Looking at empirical issues, however, in a cashless economy, money demand equation can be derived without influencing output and inflation (Gali, 2008). In this case, money plays the role of a unit of account and the amount of real money balances follows residually after output, inflation and interest rate have been determined. In examining the cost implications of cashless banking instruments, Gresvik and Owre (2002) studied how much it costs Norwegian banks to process various payment instruments. It finds that payment cards used for cash withdrawals at ATMs cost considerably more since the transactions involve cash replenishment, maintenance and security costs. In addition, the cost of using cheques for cash withdrawals was found to be three times more expensive than cash withdrawals at ATMs. Cross country studies such as Humphrey et al (1996) analyzed patterns in the use of cash and other e-payment instruments in 14 developed countries, including the US. Whilst treating payment instruments as if they were traditional goods, the authors construct measures of the cost (analogous to prices) of various payment methods in order to study whether differences in cashless instrument usage across countries can be explained by differences in the relative prices of such instruments. The result showed that such price differences failed to determine the usage of e-banking instruments. In other words, the ―convenience‖ of using a particular instrument—a factor that is not measured — may outweigh the price differences that users face (Carrow and Staten, 2000). In another study comparing costs across nations, De Grauwe et al (2000) examined the costs of cash and payment cards in Iceland and Belgium. These countries were selected because they provide a clear contrast as Iceland has one of the lowest rate of cash usage while Belgium is at the other extreme. For the cash payment system in Iceland, the study estimate the cash production and distribution costs incurred by Central Bank and the subtract the revenues obtained through interest foregone on cash in circulation whereas, for the cardbased system, they examine the card companies, commercial and savings banks, cardholders and merchants. From a social perspective, it was concluded that a card-based system is considerably more efficient than a cash-based system for two reasons. First, diseconomies of scale in cash supply rises as cards displace cash, while economies of scale improve for cards. Secondly, the displacement relegates cash to smaller transactions because smaller transactions must cover the fixed costs of the cash system. Recent empirical studies such as Kriwoluzky and Stoltenberg (2010) attempted to estimate the cashless and monetary economy in US by employing Bayesian estimation techniques. The data set, which was split into two parts, ranged from first quarter 1964 to third quarter 2009, as done in Lubik and Schorheide (2004); Clarida et al (2000). Whilst treating GDP deflator, output per capita and real wages as observable, its findings suggest that interest rate policy was passive in the monetary but active in the cashless economy. According to Gali and Gambetti (2009), volatilities in output and inflation declined due to observed loss in the predictive power of money in a monetary economy. A similar conclusion was also reached by Stock and Watson (2002) , Kim and Nelson (1999). In assessing the role of central bank in a cashless society, Claudia and De Grauwe (2001) stressed that central banks gradually lose their monopoly position in the provision of liquidity combined with its subsequent small size which makes it hard to control the shortterm interest rates. On the contrary, Marco and Bandiera (2004) argue that increased usage of cashless banking instruments strengthens monetary policy effectiveness and that the current level of e-money usage does not pose a threat to the stability of the financial system. However, it does conclude that central banks can lose control over monetary policy if the government does not run a responsible fiscal policy.






In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.

This study was carried to examine Assessment of Cashless Banking in Nigeria Challenges, Benefit and Policy Implementation. First bank, Uyo forms the population of the study.




This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.




It is important to ascertain that the objective of this study was to ascertain Assessment of Cashless Banking in Nigeria Challenges, Benefit and Policy Implementation. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of Cashless Banking in Nigeria Challenges, Benefit and Policy Implementation


This study was on assessment of Cashless Banking in Nigeria Challenges, Benefit and Policy Implementation. Three objectives were raised which included: To assess the challenges of cashless banking in Nigeria, to examine the benefits of this cashless banking in Nigeria and to assess the policy implication of cashless banking in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from first bank, Uyo. Hypothesis was tested using Chi-Square statistical tool (SPSS).


 This study examined the new cashless banking policy in Nigeria with a view to ascertain the policy implications as well as to evaluate other policies of the Central Bank of Nigeria. It was motivated by a number of considerations. First, is that the financial sector has witnessed so many reforms without commensurate improvements in the standard of living of Nigerians. Secondly, there has been disagreement on what form of money should guarantee the effectiveness of monetary policy. In order to achieve the objectives of this study, the method of simple descriptive analysis were performed. The study also presented a review of literature on the research topic by ascertaining the strengths and criticisms of previous relevant studies. Here, most researchers took a onesided look by examining either the benefits or the costs of cashless banking while the others did not examine comprehensively the policy implications of cashless banking. However, this was able to fill that gap. The development of innovative cashless banking has the potential to transform economic activity and achieve developmental goals. If an effective cashless banking system can be developed and the above recommendations are carried out then it will have desired impact on the Nigerian economy. Therefore, trusted central banks and governments must play a key role in promoting the development of popular forms of e-banking channels. This study concludes with a final observation about the central bank‘s role in the development of the payments system. Over the next decade, there would be progress towards a cashless or study-less society both in Nigeria and other countries. In the presence of these trends, the responsibility of central bankers is to anticipate such change and channel it in such a way to ensure the safety, efficiency and effectiveness of domestic and international banking system.


Regular awareness campaign to educate the public on the cashless banking channels and security measures that protects the users from electronic theft.

Consistent and effective appraisal of cashless banking operations. Basically, such appraisals should be quantitative and qualitative in nature. Effective regulatory measures should be continuously implemented at the domestic and international level. In other words, legal, regulatory and economic policy frameworks should evolve to cope with these new cashless banking products.

The Central Bank of Nigeria should redesign its monetary policy framework in such a way to recognize the effects of reduced production of currency notes.

Individual and collective analysis should be made of the various e-banking channels to determine relative impact on the economy.

The aforementioned stakeholders as well as the law enforcement agencies should work co-operatively to give life to the cashless banking policy‘. This is because they have significant individual roles to play.

Harmonization of monetary and fiscal policy. in essence, the federal government should not pursue contractionary/expansionary fiscal policy while the CBN embarks on expansionary/contractionary monetary policy.

Fair competition should be allowed in order to prevent monopoly-like‘ behavior by the licensed POS manufacturers.


  • Ajayi, S. I. and O. O. Ojo (2006), ―Money and Banking: Analysis and Policy in the Nigerian Context‖, Second Edition, University of Ibadan, Daily Graphics Nigeria Ltd.
  • Alan Greenspan (2007), ―The Age of Turbulence‖, Adventures in a New World
  • Baddeley, M. (2004), ―Using E-Cash in the New Economy: An Economic Analysis of Micropayment Systems‖, Journal of Electronic Commerce Research, Vol. 5, No.4, UK, Cambridge.
  • Bank for International Settlements, (1996), ―Implications for Central Banks of the Development of Electronic Money‖,
  • Basel Basel Committee, (1998), ―Risk Management for Electronic Banking and Electronic Money Activities‖, Basel Committee Publications, No. 35 Bayesian Approach
  • Based On A Markov-Switching Model of the Business Cycle,‖ The Review of Economics and Statistics, 81(4), 608–616.
  • Carow, K. A. and M. E. Staten (2000, ―Plastic Choices: Consumer Usage of BankCards Vs Proprietary Credit Cards‖, Working Study, April
  •  Central Bank of Nigeria (2011), Money Market Indicators & Money and Credit Statistics, CBN Statistical Bulletin, CBN Publications
  • Central Bank of Nigeria Website (2011), ―New Cash Policy, Presentation for the Interactive Engagement Session with Stakeholders on Cash-Less Lagos, Stakeholder Session – Supermarket Operators
  • Clarida, R., Gali, J., and Gertler (1997), ―Monetary Policy Rules in Practice:Some International Evidence, CEPR Discussion Study, No. 1750.
  • Clarida, R., J. Gal´ı, and M. Gertler (2000), ―Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory,‖ The Quarterly Journal of Economics, 115(1), 147– 180.