The Impact of Cashless Policy on the Economic Growth of Nigeria
Chapter One
Objectives of The Study
The main objective of the study is to examine the impact of the cashless policy on the economy of Nigeria and how it affects economic growth. Specific objectives of the study include:
To examine the impact of the cashless policy on economic growth of Nigeria.
To examine the various challenges associated with the implementation of the cashless policy/banking.
To proffer suggestions on how cashless policy and other monetary policies can be managed for better contribution to the economic growth and development of Nigeria.
CHAPTER TWO
LITERATURE REVIEW
Conceptual Issues
Ejiofor and Rasaki (2012) sees the cashless system as one with the ability to store money in an electronic purse or a card which is then used to purchase product at vending machine, or at any point of sales terminal located within the business premises. Cashless economy is one in which there are assumed to be no transaction frictions that can be reduced through the use of money balances, and that accordingly provide a reason for holding such balances even when they earn rate of return (Woodford, 2003 cited in Omotunde, Sunday & John-Dewole, 2013).
The cashless economy is a system in which transactions are not done predominantly in exchange for actual cash (Akhalumeh & Ohiokha, 2012). It is essentially a mobile money payment system which allows users to make payment through GSM phones with internet facilities. This system increases convenience, create more service options, reduces risk of cash- related crimes and provide cheaper access to banking services and access to credit (Yaqub, Bello, Adenuga & Ogundeji, 2013). According to Cobb (2005) efficient, safe and convenient electronic payment carry with them a significant range of macro – economic benefits while the high level of cash transactions creates an opportunity for the electronic payment industry, it also imposes a cost on local economies. Cash has to be minted, securely transported, counted and reconciled, kept secure and maintained for re-use time and time again. The per-payment cost is high and will always remain high whereas the costs of electronic system are fixed. Once the infrastructure has been built, the costs per transaction are very low. When cardholders use their cards at the point of sale they are helping to keep money in the banking system.
Cashless economy is not the complete absence of cash, it is an economic setting in which goods and services are bought and paid for through electronic media. Woodford (2003) defined cashless economy as one in which there are assumed to be no transactions frictions that can be reduced through the use of money balances, and that accordingly provide a reason for holding such balances even when they earn rate of return. In a cashless economy, how much cash in your wallet is practically irrelevant. You can pay for your purchases by any one of a plethora of credit cards or bank transfer. It has been observed that developed countries of the world, to a large extent, are moving away from paper payment toward electronic instrument especially payment cards. Some aspects of the functioning of the cashless economy are enhanced by e-finance, e-money, e-brokering and e-exchanges. These are all transactions and payments effected in a cashless economy (Roth, 2010 & Moses-Ashike 2011).
Humphrey (2004) observed that developed countries of the world to a large extent, are moving away from paper payment instruments toward electronic ones, especially payment cards. Some aspects of the functioning of the cashless economy are enhanced by e-finance, e-money, e- brokering and e-exchanges. All these media refer to how transactions and payments are effected in a cashless economy (Moses-Ashike, 2011). 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. For the cashless economy to work effectively, illiteracy which is a serious impediment for the adoption of e-payment need to be reduced to the bearest minimum and also the cost of internet which must be supported with uninterrupted power supply along with the acceptance of new technology among customer’s and staff. Ifeakandu (2011) agrees with this submission when he pointed that problems associated with the operation of cashless economy are communication issues like power, ICT and uptime payment platform and the interoperability of networks.
The Central Bank of Nigeria and other regulatory agencies in the financial sector must ensure that service providers adhere to minimum security standards on their web-based platform, as security issue is a major challenge in the development of the cashless system (Mieseigha & Ogbodo, 2013). Akhalumeh and Ohiokha (2012) in a related study found that limited POS/ATM constitute a problem of the cashless system, this was why they opined in their study in 2012 that provision of adequate terminals and Automated Teller Machines (ATMs) are essentials of a cashless economy, this submission was supported by the CBN in their directive to banks and independent service providers to deploy more ATMs and ensure their efficiency for a smooth implementation of the cashless policy (Ejiofor & Rasaki 2012). These data verify the claim of Echekoba and Ezu (2012) on the problem of cash based economy and cashless policy in Nigeria. For effective cashless implementation in Nigeria availability of sufficient and well-functioning infrastructure (notably electricity), harmonization of fiscal and monetary policy, regular assessment of the performance of cashless banking channels, consideration of the present state and structure of the economy, redesign of monetary policy framework and greater efforts towards economic growth whilst managing inflation should be considered (Odior & Banuso, 2013).
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Money is often described as having three functions such as a unit of account function, a medium of-exchange function and a store-of-value function. In a cashless economy, the third is not operative and probably, neither is the second. Cashless economy does not refer to an outright absence of cash transactions in the economic setting but one in which the amount of cash-based transactions are kept to the barest minimum. It is an economic system in which transactions are not done predominantly in exchange for actual cash (Ezeamama, Ndubuisi, Marire & Mgbodile 2014). A cashless society possesses the following characteristics;. All the money used is issued by private financial institutions (banks, and possibly other firms). It is conceivable that the central bank continues to operate like other banks, issuing its own deposits that could be used as money in the same way as other bank deposits are. However, in that case the central bank has no monopoly in the issue of Money. In a cashless society the unit of account (e.g. Dollar, euro) remains a national affair and is provided by the state. The followings among others enhance the functioning of cashless economy; e-finance, e-banking, e-money, e- brokering, e-exchanges etc. In a modern economy, the use of noncash payment methods such as cards (credit and debit) dominates the use of cash in payments (Ezeamama, Ndubuisi, Marire & Mgbodile, 2014).
Giving conceptual clarifications on issues on e-banking product and services in modern day economy will help in understanding the efficacy of the classless policy in Nigeria. Point of Sale (POS) terminals is the mode of e-banking that handles Cheque verification, credit authorization, cash deposit and withdrawal, and cash payment. It enhances electronic fund transfer at the point of sales. Thus customers account would be debited immediately with the cost of purchase in an outlet such as a petrol station or supermarket. The implication of this is that customers can make payment for goods and services without necessarily coming in contact with physical cash as the purchase price would be debited on the buyer’s card account and credited on the seller’s account. They are indeed alternatives to handling or transacting cash for transfers and for payments of goods and services purchased. POS terminals allow merchants access to card payments for sale of products and services e.g recharge cards, bill payments, lottery tickets etc.
CHAPTER THREE
Research Methods
Theoretical Framework
Technology Acceptance Model (TAM) and Diffusion of Innovation (DOI) Theory
The theoretical framework of this study is Technology Acceptance Model (TAM) and Diffusion of Innovation (DOI) Theory. TAM and DOI are information systems theories that model how users come to accept and use a technology that encourage economic growth (Ajayi, 2014). The Mechanics of the Cashless Policy in Nigeria on cashless policy is an alternative to cash transactions through electronic means using information and communications technology (ICT) (Acha, Kanu & Agu, 2017).
Ndifon and Okpa (2014) maintain that the future of all business, particularly those in the service industry lies in information technology. This technology as far as cashless policy is concerned is not only computer. Information technology for banks takes different forms; computerization of customers’ accounts and account information storage and retrieval; deposit and withdrawal through Automated Teller Machines (ATMs); and networking to facilitate access to accounts from any branch of the bank, bio-metrics, use of mobile phones to consummate transactions, internet, and websites. It also involves the use of credit cards, debit cards, mobile pay and many other forms of payment, but always only in digital ways, as paper currency does not come into play (Acha, Kanu & Agu, 2017). Babalola (2008) identified seven different electronic payment channels in Nigeria, Automated Teller Machines (ATM), points of sales terminals, mobile voice, web, inter-bank branch and kiosks. Ogbuji, Onuoha and Izogo (2012) noted that ATM allows a bank customer to conduct his/her banking transactions from almost every other ATM machine in the world.
CHAPTER FOUR
Data Presentation, Analysis and Discussion of Results
The economic and electronic payments systems data used for the estimation of the cashless economy in Nigeria are presented in Appendix A while the stationarity status of the selected cashless policy indicators and gross domestic product in Nigeria was examined using the Phillips- Perron test. The results which are displayed in Table 1 below show that all the variables are integrated at first difference except NEFT which is integrated at level 1(0). In other words, they are found to be stationary at 1(1). This implies that the hypothesis of non-stationarity is rejected for all the variables at their first difference. This justified the need to test for co-integration.
CHAPTER FIVE
CONCLUSION AND Recommendations
For us to achieve the objective of cashless economy despite its challenges, the following recommendations are made:
- Nigerians should generally accept and appreciate the cashless policy because it will causeeconomic stability and enhance economic development. Cashless economy is beneficial to It will not only result in improved standard of living but increased Gross Domestic Product of the Nation.
- The central bank of Nigeria and the deposit money banks should provide more classlessfacilities / indicators for the country to embrace and find appropriate methods to migrate present permanently from the cash-based operations to electronic payment systems that will enhance the adoption and ultimate utilization cashless policy in
- Collectiveeffort is needed by all Nigerians to achieve this objective, therefore all stakeholders are encouraged to ensure the success of the cashless policy as CBN maintains an active engagement with all, to ensuring seamless transition to our desired cashless
- Deposit money banks should be mindful of customer protection, customer complaint management and dispute resolution strategies on electronic payment transactions which might arise in this early stage of
- There is need for massive sensitization, awareness campaign and enlightenment of people onthe need for and importance of cashless economy. Again, while the authorities strive to consolidate the gains of the cashless system, there is an urgent need to tackle the challenges confronting the full actualization of this policy.
- Unavailability of POS at Purchase centers, transaction difficulties, poor internet access, poorknowledge of how to use the cashless options, regular malfunctioning of machines causing cards to get stuck, nonfunctional machines, long queues, ATM robbery, limited ATM machine, undue charges on usage, and limited access to fund should be addressed by Government, Central Bank, Deposit Money Banks and Security Agencies, these will go a long way to facilitating the realization of a cashless economy.
- Government should provide uninterrupted power supply and adequate communication link while shortfall should be covered by banks through back-up arrangement to power standby generator in case of power outage; 2. Government should also support banks in the aspect of financing the payment system which requires a lot of capital to maintain;
- Government and the CBN should create awareness on the benefits derivable from cashless policy for the improvement of businesses and economic development;
- Skilled manpower and computer experts should be employed by every bank to prevent fraud and hacking of banks’ data to steal customers’ fund; 5. Electronic payment system is capital intensive, therefore banks are encouraged to collaborate to finance some of the infrastructures needed for the smooth implementation of the policy by sharing cost to reduce the initial cost of setting up electronic banking;
- Government should provide adequate security so as to create safe environment that will make people to imbibe the policy.
References
- Acha, .; Kanu, C. and Agu, G.A. (2017). Cashless Policy in Nigeria: The Mechanics, Benefits and Problems. Innovative Journal of Economics and Financial Studies, 1(1): 28-38.
- Adewoye, J.O. (2013). Impact of mobile banking on service delivery in the Nigerian commercial banks. Int. Rev. Manage. Bus. Res., 2(2): 333-344.
- Adeyeye, P.O. and Ajinaja, T. (2014). The Impact of Cashless Policy on Economic Development of Nigeria. IJSSCS (l)1: 96-105.
- Adu, C.A. (2016). Cashless Policy and its Effects on the Nigerian Economy. European Journal of Business, Economics and Accountancy, 4(2): 81-88.
- Ajayi, L.B. (2014). Effect of Cashless Monetary Policy on Nigerian Banking Industry: Issues, Prospects and Challenges. International Business and Finance Management Research, 2(1): 29-41.
- Ajayi, S.I. and Ojo, O.O. (2006). Money and Banking: Analysis and Policy in the Nigerian Context, Second Edition, University of Ibadan, Daily Graphics Nigeria Ltd.
