Accounting Project Topics

The Impact of Cashless Policy on the Performance of Nigeria Financial Institutions

The Impact of Cashless Policy on the Performance of Nigeria Financial Institutions

The Impact of Cashless Policy on the Performance of Nigeria Financial Institutions

Chapter One 

Objectives of the Study

The main objective of the study is to examine the impact of the cashless policy on performance of Financial Institutions in Nigeria and how it affects economic growth. Specific objectives of the study include:

  1. To examine the impact of the cashless policy on performance of financial institutions.
  2. To investigate the effect of the Automated Teller Machine (ATM) on banks profitability.
  3. To determine the impact of point of sale (POS)on banks
  4. To determine the impact of cashless policy on money laundering and corruption.




This chapter deals with the review of related literature. The review was discussed under the following subheadings: concept of a cashless society, concept of economic growth, concept of economic development, concept of CBN cashless policy in Nigeria and theoretical framework.

Conceptual review

Concept of cashless economy

A cashless economy is an environment in which money is spent without being physically carried from one person to the other. The first issue in the cashless economy is the issue of electronic purse. This is electronic information that is transmitted to a device which reveals the information about how much a person has stored in the bank and how much he can spend.

The advantages of a cashless economy are enormous; cost of transportation and the danger of carrying large sum of money about will possibly reduce. The policy, it is claimed by the makers, will enhance the integration of our economy as presently 78.8 percent of the country’s rural populations are largely unbanked.  According to the CBN, this policy, when fully implemented therefore, will drive Nigerian’s huge informal economy which is driven by small scale farmers, traders, craftsmen and other types of small and medium sized businesses and eventually integrate it into the nation’s formal economy.

The move to use electronic cash, commonly dubbed “cashless” however, has its own challenges, which in Nigeria, appear to be accentuated by the perennial problem of inadequate physical and social infrastructure. The introduction of the policy in Nigeria therefore brings up issues that touch on security, privacy, crime and computerization. Societal acceptance of the policy is therefore critical to its sustenance or the tendency to rebel against it by the common man on the street becomes imminent. However, as the financial institutions have implemented such things as debit cards, credit cards, internet banking, etc, it has slowly brought society into the acceptance zone whereby another step could be taken. Without society being able to understand the pros and cons of electronic cash, the full benefit of the cashless society may never be realized.

The cashless policy will potentially result in an extensive application of computer technology in the financial system, as technologies are developing rapidly on the transfer of funds from one place to another. This places the Computer Professional Registration Council at the centre of control and regulation of the emerging technology in our economy.

It has been argued that cashless transactions are viable and more secured mode of payment in any economy. Currently, about 63.7 per cent of Nigerians do not have bank accounts but the new initiative would enhance banking habit among individuals, especially among the rural dwellers so that they can easily transfer money to their people wherever they might be. The high cost of minting the Naira has also necessitated an alternative economic system where less or no cash is required for various transactions. Specifically, the average cost of producing a naira note is about N4.00. Producing N1 billion notes of Nigerian Naira, therefore, means spending N4billion. Hence the cashless policy introduction by CBN to reduce the cost involved in minting the naira as much as possible.

This latest development, according to the apex financial regulatory authority is therefore, coming on the heels of increasing dominance of cash in the economy with its implication for cost of cash management to the banking industry, security, money laundering, among others. The cashless policy itself is the trend in most countries of the world. Almost all the central banks across Africa are bracing up for a cashless economy because almost all African countries have the same problems associated with cash based economy. There is slow processing time involved in counting and queuing for deposits in the bank.

In the other way round, the Naira is not durable and security of handling cash is not guaranteed. Cash is difficult to document because it is difficult to capture all the money in the financial system. About two years ago, a World Bank study revealed that about $10 billion cash transactions that move just between Nigeria, Ghana and Cote de Voire shows no clue about how it comes and how it goes. The transactions were not recorded or reported anywhere in our system. This means government cannot even plan based on that. A cash-based economy encourages money laundering activities. There is also a high level of tax evasion in such an economy.

But the cashless policy is not all roses. It has as much challenges as its benefits. Accordingly, experts and many Nigerians have expressed doubts about the capacity of Nigeria to truly move on progressively as a cashless society. Variously, issues have been raised about the viability of the policy in view of the enormous challenges confronting its effective implementation, and the ability of the CBN to effectively water the storm and carry out the policy as planned.

Concept of cashless society

A cashless society is a culture where no one uses cash, all purchases being made are by credit cards, charge cards, cheques, or direct transfers from one account to another through mobile banking. The cashless society envisioned here refers to the widespread application of computer technology in the financial system.

Electronic cash is a system which allows individuals to purchase goods or services in today’s society without the exchange of anything tangible.  The term money still exists, but it is more in an electronic form than previously. Electronic cash is a term becoming more acceptable as the world makes a shift towards a cashless society.  Since the 1960’s governments and financial institutions globally have made slow, but steady steps towards the goal of a society without cash.  The cashless society is being sold as a more convenient method of payment, and a method of preventing crimes all the way from the robbery of cash from an individual to the extent of money laundering among crime syndicates and cash stockpiling at home by corrupt government officials.

The case may conveniently be made that the future of all businesses, particularly those in the service industry lies in information technology. In fact, information technology has been changing the way companies compete. Banks are companies engaged in banking business. Their future is, therefore, linked to the pervasive influence of information technology.

Information technology is more than computers. It encompasses the data that a business creates and uses as well as a wide spectrum of increasingly convergent and linked technologies that process such data. Information technology thus relates to the application of technical processes in the communication of data.

As earlier noted, information technology can help reduce transaction costs for banks, which will translate to lower prices for services to customers. Information technology for banks takes different forms. The forms include:

(a)   Computerization of customers’ accounts and accounts information storage and retrieval;

(b)   Deposit and withdrawal through Automated Teller Machines (ATMs); and

(c)   Networking to facilitate access to accounts from any branch of the bank.

Further forms include bio-metrics used in finger-printing and handwriting identification which should dispense with the use of passwords or Personal Identification Numbers (PIN) in the initiation of transaction by customers. The use of the internet and websites to bundle a host of services that go beyond traditional financial services which is increasing among banks, is also a product of information technology in banking.

Among other things, the cashless policy will save the banking system the cost of printing, distributing and handling large volume of cash. It is estimated that over 70 per cent of cash in circulation in the Nigerian economy exists outside the formal banking system. It has been argued that cashless policy has cost implications for the economy. Physical cash has life span; it gets destroyed easily. This means government spends a lot of money replacing cash with new ones. If cash is not in the formal system, it can’t be used for lending, but if an aggregate is known, that is, how much money is available to kick-start the economy, it makes lending and production easier.

The cost of funding is also said to be high because the amount in circulation is not captured in a synthesised manner. Part of the reason the CBN is introducing the policy is to reduce the cost of funds by making sure that a significant amount of the capital around is captured in the formal system. With this, when the law of demand and supply sets in, there will be enough cash to lend to individuals, corporate bodies as well as small and medium enterprises. If the apex bank gets the cashless policy right, therefore, it will be a major driving force for business in the years to come in Nigeria. This should be of interest to business owners. The cashless policy is also believed to be a step towards curbing money laundering in the financial system.

Introduction of the cashless policy in Nigeria

At the dawn of January 1, 2012, the pilot scheme of mobile money, one of the financial services introduced by the Central Bank of Nigeria, via a CBN circular Ref. No. COD/DIR/GEN/CIT/05/031 dated 20th April, 2011, to achieve a cashless economy took off in Lagos, the commercial nerve centre of the country. Other financial services under this payment platform are consumer accounts information and updates, alerts, which have been in existence but not widely subscribed to by account holders. Payment of bills, person-to-person transactions and remittances in different forms also form part of the cashless economy drive. With the introduction of the mobile payment, Nigeria is only keying into a fast evolving global payment system. The mobile money platform is a technology driven payment system that will open up several other business opportunities in the economy.

Essentially, mobile money payment system allows users make payments with their GSM phones. It is a savings and transfer system that turns GSM phones into a savings account platform, allowing the owner save money in it and from which withdrawals or transfers could be made. Under the payment system, customers could do their normal basic financial transactions on a daily basis by making payments for goods and services or by engaging in person-to-person transfer directly on their GSM phones. For instance, the system also allows for payment to be made through a mobile phone after purchases have been made at a supermarket or shopping mall. The shop owner in turn, receives instant payment electronically. Through the system, users can also pay utility bills, school fees, flight and hotel bookings, and house rents, among other transactions, using a mobile phone device. One important thing about mobile money is the fact that it thrives on agency network, thereby taking traditional banking and its cumbersome processes in the cities to the streets in sub-urban areas where accredited mobile money agents also operate.

The cashless Nigerian society, when fully implemented, has many benefits. Some of these benefits include:

  • Reduction in money laundering
  • Check on terrorist financing
  • Effectiveness of the monetary policy
  • Creation of more employment opportunities in the financial sector
  • Provision of evidence against bribe givers and takers, especially the civil servants and politicians.
  • Growth in the real sector of the economy. This is because credit will be available for investors.




Research Design

This study employed a descriptive research design method. A regression method of ordinary least square (OLS), Augmented Dickey Fuller unit root test and Johansen co-integration test of research design were adopted to ascertain the effect of the adoption of CBN’s cashless policy in the Nigerian banking industry.

 Population and Sample

A sample of 6 banks was selected from the population of 15 banks listed in the Nigerian Stock exchange for a period of 6 years from 2009-2014.




The computed values of these statistics are reported in Table 4.1 below:




Cashless policy particularly the use of ATM increases the ROA of the bank through a cashless approach. This implies that as POS usage volume increase, it increases the ROA of the bank through a cashless approach. As well cashless policy also increases the volume of the use of ATM.As ATM usage volume increased, it increases the ROE of the bank through a cashless approach. From the data collected and analyzed, it is safe to conclude that the deployment of ICT enhances the application of various policies such as the cashless policy for improving bank performance. It is therefore recommended that the cashless policy should be strengthened and all bottle necks like poor power supply and all loopholes that could lead to fraudulent exposure be tactically proactively tackled.


More electronic payment devices like ATM and POS should be acquired and installed in remote areas to facilitate quick banking transactions and banking inclusion while the (CBN) as well as commercial banks should increase its awareness to the Nigerian Public and encourage literacy among bank customers in Nigeria to enable them appreciate and embrace policies that rely on information technology for banking transactions.


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