OVERVIEW OF ELECTRONIC PAYMENT SYSTEM IN NIGERIA-ACCEPTABILITY AND RETAIL PAYMENT SYSTEM

CHAPTER
ONE

1.0.           
INTRODUCTION

1.1.           
Background
of the Study

Since the overthrown of
barter as a form of transaction in the history of mankind, transactions usually
require the interchange of goods or services for a comparable abstract value
such as money. On a daily basis, a large number of transactions are initiated
by a wide range of economic actors in a given economic system. Every
transactions, whether they include the procurement of products, monetary
resources or services have two main settlement elements which are: the delivery
of the products or services, and the release of funds. Consequently, a payment
is a transfer of moneys which releases an obligation from a payer vis-à-vis a payee. A payer is the partner
to a business transaction who issues the payment request or subscribes to the
transfer of moneys to the payee. A payee, also known as the beneficiary is the
final recipient of the moneys.

A study by Sadeghi and
Schneider (Asaolu, Ayoola & Akinkoye, 2011) explains that system for making
payment has been in existence since after the creation of cash as the unique
method for representing value.  In a more
restricted sense, payment system is used as a synonym for “interbank funds
transfer system” but in a general level, it refers to the complete set of
instruments, intermediaries, rules, procedures, and interbank funds transfer
systems which facilitates the circulation of money in a country or currency
area. As contained in a glossary of terms used in payment and settlement
systems (Committee on Payment and Settlement Systems, 2003), a payment system
is made up of a set of instruments, banking procedures and, typically,
interbank funds transfer systems and these guarantee the flow of money in any
economy.

A payment system is
composed of payment activities which are usually carried out by following laid
down plan for actions. The effectiveness of payment activities is fully
dependent on how actions that facilitate fund transfer between members are
arranged.Therefore, payment systems
consist of networks that link the members with established rules and procedures
for the use of the available structure. A Payment System normally requires the
following:

             
i.           
A standard
approach/method for the transmission of payment messages between parties
involved.

           
ii.           
An acceptable
channel/medium/means through which the claim can be transmitted between parties
involved in a transaction.

         
iii.           
Operational rules and
procedures common to members.

Payment
system is a vital part of the economic and financial structure. The key
contributing factors to the overall performance of an economy is the effective
functioning and safety of a payment system. To promote economic growth and
development, an efficient payment system that offers actors in the economy an
opportunity to complete transactions on time should be adopted. A payment
system should be founded on a strong functional legal systems (such as laws,
standards, rules and procedures) laid down by legislator, courts, regulators,
system operators, and central bank overseers.

Payment
system is gradually transiting form traditional payment system to electronic
payment system due to technological improvement in computing and
telecommunication. In the 1960s, the use of electronic distribution network for
the transfer of large sum of money constitutes a frequent practice in the
banking and business sector. Overtime, important technological developments
have taken place, which on one hand have expanded the possibilities of
electronic payment systems and on the other hand have created new business and
social practice which make the use of these systems necessary. The definition
of electronic payments is evolving depending on the needs of each period and
this is as a result of the continuous growth and development in technological.
The term electronic payment can narrowly be described as e-commerce; a payment
for buying and selling of goods or services offered through the Internet, but
in a broad term electronic payment refers to any type of electronic funds
transfer. According to Sumanjeet (2009), any payment made to businesses, bank
or public services from citizens or businesses, which are executed through a
telecommunications or electronic networks using modern technology is known as
electronic payment.

 Electronic Fund Transfer (EFT) was the first
electronic based payment system, which does not depend on a central processing
intermediary. An electronic fund transfer is a financial application of
Electronic Data Interchange (EDI), which sends credit card numbers or
electronic cheques via secured private networks between banks and major
corporations.

(Ojo,
2004) and (Ovia, 2002) in paper presentations disclosed that Nigeria is mainly
a cash-based economy with over 90% of funds residing outside the banking
sector. This is against the backdrop in developed world such as UK and US where
the volume of money in circulation is 4% and 9% respectively. The ability to
instantly convert cash to alternative forms of values without the intermediary
of any financial institutions and the tendency to go unidentified and
untraceable in the case of unethical transactions are perceived as the major
reasons there is such a high volume of money in circulation in the country.

However,
the Central Bank of Nigeria (CBN) has adopted numerous plans so as to reduce
the volume of cash in the economy, promote the adoption of electronic payments
and boost the Nigeria payments system. Electronic payment is a fairly new
phenomenon in Nigeria. It was first introduced to Ministries, Departments and
Agencies by Federal Government because of the overwhelming allegations of
corruption in Federal Civil Service. Through
a circular with reference No TRY/A8 & B8/2008 of 22nd October, 2008, the
Federal Government had instructed that all payments from its Ministries,
Department and Agencies be made electronically as from 1st January,
2009. Electronic payment has grown from its initial usage to an extensive range
of use in Nigeria yet most transactions in the nation are still cash
based.  Poor awareness of e-payment solutions, poor banking principles,
lack of confidence, ignorance and the preference to hold money have been
fingered to be responsible for the low  reception of non-cash transactions among
Nigerian.

Asaolu,
Ayoola & Akinkoye (2011), defined e-payment in the Nigerian context as
effecting payments from one end onto the next end with the use of computer as a
medium and without manual interference apart from inputting the payment information.  In addition, it is also referred to as the
ability to pay the suppliers, merchants and staff salaries electronically at
the touch of a computer keys. To drive Nigerian toward the use of electronic
payment, the CBN has instituted a cashless policy which is expected to decrease
the magnitude of cash in circulation by replacing existing payment system with
e-payment options.

This
research study therefore seeks to create a general outline of the Nigerian e-payment
systems in order to empower individual customers and companies with adequate
knowledge of an alternative system and as such eliminate or decrease a
percentage of the issues that characterize the settlement and payment process. Nwaolisa & Kasie
(2012), clarified that the orderliness in the operation of a
country’s banking and financial system, its economy and the reputation of the
national bank is completely subject to the unwavering quality and proficiency
of its payment system. In spite of the recent notable achievements in
e-payment in Nigeria, the country’s electronic payment system
still requires a ton of improvement in order to promote non-cash based payment
systems. If
one decides to go cashless or cash-lite in Nigeria, it is expected that he/she
should have the knowledge of what payment/transaction options are available in
Nigeria and how they function hence the study is necessary.

1.2.           
Statement
of the Problem

With
the rapid growth in Information and Communication Technology (ICT) across the
globe, techniques for completing business transactions are quickly moving from
a conventional system to an electronic system. Electronic commerce now acts as
an outlet for carrying out business transactions through the use of electronic
means such as Internet connections (Anik & Pathan, 2002).

Notwithstanding, it has
been observed that despite the recent developments and initiatives by the CBN
to automate the Nigerian payment system, the use of cash is still dominant
among the residents of Minna. It is on this background that the research is
conducted to discover the user acceptability of electronic retail payment
system in Minna. 

1.3.           
Aim
and  Objectives of the Study

The aim of the study is
to provide a general summary of the electronic payment system in order to bring
to knowledge the reasons why people still prefer cash-based transactions to the
use of e-payment channels in Nigeria despite the problems associated with
cash-based system.  The objective of the
study is as follows:

1.      To
identify the various types of e-payment channels available in Nigeria.

2.      To
identify the frameworks that supports the Nigerian e-payment system.

3.      To
evaluate the user acceptability of electronic retail payment system in Minna.

4.      To
ascertain the possibility of achieving cashless Nigeria with the available
e-payment system.

Research
Questions

1.      What
e-payment options are available in Minna?

2.      What
is the level of participation in the usage of e-payment options in Minna?

3.      How
do merchants respond to the use of e-payment option by customer?

4.      How
does this system help to accomplish the new CBN cashless policy?

1.4.           
Justification
for the Study

As rightly noted, the
keenness by relevant bodies to make Nigerians adopt electronic payment system
has prompted the introduction of various policies and several channels of
e-payment in order to shift their attention to e-payment system. Nevertheless,
several people still prefer to go about their businesses with cash. Poor
awareness and high level of illiteracy are among the major challenges facing
e-payment system in Nigeria Agbaje & Ayanbadejo (2013). Because the system
requires the transfer of money without the presence of the parties involved,
security assurance to customers is a paramount issue but according to Ayo & Babajide (2006) the problem of the country’s e-payment
system is not the technical know-how to safeguard a secure e-payment
transaction but attitudinal.

Therefore, the
importance of the research is to create more awareness about electronic payment
system in Nigeria so as to provide a general knowledge on Nigerian electronic
payment system, in order to facilitate the adoption of the cashless
policy.  The study is expected to provide
individuals with necessary knowledge regarding the e-payment options and
provide understanding on how to use them for daily transactions.  The research will enable relevant agencies to
take actions in the right direction so as to facilitate the achievement of
vision 2020.

1.6.           
Scope
of the Study

The primary focus of
this study will be on the e-payment options that are functional in
Nigeria.  The study will give emphasis on
payment techniques that employ the services of banks for example ATMs, Internet
banking, mobile money, credit and debit cards, etc. It is impractical to capture
all the paramount details relating to the Nigerian e-payment system in this
research; nevertheless , an insight into some selected payment options can be
beneficial in assisting individuals to understand the distinctive e-payment
solutions available for them.

Meanwhile, the survey
part of the study will concentrate specifically on electronic retail payment
systems as obtainable in Minna.

1.7             
Operational
Definition of Terms

a)                 
Electronic
payment mechanism/instrument: A method or tool used
to execute payments electronically.

b)                 
Electronic
payment system: 
A set of functional groups that ease the transfer of monetary values
from one bank account to another using electronic means.

c)                 
Electronic
payment: Payment executed through a
telecommunications or electronic networks.

d)                
Payment
channels: Any medium that aids the transfer of
money from one account to another without any intermediary e.g. ATM, Mobile
device etc.

e)                 
Payment
institution: An institution that provide
payment services.