ELECTRONIC BANKING AND THE PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA (1990-2016)

Abstract

The study was determined to examine electronic banking and the performance of deposit money banks in Nigeria. The study used the ex-post factor research design to establish relationship between electronic banking and performance of deposit money banks in Nigeria. The non-probability sampling methods such a convenience and purposive sampling were adopted. The secondary source of data was used for this study, and the data were sourced from Central Bank of Nigeria’s annual reports and statistical bulletin. The study covers the period 1990- 2016. The period was considered appropriate because the evolution of electronic banking in Nigeria can be traced to 1986 and officially came into inception in 1996. The multiple Regressions were used to find out whether relationship exists between electronic banking variables and performance variables identified in the study. Findings reveal that there is a significant relationship between electronic banking and the performance of deposit money banks in Nigeria. Based on the findings of the study, it was concluded that Mobile banking leads to the performance of deposit money banks in Nigeria, Telephone banking leads to the performance of deposit money banks in Nigeria and has improved the level of returns on investments by the banking sector, Internet banking leads to the performance of deposit money banks in Nigeria and is another classical form of electronic banking; since it is more secured and accurate and Smart card banking also leads to the performance of deposit money banks in Nigeria. The study recommends that Banks that are yet to fully adopt electronic banking should as matter of urgency do so if they must grow, remain relevant, competitive and profitable, Banks should liaise frequently with their network providers to ensure that there is 24/7 network availability if e-banking adoption must be improved.

CHAPTER 1
INTRODUCTION
1.1 Background to the study

Electronic banking development in Nigeria can be traced to 1986 when the banking sector was deregulated. The result of this deregulation brought far- reaching transformation through computerization and improved bank service delivery (Oluwatolani, Joshua and Philip, 2011:63). Competition with new products became keen within the system while customer sophistication posed a challenge for them, hence the reengineering of processing techniques of business accounts encourage the automation of financial services especially among new generation of commercial and merchant banks (Oluwatolani, Joshua and Philip, 2011:63).
The 21st century has witnessed a dramatic evolution in the financial service industry as a result of the rapid advancement in technological transformation which has become known as e-developments(Fonchamnyo, 2013:166). These changes have engulfed all areas of financial intermediation and financial markets such as e-finance, e-money, electronic banking (e-banking), e-brokering, e-insurance, e-exchange and e-supervision(Fonchamnyo, 2013:166). This new information technology (IT) is turning into the most important factor in the future development of banking, influencing bank’s marketing and business strategies. As a result of rapid advances in IT and intensive competition in the banking sector, the adoption of e-banking is being increasingly used as a channel of distribution for financial services (Fonchamnyo, 2013:166).
Electronic payment system is becoming more acceptable as the world makes shift towards cashless society. An undeniable trend towards the use of electronic cash has been observed in the literature especially in the last two decades (Ayo, C.K., Adewoye, J.O., & Oni, A.A. 2010:37). The world of electronic cash is slowly squeezing out the coins and paper cash (naira, pounds, dollars, rupee, cedi etc,) that we know. The whole society is moving towards a cashless system in which we won’t be dealing with the paper-cash but rather develop new method of electronic transaction in form of smart cards, debit cards, credit cards, ATM cards etc (Hassan, S.U., Mamman, A., & Farouk, M. A. 2013:138).According to Ashaolu, A. (2004:23)banks in Nigeria had augmented their distribution networks with transactional websites, which allow customers to open accounts, apply for loans, and check balances and transfer funds over the internet. This view corroborates the arguments of Brown and Cronin (1995:101) that electronic payments could substitute strongly for currency and other paper-based instruments. It is difficult to see how those paper media could undergo any improvements that would allow them to compete with electronic media.
The world has witnessed an increase of electronic payment instruments meant to facilitate trade and simplify payments before the introduction of electronic payment into Nigerian banking system; customers had to walk into the banking hall to do transactions of all kind. They had to queue up and spend more hours to talk to a teller to make their transactions. Inconveniences caused by these long queues discourage most customers who sometimes renegade from the queues in annoyance. For many years, bankers, IT experts, entrepreneurs and others have advocated for the replacement of physical cash and the introduction of more flexible, efficient and cost effective retail payment solutions (Oladejo 2016:2).Technology-based products give opportunities to have significant cost advantages, increasing profitability and facilitate lower risk than traditional banking products. In addition, studies show that if there is enough customers demand the technology-based products of the bank there will be the return of investment on this field in short time. Empirical studies made on various countries, reveals that electronic banking services improve the performance of banks(Oladejo 2016:2). However, the expected results are not seen in some less developed and developing countries because of infrastructure investment could not do enough and customers prefer traditional branch-based banking(Oladejo 2016:2).
The use of e-banking products grew notably in the year 2009 as the volume and value of the transactions stood at 114.6 million and N645.04 billion respectively (CBN, 2009). The CBN notes that the volume and value of electronic card transactions increased significantly from 195,525,568 and N1, 072.9 billion in 2010 to 355,252,201 and 16,714.4 billion in 2011, an increase of 81.5 per cent and 55.8 per cent respectively. ATMs account for 97.8 per cent, followed by web-payments (1 per cent), POS and mobile payments (0.6 per cent) in terms of volume. In value terms, ATMs accounted for 93.4 per cent, web (3.5 per cent), POS (1.9 per cent) and mobile (1.2 per cent). The CBN’s policy of promoting electronic cards and channels is driven by the objectives of reducing banking industry costs by 30 per cent. It estimated the total direct cost of cash management in the Nigerian banking industry as N114.5 billion ($715.6 million) as at 2009, with cash in transit costs (24 per cent), cash processing cost (67 per cent) and vault management costs (9 per cent). The CBN projects numerous benefits including enhanced tax revenue, increased economic growth, increased financial inclusion, reduced robberies and cash-based fraud, reduced operating cost for increased payment system efficiency and increased banking penetration.
The growth in Technology has played an important role in improving service delivery standards in the Banking industry. In its simplest form, Automated Teller Machines (ATMs), Point of Sale Terminals (POS) and deposit machines now allow consumers carry out banking transactions beyond banking hours and these have enhanced customers’ satisfaction globally, Nigeria inclusive. Banks with higher levels of quality of service will have higher levels of customer satisfaction as an introduction for achieving sustainable competitive advantage. Adoption of ICT has proved to be of many advantages to the banking sector in Nigeria. It offers numerous advantages for example it enables customers to remotely withdraw and deposit money in banks at any time, transfer money among as well as proper data management and record keeping. However, banks face many challenges among them are difficult to convince computer illiterate customers to adopt ICT in banking services and also hard for banks to get well trained ICT professionals. This study examines the electronic banking and the performance of deposit money banks in Nigeria with reference to internet banking, mobile banking, telephone banking and electronic card banking.
1.2 Statement of the problem

Since independence, the economic sector has been on the increase. Today, we have over 20 strong banks and well functional stock market. Other financial institutions like insurance, financial companies etc. are growing. Also included are specialized banks such as industrial development banks, agriculture and rural development banks and mortgage banks. The financial sector has been liberalized in Nigeria. However, despite the growth record of banks and non-bank financial institutions in Nigeria, and financial liberalization policy, the Nigeria economic growth is sluggish (Maduka & Onwuka, 2013:4).
Banks appear very profitable in Nigeria, whether returns on assets are assessed on country by country, income group or by individual banks. The Nigerian economy observed in the present dispensation has been characterized by worsening economic fortunes in terms of reduced growth, increased unemployment, galloping inflation, high incidence of poverty, worsening balance of payment conditions, high debt burden and increasing unsustainable fiscal deficit. There are management challenges confronting Nigeria banks since the advent of indigenous banks. Aside loss experienced by depositors, shareholders, employees and other stakeholders, the level of confidence in the financial system has been negatively affected (Bosede, Olusegun & Olubukunola, 2013:197).
Before the emergence of modern banking system, banking operation was manually done, and that solely account for the inefficiency in handling transactions. This manual system involves posting of transactions from one ledger to another without the aid of computer systems. Computations which should be done through computer or electronic machines were done manually, which sometimes lead to miscalculation due to human errors, which results in extension of closing hours when account is not balanced on time (Siyanbola, 2013:12).
Traditional banking system was often characterized by delay and inefficiency in the delivery of financial services which led to introduction of electronic banking. The introduction of electronic banking system which was supposed to bring about efficiency and effectiveness in service delivery, reduce queues and cash handling, rather resulted to disappointment to customers. Most customers complain of time wasted in banks, mostly due to long queues and network downtime due to poor connectivity between central server and the branches. Bank customers still handle too much cash and rarely people discuss about electronic banking products and services offered by banks.
The major difficulties users face in carrying out electronic payments are network (communication links between banks and e-payment infrastructure) issues, literacy, concerns on risk and unreliable machines (Agbaje & Ayanbadejo, 2013in Ahmed 2014:80).
The adoption of electronic banking has brought major challenges to the banking industry in terms of risk exposure. The volume of deposits has increased as well as fraudulent practices experienced by Nigerian banks since its adoption in the economy (Chibueze, Maxwell & Osondu, 2013:4). This is the reason why Ovia, (2001:15) posits that Nigeria’s banking scene has witnessed phenomenal changes especially in the enormous volume and complexity in the product or service delivery, financial liberalization and business process re-engineering. The effectiveness of deploying information technology in banks therefore cannot be put to doubt. The fact remains the reality of using IT in banks is necessitated by the huge amount of information being handled by these banks on daily basis. On customer’s side, cash is withdrawn or deposited, cheques are deposited or cleared, statement of accounts are provided, money transfer, bills payment facilitated etc. at the same time, banks need up-to-date information on accounts, credit facilities and recovery, deposit, charges, income, growth indices, performance indicators and other control of financial information (Chibueze et al., 2013:5). However, researchers have not given much attention to this revolution caused by electronic banking with the regard to the performance of deposit money banks in Nigeria. There is, therefore, need to investigate various e-banking channels to assess their individual as well as combined contributions to the performance of deposit money banks in Nigeria. Given the above scenario, therefore, the study seeks to examine electronic banking and the performance of deposit money banks in Nigeria between (1990 to 2016), so as to fill the research gap.

1.3 Purpose of the study

The main objective of the study is to examine the effects of electronic banking on growth of deposit money banks in Nigeria. Specifically the study objectives are to:
i. Determine whether mobile banking has any effect on the performance of deposit money banks in Nigeria.
ii. Find out whether telephone banking has any effect on the performance of deposit money banks in Nigeria.
iii. Examine whether internet banking has any effect on the performance of deposit money banks in Nigeria.
iv. Assess whether smart card banking has any effect on the performance of deposit money banks in Nigeria.

1.4 Research Questions

i. Does mobile banking associate with the performance of deposit money banks in Nigeria?
ii. To what extent does telephone banking influence the performance of deposit money banks in Nigeria?
iii. What is the extent to which internet banking has influenced the performance of deposit money banks in Nigeria?
iv. To what extent does smart card banking associate with the performance of deposit money banks in Nigeria?

1.5 Hypotheses

HO1: There is no significant relationship between mobile banking and the performance of deposit money banks in Nigeria.
HO2: There is no significant relationship between telephone banking and the performance of deposit money banks in Nigeria.
HO3: There is no significant relationship between internet banking and the performance of deposit money banks in Nigeria.
HO4: There is no significant relationship between smart card banking and the performance of deposit money banks in Nigeria.

1.6 Significance of the Study

The study focuses on electronic banking and the performance of deposit money banks in Nigeria. It is expected that the findings of the study will assist stakeholders in the banking sector ascertain whether the introduction of electronic banking has enhanced the performance of deposit money banks in Nigeria or not. If the findings of this study reveal that electronic banking has not facilitated the performance of deposit money banks in Nigeria, the study will recommend new strategy that banks should adopt in using electronic banking to impact positively on its performance. But, if the findings of the study show that electronic banking has contributed positively to the performance of deposit money banks in Nigeria, the study will still recommends measures that banks should employ in order to sustain performance or even surpass it. The study will also come up with recommendations that will help stakeholders in the banking sector with new techniques to cope with e-banking challenges and meeting customers’ needs which are essential for enhancing greater performance of deposit money banks in Nigeria.
A number of studies (Auta, 2010:212; Siyanbola, 2013:19) have shown that electronic banking awareness is still very low, thereby hindering accelerated growth of deposit money banks in Nigeria. This study will also help the general public by creating awareness on the benefits of electronic banking. It is also hoped that the awareness that this study will create will drastically reduce cash handling, thereby reducing the cost of printing of cash, processing cost, storage cost, insurance cost and the cost of moving cash, which include theft and possible attacks by armed robbers.
The study will also serve as a useful reference material for students, academicians, institutions, corporate bodies and corporate managers who are interested in the subject of electronic banking. The findings of the study will also contribute to existing body of knowledge on e-banking and offer opportunity for further study into the area.

1.7 Scope of the Study

This research seeks to examine electronic banking and the performance of deposit money banks in Nigeria. The study will be conducted on some selected deposit money banks in Port Harcourt metropolis Rivers State for the period 1990-2016.

1.8 Organization of the Study

The first chapter which is the introduction to the study seeks bring to fore the antecedents that preceded the current state of electronic banking operations. The section introduces the topic under study; electronic banking and the performance of deposit money banks in Nigeria. The objective as well as research questions of the study are outlined in this chapter. The limitations of electronic banking are also captured in this chapter. Chapter two reviews the publications and various literature treated by various authors that are relevant to this area of research. Chapter threepresents the organized research methods that are generally used in such studies. The chapter also identifies the selected sampling method to be used. Chapter four will treat the analysis and interpretation of the data obtained from the field which will be fed into the scientific system process of analysis. At this stage the analysis of the
Data will be done by use of the SPSS software that will organize the data and present graphical results of responses by the respondents.
The last chapter of the study will conclude the analysis of the data usedin the study. Recommendations will also be made at this stage regarding to the research work findings.

1.9 Definition of Terms

Effectiveness: Organizational effectiveness is dependent on seven to ten attributes/characteristics. Highly effective organizations exhibit. They are, clarity of the organization’s mission, the power of leadership vision, adherence to shared values throughout the organization, cohesive, balanced team of leaders, clear and measurable goals and objectives, mechanisms for external feedback and input, a desire to learn continuously, pursuit of excellence, competent planning and decision-making processes, periodic celebrations of nobility of the work and collective accomplishments.
Efficiency: It is the ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without waste. In more mathematical or scientific terms, it is a measure of the extent to which input is well used for an intended task or function (output).
Electronic banking: Itis the delivery of banking services and products through the use of electronic means irrespective of place, time and distance. Mobile Banking: Mobile banking is an innovation that has progressively rendered itself in pervasive ways cutting across several financial institutions and other sectors of the economy” and with this facility any person having a mobile number is able to use his/her number as a bank account.
Internet banking: Internet banking allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society.
Market share: It represents the proportion of an industry or market’s total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company’s sales over the period and dividing it by the total sales of the industry over the same period.
Performance: It is the action or process of carrying out or accomplishing an action, task, or function.
Return on Investment: It is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment’s cost.
Smart Card Banking: This is the conduct of banking transactions through the use of electronic cards (value card, verve card, naira credit card, visa card, master card). The smart card system makes it easy for bank customers to have access to cash, carry out transfers and make enquiries about their accounts without visiting the banking hall.
Telephone banking: This form of electronic banking model can be considered as a form of distance or virtual banking, which is basically the delivery of branch financial services via telecommunications devices where the bank’s clients can perform retail banking transactions by calling a phone or mobile communication unit, which is linked to an automated system of bank by utilizing Automated Voice Response (AVR) technology.