Micro finance bank in Nigeria and the use of electronic payment system, challenges and prospects


Micro finance bank in Nigeria and the use of electronic payment system, challenges and prospects


Delali (2010) in Vassiliou (2014) defined electronic payment as a form of financial exchange that takes place between the buyer and seller facilitated by means of electronic communication. According to Cobb (2004), the value of electronic payment goes way beyond the immediate convenience and safety of cards to a greater sphere of contributing to overall economic development. The term electronic payment can be referred narrowly to e-commerce- a payment for buying and selling goods and services offered through the internet, or broadly to any type of electronic funds transfer (Massimo & Garcia 2008). Ayodele (2017) defined e-payment as electronic transfer of cash via online transactions for business-tobusiness (B2B), business-to-consumer (B2C), person-to-person (P2P), and most recently administration-toconsumer (A2C) purposes. A2C payment addresses the payment of taxes toward the government. Humphrey, Kim & Vale (2019) defined e-payment as cash and associated transactions implemented using electronic means. Typically, this involves the use of computer networks such as the internet and digital stored value system. This system allows bills to be paid directly from bank, and without the use of writing and mailing cheques

The  emergence  of  Information  and  Communication  Technology  (ICT)  had  completely  changed  the  lives  and  modus  operandi of  individuals  and  organizations  respectively  (Kabir  et  al.,  2015).  Its  advent  together  with  Digital  technologies  has  made  great  evolutionary  development in finance, economics, operational costs and enhanced organizational performance (Slozko  &  Pello,  2015,  cited  in  Kabir  et  al.,  2015).  This  development  coupled  with  global  proliferation  of  the  internet  and  its  rapid  usage  over  the  years  is  responsible  for  the  dynamic  change   in   business   transactions   in   the   business   world,   from   the   traditional   cash-based   transactions  to  electronic-based  payments  (Mohamad  et  al.,  2009,  cited  in  Kabir,  Saidin  &  Ahmim,  2015),  and  the  facilitation  of  electronic  commerce  in  global  business  environment  (Fernandes,  2013,  cited  in  Kabir  et  al.,  2015).

n business and financial transactions generally, the introduction of Electronic-based payment  system  (EPS)—exchange  of  an  electronic  worth  of  payment  from  the  buyer  to  the  seller  by  means  of  an  online  payment  channel  that  permits  clients  to  remotely  access  and  deal with their financial accounts and exchanges over an electronic system (Teoh et al., 2013)—has shifted financial operations from the traditional relatively stable environment to  an  electronic-based  operation,  without  visiting  a  brick-and-mortar  institution  (Asiimwe,  2015),  which  guarantees  faster  transactions,  due  to  reduction  of  queues  at  points  of  sales;  improve   hygiene   (eliminating   the   bacterial   spread   through   handling   notes   and   coins);   increased  sales;  ease  in  cash  collection  (elimination  of  time  spent  on  collecting,  counting  and  sorting  cash);  and  managing  of  staff  entitlements  (Ugwueze  &  Nwezeaku,  2016).  The  benefits of the adoption of electronic based payment systems also includes the facilitation of  secured  and  faster  access  to  capital  resources  (Khan  et  al.,  2017),  faster  pay-outs,  better  tracking,  transparent  transactions,  reduced  time  use,  cost  and  time  savings,  increased  number  of clients, more service for customers, greater efficiency, enhancement of bank’s reputation (Yang  et  al.,  2018),  larger  customer  coverage,  international  products  and  services,  promotion  and branding, increase in customer satisfaction and personalized relationship with customers, and  easier  documentation  and  transaction  tracking  (Ugwueze  &  Nwezeaku,  2016),  increased  trust between sellers and buyers (Fatonah et al., 2018), ease-up of difficulties and securities associated  with  the  conventional  cash-based  and  cheque  payment  systems,  and  the  added  advantage  of  pliability  in  usage  which  placed  the  electronic-based  payment  system  options  on  a  celebrated  stride  than  the  paper-based  payment  options  (Khan  et  al.,  2017),  thus  decreasing  the  relative  importance  of  using  cash  as  the  only  means  of  exchange.

In  the  banking  sector,  the  adoption  of  Electronic-based  payment  system  is  associated  with  improvement  in  the  efficiency  of  banks  in  provision  of  financial  services  (Yang  et al.,  2018),  in  term  of  increased  customer  satisfaction  and  personalized  relationship  with  customers,  easier  documentation  and  transaction  tracking,  reduced  transfer/processing  fees,  increase  of  processing  transaction  time,  offering  of  multiple  payment  options  and  giving  of  immediate notification on all transactions on the part of customers (Ugwueze & Nwezeaku, 2016),  convenience,  speed  of  transfer  (Oyetayo  &  Fatokun,  2015),  reduced  risk,  and  cost  control  on  the  part  of  the  banking  public.  Furthermore,  aside  from  relieving  the  means  of  making  monetary  exchanges  (Khan,  et  al.,  2017)  and  processing  transactions  (Junadi,  2015,  cited  in  Fatona  et  al.,  2018),  it  has  been  asserted  that  the  greater  usage  of  instruments  and
facilities  of  Electronic  Payment  Systems  (EPS)  such  as  credit  cards,  card  fees,  debit  cards,  e-money,  online  credit  card  payment,  electronic-cash  (E-cash),  electronic-checks  (E-checks),  small  payments,  electronic-wallet  (E-wallet),  value  systems  online  stored,  digitally  collecting  balance   systems,   wireless   payment   systems,   digital   check   payment   systems,   Automated   Teller  Machine  (ATM),  Point-of-Sale  (POS)  terminal,  among  others  (Hsiao-Cheng  et  al.,  2002;  Fatonah et al., 2018), has the tendency of enhancing financial performance—the measure of achievement  on  the  goals,  policies  and  operations  stipulated  in  monetary  terms  (King’ori  et  al., 2017)—of banks and financial institutions, especially in countries with more developed retail  payment  services  like  ATMs,  and  POS  terminals,  among  others

However,  though  it  has  been  empirically  proven  that  the  adoption  of  electronic-based  payment system in the delivery of financial services has a significant positive effect on the financial performance of conventional banks and financial institutions (see Asiimwe, 2015; Barasa  et  al.,  2017;  Kombe  &  Wafula,  2015;  Yang,  et  al.,  2018;  Mateka  et  al.,  2016;  Siddik  et  al.,  2016;  Mawutor,  2014;  Yasin,  2018;  Njoroge  &  Mugambi,  2018;  David  &  Kaulihowa,  2018;  Abaenewe  et  al.,  2013;  Ugwueze  &  Nwezeaku,  2016;  Chimaobi,  2018),  due  to  its  obvious  cheapness,  in  comparison  to  physical  branches  delivery,  which  most  often  results  in   the   reduction   of   operational   cost,   in   form   of   reduced   and   better   utilized   workforce,   equipment,  space  and  operational  savings  (Yang,  et  al.,  2018).

However, it is vague if the adoption of electronic payment systems also influences the financial performance of Microfinance Banks (MFBs) and Institutions—specialized institutions that provide and make financial services available such as savings, micro-credit, among others accessible  to  the  poor  and  low  income  groups  or  individual,  who  are  conventionally  not  served by the standard formal financial sector, both in the rural and urban areas (Ahmed, 2014),  even  in  the  absence  of  securities,  thereby  making  even  the  poorest  in  the  economy  financially included (Sakanko et al., 2019)—due to the inherent characteristics of its customers, and  the  growth  of  the  institution,  which  does  not  favour  the  implementation  and  usage  of  electronic-based  payment  systems  whom  are  very  critical  in  the  economy,

For instance, in Nigeria, like most developing economics which Microfinance Banks are prevalent, the groups of people that mostly patronizes Microfinance Banks (MFBs) include, artisans,  traders,  farmers,  Small  and  Medium  Scale  Enterprises  (SMEs),  and  more  generally  low-income  earners  and  poor  individuals,  whom  are  mostly  uneducated  or  semi-educated,  unlike in the standard banks and financial institutions. Hence, the introduction and adoption of  electronic-payment  systems  in  MFBs  might  discourage  most  potential  customers  from  accessing the financial services of the financial institution, due to the lack of trust in the technology,  complexity  of  the  technology,  as  well  as  the  perceived  risk  in  using  electronic-based  payment  technologies  in  comparison  to  the  traditional  cash-based  payment  system,  which ultimately tends to affect the financial performance of the MFBs in form of Return On Asset (ROA), Net Interest Margin (NIM), Return On Equity (ROE), Profit After Tax (PAT), among other financial indicators

While  customer’s  ability  to  subscribe  to  the  electronic-based  payment  services  depend  on   several   factors   such   as   user-friendly   interface,   level   of   Internet   experience,   types   of   services provided, attitude and perception, access and delivery time (Asiimwe, 2015), however, aside  from  issues  of  perceived  level  of  illiteracy  and  poverty,  which  is  inherent  among  most

MFBs’  customers,  which  tends  to  barricade  the  use  of  e-payment  gateways  and  facilities,  issues  such  risk  exposure  (security);  fraudulent  practices  (Abaenewe  et  al.,  2013);  lack  of  anonymity (transaction details are stored on payment database/absence of privacy); necessity of  internet  access;  restrictions  (daily  maximum  transaction  restrictions);  the  risk  of  being  hacked  (Oyetayo  &  Fatokun,  2015);  special  charges  which  the  use  of  e-payment  systems  such  as  POS  terminals  and  ATM,  among  others,  attracts,  which  are  usually  higher  than  those  associated  with  traditional  payment  systems  (Ugwueze,  &  Nwezeaku,  2016);  coupled  with  the difficulties associated with accessing and acquiring e-payment and internet facilities; poor telecommunication network; poor electronic payments and inter-bank connectivity; absence of effective  legal  system  (Ajisegiri  &  Oyebisi,  2014);  and  epileptic  power  supply,  among  others,  which abound in e-payment systems, specifically in developing countries, tend to generally discourage  the  use  of  e-payment  system  in  favour  of  the  traditional  payment  system.


Empirically,  though  research  has  addressed  the  potential  impact  of  the  internet  on  different  industries  including  the  banking  industry  (Asiimwe,  2015),  however,  research  on  the  effect  of  electronic-based  payment  systems  on  financial  performance  in  the  banking sector  has  been  largely  targeted  on  the  conventional  commercial  banks  (see  Barasa  et  al.,  2017;  Kombe  &  Wafula,  2015;  Matekaet  al.,  2016;  Ogare,  2013;  Njoroge  &  Mugambi,  2018;  David  &  Kaulihowa,  2018;  Mawutor,  2014;  Yasin,  2018;  Yang  et  al.,  2018;  Siddik  et  al.,  2016;  Bantegeye,  2017;  Abaenewe  et  al.,  2013;  Ugwueze  &  Nwezeaku,  2016;  Chimaobi,  2018;  Oyewole  et  al.,  2013;  Harelimana,  2018),  while  neglecting  its  (electronic  payment  systems)  impact on the financial performance of Microfinance banks (MFBs). Notwithstanding, very few studies also examined the effect of electronic-based payment systems on the financial performance of Microfinance Banks (and Institutions). For instance, Harelimana, (2017a) examines the impact of ICT utilization on the financial performance of microfinance institutions in Rwanda, with the case study of Réseau Interdiocesain de microfinance (RIM) Ltd, within the period of 5 years (2011-2015). Employing descriptive survey using both qualitative and quantitative methods for a total sample size of 132, collected using purposive and simple random sampling, results indicate that ICT has a significant impact on financial sustainability and profitability, financial efficiency and productivity, and portfolio quality. In addition, correlation result shows that ICT usage has a significant positive impact on financial sustainability and profitability, although the strength of the impact is low, due to the low level of investments in ICT among microfinance institutions. Similarly, Harelimana  (2017b)  investigates  the  impact  of  mobile  banking  in  financial  performance of Unguka Microfinance Bank Ltd, within the period of 2012-2016. Results revealed that mobile  banking  products  offered  by  Unguka  Bank  Ltd  (Fund  Transfer  between  Accounts,  Bill   Payment,   order   for   cheque   books   and   bank   statements,   and   mobile   money)   has   a   significant  positive  effect  on  the  financial  performance  (revenue)  of  Unguka  Ltd  in  the last  three  years.  In  contrast,  Atavachi  (2013)  adopt  a  descriptive  survey  design  to  assess  the effect of electronic banking on financial performance of nine registered deposit taking micro-finance institutions in Kenya as at June 2013. The results indicate the existence of a negative relationship between electronic banking and financial performance of deposit taking microfinance institutions in Kenya

Unequivocally, there is an obvious absence of study on  the challenges facing Micro finance bank in Nigeria in the  use  of electronic payment system. However,  this  study  will  add  to  existing  studies  on  electronic-based  payment  systems  by explicitly examining the Micro finance bank in Nigeria and the use  of electronic payment system, challenges and prospects