Micro finance bank in Nigeria and the use of electronic payment system, challenges and prospects
CHAPTER ONE/INTRODUCTION
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.
STATEMENT OF THE PROBLEM
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
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