Background to the Study

Today’s financial system is the product of centuries of innovation. It started as a barter economy and has moved through various incarnations in response to limitations inherent in the evolving systems. Ajayi, S.I and Ojo, O.O (2006). Changes will definitely continue to occur in response to social and technological advancements. This has  led to a shift from the old cash handling system to cashless society, which is in vogue world wide. To this end the world has witnessed an upsurge 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. Inconviniences caused by these long queues discourage most customers who sometimes renagade from the queues in annoyance. For many years, banker, 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. Baddeley, M. (2004). Nigerian banks are making huge investments in technology to upgrade their infrastructure in order to provide new electronic information based services. Such services as online retail banking are making it possible for individuals and corporate bodies to take advantage of new technologies at reasonable costs.

Before the emergence of modern banking system, banking operation was manually done, which solely account for the inefficiency in settlement of 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 extention of closing hours when account is not balanced on time. This led to the introduction of electronic banking, to ameliorate the sluggish nature of banking transactions.

Electronic Banking is the application of computer technology to banking especially the payment (deposit and transfer) aspects of banking. It is a system of banking with an electronic communication network which permits on- line processing of the same day credit and debit transfers of funds between member institutions of a clearing system.

Anyawaokoro, M (1999). Electronic banking is also a system by which transactions are settled electronically with the use of electronic gadgets such as ATMs, POS terminals, GSM phones, V-cards etc, handled by e-holders, bank customers and other stakeholders. Edit, O. (2008).

Recently, the Central Bank of Nigeria and the commercial banks in Nigeria made a push to discourage reliance on cash for transactions by Nigerian for most of their transactions. A pilot scheme of this effort was kicked off on  April 1 2012 in Lagos state, while the other states were to have their own share later in the year.


Monetary policy as a technique of economic management to bring about sustainable economic growth and development through cashless policy and banking introduced by the Central bank of Nigeria (CBN) is not fully operational due to high rate of illiteracy, in-adequate sensitization/education of the benefits of the cashless policy, and in-adequate logistics (such as the provision of internet connections in commercial areas, computers and Point on Sale (POS) machines).

Apart from the physical challenges, economic data and indicators are not fully available and reliable. There is a great challenge in attempting to analyze the true impact of the cashless policy on the economy of Nigeria as only few monetary and macroeconomic indicators can be traced with relation to the subject matter. Several scholars have attempted to analyze the cashless system or e-banking. However, it becomes clear that few studies present a comprehensive evaluation of cash-less banking implications in developing countries. Most ignore its economic benefits of the equation while some do incomplete examination of its negative implications. This is often due to unreliable panel data for monetary and macroeconomic indicators. Although, this study focuses on Nigeria, it is difficult to translate cashless studies from one country to another. Even payments instruments that look similar across countries on the surface may be different due to historical and legal variations (Daniel et al, 2004).


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

The study was guided by the following research questions:

  1. To examine the effect of cashless policy on Nigeria economy
  2. To analyze the effect of cashless policy on employment in Nigeria
  3. To examine the possibility of its acceptance in Nigeria
  4. To analyze  the effect of cashless policy on Nigerians
  5. To investigate the policies and practices that can assist implementation of cashless policy in Nigeria
  6. To analyze the best means of carrying out cashless banking


1. Ho: Cashless policy has no significant impact on the reduction of inflation in Nigeria

Hi: Cashless policy has significant impact on the reduction of inflation in Nigeria.

2. Ho: Cashless policy has no significant impact on economic growth of Nigeria

Hi: Cashless policy has significant impact on the economic growth of Nigeria.


The study will give various insights into the various implications the introduction of the cashless policy will have on the economy of Nigeria. Through examining various economic indicators such as the gross domestic product (GDP) and inflation, the study will examine and compare growth trends and changes to determine whether the cashless policy introduced by the CBN has a negative or positive effect on the economy of Nigeria.

Various challenges and prospects identified in the study will also enable various stakeholders to tackle these challenges effectively by making policies that will address them and boost the economy of Nigeria.


In pursuance of the objective of the study; attention shall be focused on electronic banking among other electronic commerce implementation. In order to conduct an empirical investigation into the adoption of Electronic banking in Nigeria and will also examine the nature of electronic banking operations from the CBN bulletin from2010-2012.


  • Access Products – Products that allow consumers to access traditional payment instrument electronically, generally from remote locations.
  • ATM Card – An ATM card (also known as a bank card, client card, key card, or cash card) is a payment card provided by a financial institution to its customers which enables the customer to use an automated teller machine (ATM) for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.
  • CBN – Central Bank of Nigeria.
  • Chip Card – Also known as an integrated circuit (IC) Card. A card containing one or more computers chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.
  • Electronic Data Interchange (EDI) – The transfer of information between organizations in machine readable form.
  • Electronic Money – Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.
  • Internet Banking– This is a product that enables the Bank leverage on the Internet
  • Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.
  • Mobile Banking – This is a product that offers Customers of a Bank to access services as you go. Customer can make their transactions anywhere such as account balance, transaction enquiries, stop checks, and other customer’s service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balances, updates and history, Customer service via mobile, Transfer between accounts etc.
  • Payment System – A financial system that establishes that means for transferring money between suppliers and of fund, usually by exchanging debits or Credits between financial institutions.
  • Point Of Sale (POS) Machine – A Point-of-Sale machine is the payment device that allows credit/debit cardholders make payments at sales/purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement etc.
  • Smart Card – A Card with a computer chip embedded, on which financial health, educational, and security information can be stored and processed.
  • Transaction Alert – Our customers carry out debit/credit transactions on their accounts and the need to keep track of these transactions prompted the creation of the alert system by the Bank to notify customers of those transactions. The alert system also serves as notification system to reach out to customers when necessary information need to be communicated.
  • Western Union Money Transfer (WUMT) – Western union Money transfer is a product that allowed people with relatives in Diaspora who may be remitting money home for family up-keep, Project financing, School fees etc. Nigerian Communities known for having their siblings gainfully employed in other parts of the world are idle markets for Western Union Money Transfer.


Daniel, D. G., R. W. Swartz, and A. L. Fermar, (2004): ―Economics of a Cashless Society: An Analysis of Costs and Benefits of Payment Instruments‖, AEI-Brookings Joint Center

Humphrey, D. B. (2004): ―Replacement of cash by cards in U.S. Consumer Payments, Journal of Economics and Business, 56, 211–225.

Humphrey, D. B. and A. N. Berger (1990): ―Market Failure and Resource Use: Economic `Incentives to Use Different Payment Instruments‖., New York, Monograph Series in Finance and Economics.

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