1.1 Background of the Study
Bank may be defined as any corporation that provides the minimum banking services and which is licensed as a bank by the federal government of Nigeria as a banking institution (Orji 1996). In Nigeria we have many types of banks such as Central Banks of Nigeria (CBN) commercial banks, merchant banks, development Banks, Agricultural bank etc. A commercial bank is a financial institution that is authorized by law to receive money from businesses and individuals and lend money to them. Commercial banks are open to public and serve individuals, institutions and business.
These banks strive towards achieving profitability in their banks. Profitability according to long man Advanced dictionary is when a business or an activity makes a profit or the amount of profit or gain it makes which is often measured by price to earning ratio. It is the amount of money or money worth that remains from business operational revenue after deducting all expenses and tax.
It includes the measurement of return on assets and return on equity of a business which measures the efficient use of an assets and return to the shareholder’s equity respectively. It also involves the measuring of profit before interest and tax, profit after interest and tax etc. Payment system includes several different methods of payment such as cash, credit and debit cards etc.
To ensure profitability in banks, electronic payment was introduced. According to Institute for Prospective Technological Studies Serville (1999) electronic payment system refers to those systems where processing of payment instruction is carried out by banking system electronically. It is a system that allows funds to be transferred from one bank account to anther or from one institution to another electronically.
Electronic payment is a credit or debit payment that is processed electronically with the value passing from one bank account to another. American Education E payment Definition (2008) defined E-payment as part of E-commerce, it means electronic payment for buying and selling of goods and services through the internet. Electronic credit payment often referred to as electronic fund transfer (EFT) is where a customer instructs his or her bank to make payment electronically to another bank account.
While debit payment is when a customer instructs bank to allow payment to be charged to his or her bank account. Examples of electronic payments are credit cards, debit cards, smart cards, automated teller machine etc. This electronic payment can be used for payment of salaries, wages, welfare, business to business payment etc in a more convenient way. Electronic payment as a relatively new phenomenon in Nigeria started in 1972 when the automated clearing house (ACH) was set up by the US Federal Reserve, though its evolution started in 1918 prior to the first movement of currency via telegraph by the federal reserve bank but was not in widespread then.
In Nigeria, electronic payment was done initially to eliminate unacceptable delay in payment of government contractor and government officials who have a role to play in the payment system but was later extended to cover all payment from any government fund effective 1st January 2009 (Asaolu, Ayoola and Akinkoye 2011). Before the introduction of electronic payment, there were cases of distressed banks due to low profitability of these banks resulting to liquidation.
Such banks include: All state trust bank, savanna bank, Apex bank etc. some banks like intercontinental bank Plc Oceanic bank Plc were absorbed by Access bank plc and Eco bank Plc respectively. Also there were other problems experienced by customers like many armed robbery attacks were witnessed in the process of moving cash from one location to another, customers also experienced long queues wasting the time of the customer which should have been used to attend to other needs.
In Nigeria, cheques used as a means of payment to check the problems experienced by the customers could not reduce the incidence of wasting time in the banking hall as there is always the problem of irregular signature, issuance of dud or state cheques. This increased the level of stress experienced by customers which has contributed minimally to the profitability of commercial banks.
The introduction of electronic payment which is to be maintained with the use of credit cards, debit cards, mobile phones smart cards etc has reduced this problem by enhancing speedy payment, reduce the inconveniences experienced by customers and also lower the cost of providing services to customers. This is because a shift from the use of cheque to credit cards will lower the transaction cost of processing and clearing of cheques.
According to Sana, Haider, Sumra and Manzoor (2011) e-finance has a significant impact on reducing cost in financial sector development of developing countries by spreading and enhancing the quality across financial services. Birch and Young (1997) also states that convenience in transaction provides access to competitive return and prices. This paper examines the impact of this payment system on the profitability of commercial banks since the ranges of device and processes use to transact business electronically continues to increase while the use of cash and cheque decrease.
For instance according to American Education E-payment Definition (2008), the US banking environment has seen the use of cheque declined from 85% of non-cash payment in 1979 to 59% in 2002 while electronic payment increase to 41%. It therefore, becomes necessary to ascertain the contribution of this payment system on the profitability of commercial banks.
PROJECT TOPIC- IMPACT OF ELECTRONIC PAYMENT ON THE PROFITABILITY OF COMMERCIAL BANKS
1.2 Statement of the Problem
Before the introduction of electronic payment there were high cases of fraud, armed robbery, abuse of money laundry high cost of providing banking services and unnecessary delay in providing this service to customers, this contributed minimally to the profitability of commercial banks. These commercial banks are banks owned by individual shareholders who invested their resources with the aim of making profit at the end of an accounting year.
The introduction of electronic payment which was followed by the introduction of cashless policy in Nigeria was to be maintained with the use of credit cards, debit cards smart cards etc. The rate this system of payment continues to increase while the use of cash and cheques decreases is of a great concern to the researcher. This system of payment has being in operation in Abakaliki Urban for years. So it becomes imperative to ascertain the contribution of this electronic payment on the profitability of commercial banks hence the problem of the study.
1.3 Objective of the Study
The main objective of the study is to investigate the impact of electronic payment on the profitability of commercial banks.
Specifically the study seeks to:
- Find the effect of electronic payment on bank’s return on assets (ROA).
- Ascertain the contribution of e-payment on bank’s return on equity (ROE).
1.4 Research Questions
The study will answer the following questions:
- What are the impacts of electronic payment on bank’s return on assets (ROA).
- What are the contributions of electronic payment on bank’s return on equity (ROE).
1.5 Research Hypotheses
The following hypothesis guided the study:
H0: The use of electronic payment makes a negative or no impact on the profitability of commercial banks.
H1: The use of electronic payment makes a positive impact on the profitability of commercial banks.
1.6 Significance of the Study
The result of this study will be beneficial to bankers, government, other financial institution and researchers.
The result of the study will make the bankers to appreciate the relevance of e-payment to the profitability of their banks. It will encourage them to put more efforts towards the growth and development of their bank.
The government will see the need to encourage these commercial banks as well as their customers by giving regulatory policies to their banks through the central banks.
The members of the public will equally appreciate the need to always make use of electronic services.
Other financial institutions will also see the need to use electronic payment in their transactions.
Researchers on related areas will have additional material to the existing literature on electronic payment.
1.7 Delimitation of the Study
This research work was delimitated to commercial bank in Abakaliki Urban. No attempt was made to study other commercial banks within or outside the state.
1.8 Limitation of the Study:
One of the major limitations of this work is the scarcity of data and materials. Another is the problem of finance, this nature of study requires a lot of financial commitment of the researcher. The study made use of questionnaires. The questionnaires however, were difficult to design.
Despite the above limitation, an effort was made to ensure that these limitations did not affect the validity and reliability of this study.