1.1 BACKGROUND TO THE STUDY
The importance of
managing the economy efficiently cannot be over emphasized. The monetary
authorities, by controlling the supply of money, maintain price stability
andinfluence economic activities especially when combined with appropriate
fiscal measures (Friedman, 1999). The banking system remains the major channel
for monetary control by the Central Bank of Nigeria (CBN) and the monetary
authorities in general. Unfortunately, it is estimated that about 65% of the
cash in circulation in the Nigerian economy isoutside of the bankingsystem,
thus severely limiting the impact of the CBN’s efforts at price and economic stabilization
(CBN 2012). Consequently, the amount of money in the form of deposits available
to banks for the creation of more money is reduced. The profitability of the
banks, which to a large extent depends on the amount of money at theirdisposal
for lending, is therefore affected by the large size of this informal sector.
breakthrough in InformationCommunication Technology (ICT) has revolutionized human
society in terms of communication, efficiency in processes, general exchange of
information, and in the exchangeof goods and services. Within seconds,
businesses are carried out online across different geographical location making
it impossible for physical cash to be used as a medium of such exchanges (Baddeley,
The Central Bank of
Nigeria (CBN) in collaboration with the Bankers Committee, introduced the
cashless policy designed to provide mobile payment servicesthat aim to
breakdown traditional barriers hindering the financial inclusion of millions of
Nigerians, secure and make convenient financial services to urban, semi-urban
and rural areas across the country.
the cashless policy requires that the banks make huge investments on ICT and
other technologies that would enhance the proper implementation of the cashless
system. For banks that barely survived recapitalization, and several others
forced into a merger and acquisition, this policy may affect their performances
and productivity positively or negatively depending on the strength of the
individual banks. Therefore, this study seeks to analyze the impact of this
policy on Nigerian banks in relation to their profitability using Fidelity Bank
as a case study.
According to (Cobb,
2005), “electronic payments can thus lower transaction costs stimulate higher
consumption and GDP, increase government efficiency, boost financial
intermediation and improve financial transparency”. She further added that
“Governments play a critically important role in creating an environment in which
these benefits can be achieved in a way that is consistent with their own
economic development plans”.
Fidelity Bank, also known as Fidelity Bank Plc.,
is a commercial bank in Nigeria. It is licensed as a commercial bank, by the
Central Bank of Nigeria, the central bank and national banking regulator. In
2011, the bank was ranked the 7th most capitalized bank in Nigeria, the 25th
most capitalized bank on the African continent and the 567th most capitalized
bank in the world. As of December 2013, Fidelity Bank Plc. was a large
financial services provider in Nigeria with total assets estimated at over
US$6.318 billion (NGN:1+ trillion), and shareholders' equity in excess of US$1
billion (NGN:158 billion). At that time, the bank served 2.3 million customers at
about 220 branches nationally (Wikipedia, 2015).
The current enlarged Fidelity Bank is the result
of the merger with the former FSB International Bank Plc and Manny Bank Plc
(under the Fidelity brand name) in December 2005. Fidelity Bank is today ranked
amongst the top 10 in the Nigerian banking industry, with presence in all the
36 States as well as major cities and commercial centers of Nigeria. Fidelity
continues to rank among Nigeria's most capitalized banks, with tier-one capital
of nearly USD1 billion (One Billion US Dollars).
1.2 STATEMENT OF THE PROBLEM
The quest for global relevance and
sustainable development had led to wide exploitation of the benefits of
cashless policy in payments system of Nigerian banks. The study examines the
impact of cashless policy on the profitability of banks in Nigeria using
Fidelity Bank Plc as a case study. It has become necessary for researchers to
make use of values and figures obtained in the cashless services such as
Automated teller machine (ATM), Point of sale (POS), and wCP based transaction
(WBT) to examine its impact on the aggregate return on equity (ROE) of deposit
money banks in Nigeria with a view of identifying the effect of this cashless
policy on profitability of Nigerian Banks.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
examine the impact of cashless policy on profitability of commercial banks in
examine the overall effectiveness of the CBN’s cashless policy.
determine the level of acceptance of the cashless policy by Nigerians.
identify the limitations in the implementation of cashless policy by commercial
banks in Nigeria.
1.4 RESEARCH QUESTIONS
is the impact of cashless policy on profitability of commercial banks in
is the overall effectiveness of the CBN’s cashless policy?
is the level of acceptance of the cashless policy adopted by commercial banks
are the limitations in the implementation of cashless policy by commercial
banks in Nigeria?
HO: There is no significant
relationship between the cashless policy and profitability
HA: There is significant relationship
between the cashless policy and profitability
1.6 SIGNIFICANCE OF THE STUDY
The following are the
significance of this study:
outcome of this study will educate stakeholders in the banking industry on how
the cashless policy has influenced the profitability in the Nigerian commercial
2. This research will also serve as a
resource base to other scholars and researchers interested in carrying out
further research in this field subsequently, if applied will go to an extent to
provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study on the impact of cashless policy on
profitability of commercial banks in Nigeria will cover the level of profit
made by commercial banks before and after the implementation of the cashless
policy in Nigeria
Financial constraint- Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
Time constraint- The researcher will simultaneously
engage in this study with other academic work. This consequently will cut down
on the time devoted for the research work.
Baddeley, M. (2004). Using
E-Cash in the New Economy: An Economic Analysis ofMicropayment Systems, UK
of Electronic Commerce Research, 5(4)
Central Bank of Nigeria (CBN)
Statistical Bulletin. (2012).
Anne. (2005). http://www.ameinfo.com/50050.html.
Friedman, B. (1999). The
Future of Monetary Policy: The Central Bank as an Army withOnly a Signal Corps?
Finance, 2, 3(321-338)