Department of Economics,
College of Education, Katsina-Ala.
Times have changed, and so it is with every facet of life including banking. One can now talk to and/or transact business across the globe through the use of information communication technology (ICT). There are now electronic markets (e-markets), electronic governments (e-governments), electronic library (e-library), electronic Banking (e-banking), etc. Modern banks now realise that only those that overhaul their payment service delivery and operations are likely to survive and prosper in the 21st century. This is due to the pressure of globalisation, consolidation, privatisation, deregulation and rapidly changing technology. In order to properly place themselves in favourable positions for competition and be reckoned with in the new millennium, banks are making use of the internet to execute banking services. Many banks have installed modern computer interconnectivity as the backbone that would enable them achieve communication of data and multimedia over internets and extranets. The adoption of ICT in banking has a lot of advantages but not without challenges. This article discusses the application of ICT in the banking industry in Nigeria, examines the challenges faced in the process draws a number of conclusions, and suggests possible ways to stem the tide.
The wonders of modern computer technology have enabled banks to lower costs of banking transactions through having the customer interact with electronic machines rather than human beings. Business organisations, especially the banking industry of the 21st century, operate in a complex and competitive environment characterised by changing factors and highly unpredictable climate. ICT is at the centre of this global curve as an absorber and provider of cooling effect. Banking cannot ignore information system because it plays a critical role in their competitive edge both locally and globally. The development of inexpensive computers and the spread of the internet now make it cheaper to pay electronically. In the past, bills were paid by mailing a cheque, but now banks provide websites at which customers just log on, make a few clicks, and thereby transmit payments electronically. This does not only save the cost of the stamp, but paying bills becomes (almost) a pleasure, requiring little effort. Further development in electronic payment systems provided by banks even spare you the step of logging on to pay bills. Instead, recurring bills such as electricity bills, water bills, etc. can be automatically deducted from customers’ bank accounts, provided there is a directive to that effect. Thus, electronic payment is becoming far more common these days.
The adoption of ICT in banking is generally referred to as electronic banking (e-banking), and the implementation strategies of banking services have become a subject of fundamental importance and concern to all banks and indeed a pre-requisite for local and global competitiveness. This is because it directly affects the management decisions, plans, and products and services to be offered by banks. The internet and, indeed, the e-banking have continued to change the way banks and their corporate relationships are organised worldwide and the variety of innovations in service delivery.
Woherem (2000) observes that “only banks that overhaul the whole of their payment and service delivery systems and apply ICT to their operations are likely to survive and prosper in the new millennium”. He advises that bank should re-examine their services and delivery systems in order to properly position themselves within the framework of ICT. ICT has provided self-service facilities (called automated customer service machine) from where prospective customers can complete their account opening directly online. It assists customers to validate their account numbers and receive their cheque books, credit and debit cards. In order to effectively compete in the 21st century, the Nigerian banking industry has adopted the services of e-banking in its operations and service delivery systems. There are a lot of benefits accruing from e-banking even though challenges also exist. The main thrust of this article is to critically examine these challenges and proffer ways of overcoming them.
The Concept of Banking
The Word Bank is used in the sense of a commercial bank. It is of German origin, though some scholars trace its origin to the French word “Banqui” and the Italian word ‘Bancai”. (Jhingam, 2001, p.65) Mishkin (2009, p.4) says banks are depository institutions. He thus defines depository institutions as:
Financial intermediaries that accept deposits from individuals and institutions and make loans. These financial intermediaries raise funds primarily by issuing checkable deposits (deposits on which cheques can be written), savings deposits (deposits that are payable on demand but do not allow their owners to write cheques), time deposits (deposits with fixed terms to maturity).
Ezikie (1997, p.129) describes banking business as:
The business of receiving deposits on current accounts, savings deposits, or other similar accounts, paying or collecting cheques drawn by or paid in by customers; provision of financial services or such other business as the governor may by order publish in the Gazette.
The Chambers Concise Dictionary defines bank as: “a financial organisation which keeps money in accounts for clients, lends money, exchange currency, etc.”(Aldus & O’Neill, 2009, p. 92)
From the foregoing definitions, it can be deduced that banks are financial organisations which keep money in accounts for its customers or clients, lends money, exchange currency, and perform other related functions. It performs functions which are essentially to borrow and lend money. The borrowing takes the form of deposits from current, savings and fixed deposit accounts; they provide money to those who are in need by granting them overdrafts or fixed loans by discounting bills, exchange or promissory notes. By providing these functions effectively, Shekhar and Shekhar (1998, p.5) say:
Commercial bank renders very valuable services to the community by increasing the productive capacity of the country and thereby accelerating the pace of economic development.
What is Electronic Banking?
The report of the technical committee on e-banking of the Central Bank of Nigeria (CBN) (2003) defines e-banking as:
A means whereby banking business is transacted using automated processes and electronic devices such as personal computers, telephones, internet, card payments and electronic channels.
It further states that some banks practise electronic banking for informational purpose, some for simple transactions such as checking account balance as well as transmission of information, while others facilitate funds transfer and other financial transactions. Many systems involve a combination of these capabilities. Adewuyi (2011) further states that “In e-banking, banking services are fully automated such that transactions are conducted in a jiffy.” E-banking involves the use of computer network in dispensing cash and transfer of funds.
With the drop in the cost of telecommunications, banks have developed another financial innovation, the home banking. Mishkin (2010:287) says;
It is now cost-effective for banks to set up an electronic banking facility in which the customer is linked with the bank’s computer to carry out transactions by using either a telephone or a personal computer. Now a bank’s customers’ can conduct many of their bank transactions without ever leaving the comfort of home.
The advantage for customers is the convenience of home banking, while banks find that the cost of transactions is substantially less than having the customer come to the bank. The e-banking thus, takes banking one step further, enabling the customer to have a full set of banking services at home 24 hours a day.
Products and Services offered by Electronic Banking
The development of ICT has enabled banks to develop a number of products and services which the Nigerian banks have adopted and offer to their customers. Mishkin (2009:287) and Adewuyi (2011, p.2) list these services as follows:
i. Electronic Money (e-money): Electronic payments technology can substitute not only for cheques, but also for cash in the form of electronic money (e-money). E-money is money that exists only in electronic form. The form of e-money, according to Mishkin, is debit cards. The Debit cards which look like credit cards enable consumers to purchase goods and services by electronically transferring funds directly from their bank accounts to a merchant’s account. Thus, at supermarkets, for example, one can swipe his debit card through the card reader at the check station, press a button, and the amount of your purchase is deducted from your bank account. E-money is used on the internet to purchase goods and services. A customer gets an e-money by setting up an account with a bank that has links to the internet and then have the e-cash transferred to his personal computer (PC). Adewuyi (2011:2) states:
When I want to buy something with e-cash, I surf to a store on the web and click the buy option for a particular item, whereupon the e-cash is automatically transferred from my computer to the merchant’s computer. The merchant can then have the funds transferred from my bank account to his before the goods are shipped to me.
ii Credit Cards: Credit cards have been around well before World War II. Mishkin (2009) states that many individual stores have institutionalised charge accounts by providing customers with credit cards that allow them to make purchases at these stores without cash. Credit card is defined as “a card issued by a financial company giving the holder an option to borrow funds, usually at point of sale”. (.investopedia:ND) It is a payment card issued to users as a system of payment. It allows the holder to pay for goods and services based on the holder’s promise to pay at a later date.
iii Debit Cards: the success of bank credit cards has led these institutions to come out with a new financial innovation, the debit card. Debit cards often look just like credit cards and can be used to make purchases in an identical fashion. According to Mishkin (2009: 287), clearly points out the difference o the effect that in contrast to credit cards, which extend the purchase to loan that does not have to be paid immediately, a debit card purchase is immediately deducted from the card holder’s bank account.
iv Automated Teller Machine (ATM): One important form of an e-banking facility that is most widely used in Nigeria is the ATM; an electronic machine that allows customers to get cash, make deposit, transfer funds from one account to another, check balances, recharge phones, and pay bills. The ATM has the advantage that it does not have to be paid overtime and never sleeps, thus being available for use 24 hours for the seven days of the week. Mishkin (2009: 287) says: “Not only does this result in cheaper transactions for the bank, it also provides more convenience for the customer”. ATMs are put at locations other than a bank or its branches, further increasing customer convenience. It is also easy to get local currency from an ATM when a customer is travelling abroad.
v Home Banking: With the drop in the cost of telecommunication, banks have developed another cost-effective financial innovation known as “home banking” or “mobile banking”. It is an electronic banking facility. en.wikipedia. (2013: 1) describes the facility as a system that allows customers of a financial institution to conduct a number of financial transactions through mobile devices such as mobile phone or personal digital assistant.
Home or mobile banking refers to the provision and availability of banking and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, to administer account and to access customised information. Now bank customers can conduct many of their bank transactions without ever leaving the comfort of their homes. The advantage for the customer is the convenience of home banking, while the banks find that the cost of transactions is substantially less than having them come to the bank.
vi Virtual Bank: With the decline in the price of personal computers and their increasing presence in the homes, we have seen a further innovation in the home banking area, the appearance of a new banking institution, the Virtual Bank. Mishkin (2009: 288) describes it as “a bank that has no physical location but rather exists only in cyberspace”. Virtual bank offers an array of banking services on the internet – accepting chequeing account and savings deposits, selling certificate of deposits, issuing ATM cards, providing bill-paying facilities and so on. The virtual bank thus, takes home banking one step further, enabling the customer to have a full set of banking services at home 24 hours a day.
Benefits of Electronic Banking to the Nigerian Economy
The increased application of e-banking is a function of improvement in ICT. E-banking holds enormous potentials/benefits for the banking industry in Nigeria. Adewuyi (2011:4) lists the benefits of e-banking to the Nigerian economy and groups them into three, viz: benefits to the bank, benefits to the customer, and benefits to the Nigerian economy. Given the discussion under 3.1 above, the benefits need no further explanation and we hereby adopt them accordingly as follows:
(i)Benefits to the bank:
a) Facilitation of decision-making.
b) Availability of essential information at finger tips.
c) Improved service delivery’
c) New product development.
e) saving in space and running cost.
f) Relevance among league of global financial institutions.
(ii) i Benefits to the Customer:
a) Quality service enjoyed by the customer.
b) Great reduction in time being spent in banking halls.
d) Bank statement, balance etc. obtained with ease.
e) 24/7 service delivery. That is 24 hours a day, for seven days a week uninterrupted service delivery.
f) Account could be accessed anywhere in the world.
(iii) Benefits to the Nigerian Economy:
a)Creation of jobs and specialisation.
b) Improvement in commerce.
c) Technological development.
d) Data bank for National Planning.
Challenges of Electronic Banking in Nigeria
The litany of benefits of e-banking notwithstanding, the technology is fraught with a plethora of problems and challenges. E-banking indeed has several disturbing challenges which we considered here below:
i Money laundering: The growth of electronic commerce has increased the concern about the use of electronic medium to launder money. Adewuyi (2011:4) defines money laundering as “derivation of washy money from illicit activities especially drugs trafficking, advance fee fraud and other forms of illegal activities”. These activities pose a great deal of fear in e-banking.
ii Fraud: The high exposure of the system to fraudsters, hackers and other criminally minded persons who could access, retrieve and utilise confidential information from the system if security measures are weak is another serious challenge to the banking industry in Nigeria. As Akwaja (2007) aptly observes,
Since the introduction of electronic payment (e-payment) system into the banking industry and its widespread acceptance by customers, the question of how secure the Nigerian e-payment system is from the activities of fraudsters and hackers has remained in the front burner.
Besides, frauds and forgeries are increasing in the banking system, especially since the advent of electronic cards for settlement of transactions. It is feared that the next threat to the Nigerian banking industry will arise from internet based crimes.
iii Systems operational risks and security issues: Banks’ information technology rests on computers and telecommunication which could be liable to system failure, internal manipulations and inconsistent security policies. The cost of IT acquisition, information, security, cost of software development and maintenance, manageability of multiple application complexity and vulnerability to attack are very serious challenges to the banking industry. It is noted that the bank might not have realised it as possible to plug ipod or flash drive and just walk away with vital information of the whole business in a matter of minutes. This can happen because as much as 60 per cent of corporate data resides unprotected on desktop PCs and laptops.
iv Possibility of core business being swallowed: There is the risk of IT taking precedent over core business of banking. Adewuyi (2011: 4) has clearly sounded the fear to the effect that in the long-run, it may permanently impair the future competiveness of the Nigerian banks. Consequently, the solution to this may be IT outsourcing as practised by the bank of Australia, BP Amoco Xenxetes etc.
v Short message Service (SMS) use: Another challenge in e-banking has to do with SMS. In this regard, Eromosele (2008: 43) notes that:
SMS use is not without its challenges. Limited text entry however turns out to be the greatest challenge in using SMS. …SMS will not favour those who willwant to archive messages. So, any person who would want to keep any SMS messages for posterity will need additional software to do it. The use of SMS for transaction alert where network services are unsteady leaves much to be desired.
And he further points out, the bank may want to alert a customer of a transaction at the time there is no service on the GSM phone. With the kind of fluctuating network services, the intention of customer alert services is not fully realised.
vi ATM palaver: The use of ATM is inherent with so many challenges. It must be noted that the continued absence of service (network) at the internet or ATM is very frustrating. There are complaints here and there that sometimes ATM fails to pay customer while it records that such a customer is paid and he/she is alerted as such. The administrative delays involved in sorting out this anomaly are very frustrating and inconveniencing. There are also complaints that sometimes ATM gives wrong balances. Worse still, it is disheartening to observe that some banks and bank branches do not have ATM terminals, or have those that are not functional. Again, the expected elimination of long queues at banks is not realised as long queues, sometimes crowds are found waiting to access ATM. In addition to these problems, it is also observed that some ATM terminals are open and expose the users to the danger of criminals and evil spectators. This exposes them to danger of armed robbery attacks. This also no doubt leaves much to be desired.
vii Customer worry: There is increased worry by customers about the security of their online transactions and whether their transactions will truly be kept private. Traditional banks are noted as being more secure and trustworthy in terms of releasing private information.
viii Technical problem: E-banking has run into technical problems such as server crashes, slow connections over phone lines, mistakes in conducting transactions. These erode the trust and confidence of the customer in the e-banking system.
This article took a critical look at e-banking practices in the Nigerian banking industry, noting that it has embraced e-banking in the provision and delivery of its products and services in spite of earlier scepticisms at various quarters. It described ICT and explained its importance to the banking industry in general and banking in Nigeria in particular. The article highlighted the benefits of e-banking at various levels pointing out how it has saved operation costs for banks, and how it has improved service delivery to customers. It also unveiled the challenges inherent in the practice of e-banking in Nigeria. These included money laundering, fraud, system operations risks and security issues, possibility of core business being swallowed. Other challenges include ATM malfunction, customer worry, and technical problem. It pointed that notwithstanding these challenges, any bank that fails to apply ICT in its operations in the new millennium might not be able to favourably compete with its counterparts in the industry and may gradually be edged out of business. Thus, in spite of the challenges, the banking industry in Nigeria has answered the clarion call and gone headlong into adopting the new technology in its operations, if for nothing else, at least to keep afloat and be in tune with world-class banking practices.
In the light of the above conclusion therefore, we made the following suggestions have been made with the hope that if they are implemented at the various levels, the situation will improve in the banking industry.
i. There should be steady availability of network services. Banks should ensure steady availability of network services in their banks and ATMs. They should do this by encouraging providers of internet services to improve on the network coverage and availability.
ii. Banks are advised to provide reasonable number of ATM machines in their premises and at strategic places like tertiary institutions, hospitals, hotels and such other places, and ensure their functionality so as to reduce crowds and congestions at bank premises. Such ATMs should not be exposed as it is the case with many banks at the moment.
iii. Providers of networks/ services should endeavour to improve their services. Banks are hereby advised to liaise with providers of GSM and internet services to ensure that there is always a steady supply of network services at all times. In addition, they should ensure wider network coverage so that GSM networks are available 24hours 7days a week as claimed. This will guarantee facilitate bank efficiency.
iv. There is also the urgent need for government to hasten measures to improve electricity supply in the country. The epileptic power supply being experienced at the moment is highly lamentable and needs improvement if e-banking and several business endeavours should succeed.
v. Customers should remain conscious and cautious of fraudsters and hackers. They should jealously protect their ATM cards, PINs, bank account numbers, and other information and documents relating to their banking transactions. At no time and under no pressure or persuasion should bank customers release or expose their ATM cards, PINs, account numbers or any other bank documents to anybody, group of persons or even co-customers, no matter how close the relationship might be. Once hackers and fraudsters do not have access to customers’ information on banking, the issue of fraud will be significantly minimised.
vi. Banks should provide back-up documents/facilities to provide services to customers when the internet and ATM are out of service.
vii. Banks should organise workshops and seminars at regular intervals to educate and sensitise customers on the importance of ICT and the need to provide security and secrecy of their banking activities. The SMS alerts by banks advising their customers not to disclose their PIN or account numbers to anybody requesting for them are a step in the right direction and should be maintained.
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