ELECTRONIC BANKING IN THE NIGERIAN ENVIRONMENT: CHALLENGES, ISSUES AND PROBLEMS

CHAPTER ONE
INTRODUCTION
There has been a significant change in the Nigerian Banking System during the past few years.  From the turn out of such changes, it is expected the banking system will experience greater changes in years to come.
 A lot of factors have contributed to the changes experienced in the banking industry especially as it concerns electronic banking.  The move to banks recapitalisation which started in early 90’s but took effect finally in June 10, 2004 under Professor Charles Chukwuma Soludo the Central Bank of Nigeria Governor.  The few banks who survived the N25 billion capitalization now noticed that customers are no longer scared as to which bank is stronger than the other and fear of any of those banks collapsing was gone.  The banks now realized that the only way to attract and retain their customers is by excellent service delivery and introducing bank products that will make banking a lot easier and very convenient for their customers.  Some of such products are Valucard, ATM card, Mobile Banking on-line banking etc.
 Also the desire for banks to go paperless also prompted them to introduce these electronic products.  Instead of a customer coming to the bank to fill a teller or a withdrawal slip, the customer can use the ATM care on a machine.
 Banks also realized that in order to pay higher interest rates on customers accounts and still maintain a profit margin they placed fees for each of these electronic products and services being offered to their customers.  Previously the cost of these services had in effect been subsidized by low interest rates on bank deposits.  Deregulation forced banks to look at their bottom line and charge customers for such electronic products.
 The importance of technology in delivering most of these financial services cannot be over emphasized because through automation, computerized technology has enabled banks to run their business more efficiently, their customers satisfied and also realized significant savings in the cost of human labour and in the life operation of their ‘physical plant’.  SAP earlier introduced in 1986 by the military regime is back in operation and it has affected the banking and oil servicing industries more than any other sector of the economy.  It has changed both the structure and the content of banking business.  Just as the number of banks grew tremendously in 2001, the techniques of delivering banking services and the range of products offered to customers have also changes especially with the N25 billion recapitalisation which reduced the number of banks from 87 to 25 in 2005.
                                   The volume of profit made by some banks increased considerably
with the introduction of SAP, the reason being that in the last few years, the old banks have been challenged by the innovations in banking services being introduced by the ‘new generation banks’ as they are often referred to; in order to meet the challenging needs of their customers.  SAP also brought to an end the kind of old banking system of rendering banking services, in this new competitive environment, thus many banks are driven by survival instints in a bid to stay afloat in the turbulent business environment.  The new banks therefore pose a threat to the older banks because they are more aggressive at their marketing techniques and strategies.
 Electronic Banking can be said to be a natural fallout of the intense competition going on in the banking industry.  It came about as a result of efforts of banks to introduce automation into banking business.  Prior to the advent of electronic banking, information was processed manually and it was a very cumbersome and inefficient way of processing and storing information.  The use of computer was seen as a better option.  Automation is all about using a better means to process information.  Computer deemphasizes manual operations applying electronic mechanization to a horde of statistical operations.  In our world today, everybody is thinking computer-electronics as more pressing of buttons on your mobile phones sends messages and images across the globe thus saving time, energy and money.  
 Electronic Banking involves the transfer of information, data, even funds from one point to another.  Its use in the banking industry for their services are fully automated such that transactions are concluded in a moment.  It involves the use of computer networks in dispensing cash and transfer of funds.  The primary objective is to replace intensive labour operations and reduce the waiting time of customers.
 
The use of computer has been accepted globally as a more reliable and  faster way of processing data.  Also in recent times, researchers and students who seek information about any thing can easily access such information by going to site and down load all information they need for their research work.
 The Nigerian Banking System is not left out.  With the recapitalisation of Nigerian banks to N25 billion in December 2005, banks sought for better ways of meeting their customers various needs.  The idea of this bank being a bigger and smaller bank as it used to be was gone.  Many banks resorted to excellent service delivery, they also introduced a lot of  electronic products which will serve their customers better and faster in order to beat competition.  The older banks which were termed ‘bigger’ banks saw that they were losing customers and business also joined in the move to electronic banking.
                               Some of the electronic products introduced are Valucard, Master card,
ATM card, POS, on-line banking etc.
 
A -       What is the limitation of electronic banking in the Nigerian Banking System?
-                     Is there any positive relationship between the automation of banking operations and profitability of banks?
-                     In what ways has electronic banking contributed to increasing banks
profitability?
-                     Has there been any significant difference in banks profitability before and after automation of banking operations?
-                     To what extent has electronic banking aided management to achieve its set organizational goals and profit target?
-                     Does the level of profit achieved depend in any way on the level of automation?
-                     How has electronic banking contributed to the growth of economy financially?
B - Are customers patronage of a bank significantly related to the bank’s level of automation?
-                     Has the number of customers after automation increased compared to the number before automation?
-                     Has there been any increase in the number of accounts opened before and after automation?
-                     How do staff and customers understand the operational procedures before and after automation?
-                     In what ways has electronic banking affected services rendered to customers?
C - Is there any significant difference between banks performance before and after its automating banking operations?
-                     Are there legal implications or restrictions in respect of bank automation?
-                     What are the problems encountered by banks in adopting electronic banking system?
-                     In what ways has electronic banking contributed to the improvement of performance and efficiency for providing quality services to customers?
-                     How does banking automation affect staff and customers attitude to banking services?
   Research questions are the platform through which researcher looks for facts to provide guidance and results in the search for these facts.  In view of this we shall try to provide answers to the above questions.  Answers to these questions will be provided in subsequent sections of this research work.
 
This research is aimed at achieving the following:
a.                  To achieve the broad purpose of highlighting the Challenges of electronic banking in the Nigerian Financial system. 
b.                 To determine the extent to which banks have adopted the system and its benefits to them.
c.                  To emphasize the challenges of automation in the Nigerian Financial system and how it contributed to the attainment of corporate goals and objectives.
d.                 To examine the benefits that will result from the use of such form of money transmission to customers.
e.                  The study will also provide information about the operations of the system and its contribution to the present and future economic growth and development of the country.
 
Although bank efficiency may mean different things to people, there is no doubt that an improvement in the quality of bank services in both behind and over the counters would affect the gross national product positively.  Assuming that bank efficiency implies providing the required time and in required quality, an increase in the overall level of bank efficiency would of  course raise the level of the national income.  This results from the argument that the banking sectors are operating at a maximum level of efficiency, with the introduction of electronic banking products.  One immediate result would be arise in the level of total deposits in the sector.
 
The choice of  sample  size  in  this  study  limited  by  the  number  of
Banks selected and operating in the selected areas.
 By virtue of time and financial constraints, an extensive and exclusive study on the impact of electronic banking on the Financial Institutions and banks in the Nigerian financial system nationwide was not possible.  However, attempts were made to cover as many banks as possible in Port Harcourt metropolis as well as in Aba and their head offices in Lagos.  The inclusion of head offices of these banks for the study, was as a result of the fact that some of the banks had not yet introduced some of the electronic banking products (ie. Automated teller machine, electronic transfer, SQL image machine) in their branches in Port Harcourt and Aba.
 Finally the reluctance and uncooperative attitude of staff and workers of the banks chosen to disclose needed information considered necessary for this study also pose a limitation to scope covered.
 
This section will be devoted mainly to acquaint the reader with some  terminologies used in this research work.
Automation:  The control or undertaking of a process of operation by machine in such a way that the process is implemented automatically.
 
Automated Teller Machine (ATM):  This is a cash dispenser which is designed to enable customers enjoy banking services without coming into contact with bank tellers (cashiers).
 
Bank-Office Processing services:  Services involving the recording of banking transaction.  These services include ledger balancing, turnover assessment, interest and dividend computations and other accounting operations.
Computer:  This is basically defined as an information processing unit or machine which can store and process information based on the information
to it, by the user.
Computerization:  This is a process by which a bank uses in its operation of electronic (computer system) which is capable, under the control of a program of instructions, of carrying out arithmetic, manipulative and processing operations on business data.
 
Direct Debit, Point of Sale (POS):  This refers to a debit transaction that occurs at a retail location, resulting in a transfer of funds by electronic means from the customer’s account to the merchant’s account.
 
receiving, storing, opening, recording and processing of data electronically.
 
Electronic Funds Transfer (EFT):  This system allows a customer’s account to be credited electronically within 24 hours anywhere in the country.
Electronic Banking Product:  This includes value cards, pay cards, easy cards, ATM, Integrated Services etc.
 
Electronic Banking:  This involves an electronic form of money transmission.  It means not only electronic production like for instance, opening   a letter of credit, but that the customer request the service by electronic means and that the bank supplies it the very same way.
 
Magnetic Character Recognition (MICR): The process of reading documents encoded with magnetic ink, probably the best known application is the encoded cheques.  
 
Management Information System:  System using formalizing procedures to provide management at all levels and in all functions with appropriate information from all relevant sources (both internal and external to the organization) to enable them take timely and effective decision for planning, directing and controlling the activities for which they are responsible.
 
Optical Character Recognition (OCR):  This involves the process of reading characters by scanning their form with a photo-electronic reading device.
SQL Image Machine:  This machine is a photographic and signatures verification system that permits the bank to automatically store signature and photographs of account holders.  It is an effort to reduce the waiting of customers.
Smart Card:  This is mostly used in advanced economies such as USA, and other parts of Europe.  It has an advantage over other debit cards in that the microchips contains additional information on bio-data and financial position of the holder.
System Analysis:  The organized step-by-step study of detailed procedures for the collation, manipulation and evaluation of data in an organization for the purpose of determining what to be done and how it can be accomplished.