Effect of Electronic Payment System on Customer Satisfaction in Nigeria Banking System

Effect of Electronic Payment System on Customer Satisfaction in Nigeria Banking System

Effect of Electronic Payment System on Customer Satisfaction in Nigeria Banking System – E-banking is defined as the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels. The definition of e-banking varies amongst researches partially because electronic banking refers to several types of services through which bank customers can request information and carry out most retail banking services via computer, television or mobile phone (Daniel, 2003).
The e-banking means transforming the banking and financial industry in terms of the nature of core products /services and the way these are packaged, proposed, delivered and consumed. It is an invaluable and powerful tool driving development, supporting growth, promoting innovation and enhancing competitiveness (Gupta, 2008). 

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Banks and other businesses alike are turning to IT to improve business efficiency, service quality and attract new customers (Kannabiran & Narayan, 2005). Technological innovations have been identified to contribute to the distribution channels of banks and these electronic delivery channels are collectively referred to as electronic banking, (Goi, 2005). The evolution of banking technology has been driven by changes in distribution channels as evidenced by automated teller machine (ATM), phone – banking, tele-banking, PC-banking and most recently internet banking (Chang 2003).

E-banking is the term used for new age banking system. E-banking is also called online banking and it is an outgrowth of PC banking. E-banking uses the internet as the delivery channel by which to conduct banking activity, for example, transferring funds, paying bills, viewing checking and savings account balances, paying mortgages and purchasing financial instruments and certificates of deposits (Mohammed, Siba & Sreekumar, 2009). It is difficult to infer whether the internet tool has been applied for convenience of bankers or for the customers’ convenience. But ultimately it contributes in increasing the efficiency of the banking operation as well providing more convenience to customers. Without even interacting with the bankers, customers transact from one corner of the country to another corner.

Electronic banking has experienced explosive growth and has transformed traditional practices in banking (Gonzalez, 2008). The e- banking is leading to a paradigm shift in marketing practices resulting in high performance in the banking industry. Delivery of service in banking can be provided efficiently only when the background operations are efficient. An efficient background operation can be conducted only when it is integrated by an electronic system. The components like data, hardware, software, network and people are the essential elements of the system. Banking customers get satisfied with the system when it provides them maximum convenience and comfort while transacting with the bank. Internet enabled electronic system facilitate the operation to fetch these result (Maholtra & Singh, 2007).
E banking has become an important channel to sell the products and services and is perceived to be necessity in order to stay profitable and successful (Christopher, Mike, Visit & Amy, 2006). There is a growing interest in understanding the users’ experience, as e-banking is observed to be a larger concept than user satisfaction (Pyun, 2002).

From this perspective, assessing the user experience is essential for many technology products and services (Salehi and Zhila, 2008). Customers have started perceiving the services of bank through internet as a prime attractive feature than any other prime product features of the bank. Customers have started evaluating the banks based on the convenience and comforts it provides to them.
The common definition for electronic banking, and the one used in this research comes from the Basel Committee Report on Banking Supervision (1998), e-banking refers to the provision of retail and small value on us banking products and services through electronic channels. Such products and services can include deposit-taking, lending, account management, the provision of financial advice, electronic bill payment, and the provision of other electronic payment products and services such as electronic money
2.2    Empirical studies on electronic banking
Different scholars have come up with different definition based on how they perceived electronic payment system. Below are the few empirical studies carried out at different location on this topic.
Karjaluoto, Heikki; Mattila, Minna; Pento, Tapio (2002) indicated that banks have the choice to offer their banking services through various electronic distribution channels technologies such as Internet technology, video banking technology, telephone banking technology, and WAP technology. They also indicated that Internet technology is the main electronic distribution channel in the banking industry. In other words, e-banking as an online banking that involves the provision of banking services such as accessing accounts, transferring funds between accounts, and offering an online financial service.
Thornton and White (2001) examine customer orientations and usage of financial distribution channels in the Australian financial industry, found that more recently most financial institutions, faced with competitive pressure after the introduction of deregulation in 1983, have rethought their strategies to take full advantage of IT.
Rafiu (2007) opines that the challenge to expand and maintain banking market share has influenced many banks to invest more in making better use of the Internet. The emergence of e-banking had made many banks rethink their IT strategies in competitive markets. This findings suggest that the banks that fail to respond to the emergence of e-banking in the market are likely to lose customers and that the cost of offering e-banking services is less than the cost of keeping branch banking. This notion was also confirmed in a study conducted by Jasimuddin (2004) when he examine the role of e-banking in Saudi Arabia. He indicated that the majority of Saudi banks had taken advantage of Internet technology to establish web sites but few offered e banking services. He suggested that if the Saudi Arabian banking industry wished to be successful in the global economy it would need to integrate Internet technology into its banking strategy.
Ayo (2006) investigates the prospects of e-commerce based on ability, motivation and opportunities (AMO) model and observed that virtually all companies have online presence. The paper reported the motivation and opportunities for e-commerce as low based on lack of e-Payment infrastructure and access to information and communication technology (ICT) facilities. Also, in an empirical assessment of customer acceptance of e-commerce carried out in Germany, Buse and Tiwari (2006) observed that, the highest mobile users are top management, followed by self-employed, salaried class, students and others. Government employees were found not to patronize mobile banking; the most favoured reason for carrying out mobile banking is ubiquity, next is overview of bank account, followed by immediacy; and the highest fear of customers about mobile banking is that of insecurity, next is cost, and uncomfortably.
Chiemeke, Evwiekpaefe, and Chete (2006) conduct an empirical investigation on adoption of e banking in Nigeria. The study identified the major inhibiting factors to Internet banking adoption in Nigeria such as, insecurity, inadequate operational facilities including telecommunications facilities and electricity supply, and made recommendations on how Nigeria banks can narrow the digital device. Also, the researcher revealed that Internet banking is being offered at the basic level of interactivity with most of the banks having mainly information sites and providing little Internet transactional services.
Similarly, Agboola (2006) investigates electronic payment systems and tele-banking services in Nigeria. The findings revealed that there has been a very modest move away from cash. Payments are now being automated and absolute volumes of cash transactions have declined. The result of the study revealed that tele-banking is capable of broadening the customer relationship, retain customers loyalty and enable banks to gain commanding height of market share if their attendant problems such as, ineffectiveness of telecommunications services, epileptic supply of power, high cost, fear of fraudulent practices and lack of facilities necessary for their operation were taken care of. Thus, going by the findings of most studies, we can argue that with electronic payment system, there will be healthy competitive advantage among the banks and it will lead to customer satisfaction and perfect services delivery to bank customers.
2.3 Area of deployment of common products on electronic banking System
A rudimentary level of electronic payment system has put in place by Nigerian automated clearing system (NACS) which adopts a procedure to facilitate the automated clearing and processing of cheque on line using a combination MICR and imaging technology. The system enables cheque document to be captures and processed at high speed with the use of sorter machines and state of the art computed technology. At this juncture, it is appropriate to highlights some of the electronic money instruments used by banks to transmit funds. Among the instrument are:
2.3.1 Electronic funds transfer
A universal trust bank of Nigeria is the only commercial bank that first venture into Electronic Fund Transfer before other banks joined. The system allows a customer account to be credited electronically within 24hrs anywhere within the branch and outside the branch anywhere in the country. It provides more suitable and cost effective way of transferring funds when compared with traditional modes such as a mail transfer and telegraphic transfer. It is more secure and time is saved when money is transferred through EFT. Examples of funds transfer are, Nigeria interbank settlement system (NIBSS), Nigeria electronic funds transfer (NEFT), Real time gross settlement (RTGS). The following mentioned above will be explained.

2.3.2 Nigeria interbank settlements system
NIBSS was incorporated in 1993 and is owed by all licensed banks and discount houses in Nigeria including Central Bank of Nigeria (CBN). It commenced operations in June 1994. NIBSS has put in place modern world class infrastructure for handling interbank settlement in order to remove the bottlenecks and settlement delays associated high value and retail transaction in money markets as well as interbank foreign exchange deals. NIBSS also operate an automated clearing system technology that facilitates clearing of cheques, electronic funds transfer, automated direct debit and automated direct credit. NIBSS was established with following objectives:
i.    To carry on business as a service oriented institution that provides a mechanism for same day clearing and settlement of interbank transfers and payment.
ii.    To provide infrastructure for elevating the level of efficiency in funds transfer generally whilst at the same time, reducing the risks associated with uncertainties in receiving value for payment and difficulties in maintaining efficiency treasuring operations and effecting timely reconciliation thereof.
iii.    To initiate, Develop, and integrated nationwide network for electronic or paperless funds transfer and settlement of transaction among others
Nibss operates in a manner close to GIRO payment in the western world. It is amenable to use in settling periodic direct debits and credit, standing order, salary upload, government payment, utilities etc.

2.3.3    Nigerian electronic funds transfer (NEFT)
NEFT payment is an irrecoverable funds transfer instruction because the payer’s bank simply will not accept the order if there are insufficient funds to cover the payment instruction. NEFT is quite similar to Giro payment which because popular in Europe and other parts of the world. NEFT which is the one of the methods by which interbank settlement can be settled and effected is more beneficial and also secure for both the customer and the banks. There are no cheques that may be misplaces, lost or stolen.
In addition, since the payment goes directly from the customer to the bank, there is no possibility of fraudulent alteration of the payment amount. It is also not time consuming because the senders amount is debited immediately and the recipient account in another bank is credited immediately, this makes the account reconciliation much simpler for the customer. The following are the benefits of NEFT,
i.    Clearing delays is eliminated in case of credit transfer
ii.    A payment instrument is more attractive to merchants than cheque as the Neft instrument is irrecoverable transfer instruction
iii.    It is a convenient means  of settling regular periodic payment as direct credits or direct debits
iv.    It can be used to pay government taxes, school fees, donations, salaries as it practices in developed country
v.    It provides necessary information to the beneficiary e.g. payers name, payment narration, this helps the reconciliation process for beneficiary.
2.3.4 Mobile banking
This is also known as M-banking. It is a term used for performing balance checks, account transaction payment, credit application, airtime top up, funds transfer, balance checking, statement of account and other banking transactions through mobile devices such as mobile phone or personal digital assistance (PDA).
Mobile banking involves using mobile devices to gain access to financial services. It is the most economical and most efficiency means of performing home banking.
2.3.5 Automated teller machine
This is a computerized telecommunications device that provides the clients of financial institution with access, to financial transactions in a public space without the need for a cashier, human clerk or a bank teller. Atm’s are known by various other names including, Atm machine, automated banking machine, cash dispenser etc.
On most modern Atms, the customer is identified by inserting a plastic ATM card with magnetic stripe or a plastic smart card with a chip that contain a unique card number and some security information such as an expiration date, issued date, name of customer, type of card etc. Authentication is provided by the customer entering a personal identification number (PIN) before any other transaction could be carry out. Using an ATM, customers can access their bank accounts, in order to make cash withdrawals, debits and cash advances, check their account balance, funds transfer, make enquiry, as well as purchase prepaid cell phone credit. Atm is reliable, efficient, effective and it waste no time.
2.3.6 Real time gross settlement (RTGS)
Real time gross settlement is a system that streamlines that settlement of large value transaction between banks and other financial institutions. Instead of moving physical amount of cash, the banks transfer funds electronically. When one bank transfers money to another bank, the funds immediately credited to the second bank and debited the first bank.
An RTGS system can also be defined as a gross settlement system in which both processing and final settlement of funds transfer instruction can take place continuously as it is a gross settlement system, transfers are settled individually i.e. without netting debit against credits, the system effects final settlement continuously rather than periodically at pre specified times provided that a sending bank has sufficient covering balances or credit. Moreover this settlement process is based on the real time transfer of CBN money. Gone are the old days when customers have to stand in a long queue at the bank to withdraw money or deposit into their supplier account, this process usually took a day or two days but now with the advent of information technology in the banking sector, these hassles have become things of the past. RTGS as one of the faster means of transfer funds from one bank to another is now available; this can be make use by both the banks and its customer. The following are the requirements
i.    Sender account number
ii.    Receiver account number
iii.    Receiver bank details
iv.    Amount to be remitted
v.    The beneficiary names
vi.    Sort code of the beneficiary bank
vii.    A duly sigh RTGS instruction
viii.    An indemnity signed by the sender
RTGS is very much efficient, effective, reliable, timely, and can be traceable as well as friendly, it eliminates delays and it is irrecoverable.
2.3.7 Telephone and pc banking products
This is a facility that enables customers, via telephone calls, find out about their position, with their bankers merely dialing the telephone numbers given to them by the banks. In addition, the computers on the phone would require special codes given to the customers as a means of identification of authentic users before they can receive any information they requested for. This is a service introduced into the banking balance as a result of computer telephone technology being made available (Ovia, 2001). The technology banking has a universe of possible application limited only by the imagination. These areas include: Account balance enquiry; Account statement printing; intra-Banks Account to Account Transfer; inter-banks Account to Account Transfer; Download Account Transaction etc. Telephone and PC banking brings the bank to the doorstep of the customer, it does not require the customer to have his premises; interactive Voice Response becomes a regular feature of operations; Text-to-speech capability becomes reality; A uniformed messaging capability become permanent feature of the bank.
2.3.8 Cheque truncation
This is a process that allows a bank to convert physical cheques into a substitute electronic form for transmission to the paying bank, eliminating cumbersome physical presentation of the cheques and saves time and processing costs. It eliminates exchange of physical cheque with presenting bank at the CBN clearing house. The cheque can be exchange electronically by scanning the cheque to the paying bank and value received the same day.
2.3.9 Traveller’s cheque
These are convenient payment instrument when travelling practically in all countries of the world these cheques can be enchased on ATMs or used to settle for goods and services. Travellers’ cheques facilitate and prevent difficulties in case they are stolen or lost.

2.3.10 Point of sale terminals (POS)
Point of sales is a terminals credit authorization, withdrawal, and cash payment. This enhances electronic fund transfer at the point of sale (EFT POS). EFTPOS enables a customer’s account to be debited immediately with the cost of purchase in an outlet such as supermarket or petrol station. It consists of the accumulation of the electronic payment messages by the retailer, which are subsequently passed on to appropriate institutions for processing. The purchase price is debited in the buyers account and credited on the seller’s account.
2.3.11 The card system
The card system is a unique electronic payment type. The smart cards are plastic devices with embedded integrated circuit being used for settlement of financial obligations. The powers of cards lies in their sophistication and acceptability to store manipulate data, and handle multiple applications on one card securely. Depending on the sophistication, it can be used as accredit card and debit card.
2.3.12 Credit card
This is a payment card issued to users as a system of payment. It allows the card holder to pay for goods and services based or the holders promise to pay for them. The issuer of the card creates a revolving account and grants a line of credit to the customers (or the users) from which the user can borrow money from payment to a merchant or as a cash advance to the user.
2.3.13 Debit card
This is also known as a bank and or check card, is a plastic payment card that provides the cardholder electronic access to his/her bank accounts. Some cards have a stored value with which a payment is made, while most relay a message to the card holder’s bank to withdraw funds from a payee’s designated bank account online debit cards require electronic Authorization of every transaction and the debits are reflected in the user’s account immediately.
2.4    Reasons for automation of banking operation
According to Idowu (2005), the following are the reasons for adoption of e banking in Nigeria;
To the bank’s
i.    Facilitation of decision making
ii.    Availability of essential information at finger tips
iii.    Improved service delivery
iv.    New product development
v.    Savings in space and running costs
vi.    Relevance among league of global financial institution.
To the customer’s
i.    Quality services enjoyed
ii.    Great reduction in time being spent in banking halls
iii.    Confidentiality
iv.    Bank statement, balance etc obtained ease
v.    24V7 service delivery.
vi.    Account could be accessed almost anywhere in the world
To the economy
i.    Creation of jobs and specialization
ii.    Improvement in commerce
iii.    Technological development
iv.    Data bank for National planning
2.5. Advantages of electronic payment systems
E-payments have several advantages, which were never available through the traditional modes of payment. Some of the most important are:
i.    Independence and Speed: This shows that, with the electronic banking, customers no longer dependent on branches that are close to them for banking services. This means that customer can deal with their financial affairs efficiently and at any time and at any place
ii.    Reliability: Electronic banking tends to be error proof than the traditional banking system. The information system has made everything simpler than before. Customers can have his bank statement cross check and also his balance compare to the old time when hands are used to recorded transactions in a ledger or when the customer have to queue in order to get his balance. With the electronic banking system, all this are possible.
iii.    Cost Reduction: Compare to old banking system, electronic payment system is cheaper and simpler to use. The cost of travelling to the bank and wait for a long time before a customer could be attended to has been eradicated by electronic banking, customer can seat conveniently in his house and do his transaction successful with no much cost and still make use of the time to attend to more important things.
iv.    Flexibility: Electronic banking can be used to transact many transactions at the same time. POS to make purchase while not carrying cash, ATM machine to make withdrawal or deposit without entering banking premises, MOBILE BANKING to effect any transfer, airtime top up, buy things online or pay bills etc. electronic banking is not restricted to solve a particular problem but many at customer convenience.
v.    Safety: Electronic banking has really safe many of our people, who like carrying huge amount of money all about in the name of business, with availability of credit card, customer money can be place on this card which can be used at any time for business transaction. Atm card also is an instrument which have helped customer to have access to their cash at any time compare to when money is being kept at home. More so, customer can monitor his account at any time to know if there is a fraudulent withdrawal from his account and probably take appropriate action should there be reason to suspect fraud and abuse.
vi.    Mobility: Electronic banking transaction can be carried out at any place and at any time, this makes it convenient for customer to effect their transactions wherever they may be without coming to the bank branch.
2.6. The emerging issues on electronic banking in Nigeria
At present, the situation does not seem to have shown any significant improvement. Whereas about 90 per cent of the banks in the country offer other forms of electronic banking services like telephone banking, ATM and electronic funds transfer, still electronic payment system is yet to take centre stage. This aspect of banking is still at the basic informative stage. This is so despite the widely acclaimed benefits of Internet banking against the traditional branch banking practice. Part of the reasons identified for the inability of banks in Nigeria to take full advantage of this mode of banking includes
i.    Lack of adequate operational infrastructure like telecommunication and power, upon which e-banking generally relies.
ii.    Due to the inability of the banks to integrate their operations into the Internet development process, Internet banking can be said to have less impact in the existing banking structure in the country.  Earlier articulated reasons why Internet Banking was having a moderate economic impact in the country include:
iii.    That Nigerian bank customers are not on the average trained on for teller jobs and the workings of Internet banking, a situation which makes transaction processing via Internet banking prone to error;
iv.    The absence of a clearly defined legal frame-work for internet banking, leaving banks with inadequate legal cover to provide the services;
v.    Poor telecommunication infrastructure all over the country.
vi.     In addition, the fact that Internet usage in the country has been abused by cyber-criminals makes its window unattractive for domestic banking operations and legitimate international operations. The inherent fear associated with patronizing Internet banking services in Nigeria is again re-in forced by the growing evidences that the world over, dubious Nigerians use fake bank websites to scoop funds from unsuspecting victims. In some cases, these crimes are committed using existing bank sites.
vii.    Lack of awareness of internet banking by most of the bank customer especially in the remote area.
viii.    Unstable level of electricity in Nigeria.
ix.    Constant down time by most of banks and this always keep customer on queue for long time
2.4  Theoretical Framework
A theoretical framework that conceptualizes and links consumer-oriented issues influencing adoption of internet banking is provided in this chapter. Within the internet banking adoption context, researchers have indicated various determinant or drivers that have had positive effect on adoption decision. For example, usefulness, compatibility, self efficacy, relative advantage, visibility and crial ability are few.  On the contrary, lack of user-friendly technology, high initial set-up cost, high security and privacy risk, lack of suitable skills, slow rate of adoption and low usage have been the major factors that have limited banks from wider spread of implementation of financial services over the internet.
In addition to the above, it is identified that there is limited information available either on actual adoption or usage rate for India’s internet banking service and this might be due to limited number of studies carried out in this field. also most of the studies available under this topic are exploratory studies that evaluate the functionalities of internet banking services using information from banks’ website, while the effectiveness of services was judged by collecting information from computer literate university students, thus, there was almost no studies conducted to understand what user and non-user perceive about internet banking services and what are the factors that have influenced user’s information. This study proposes to identify the factors that influenced adoption and use of e-banking/ internet banking services in India; it is being attempted by drawing upon a number of theories that have achieved popularity in the society of technology adoption behavior.

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