CHAPTER ONE INTRODUCTION
1.1 Background to the Study
Banking has come a long way from the time of ledger cards and other manual filing systems. Most banks today have electronics systems to handle their daily voluminous task of information retrieval storage and processing. Three or four decades ago, banking was a simple business; customers saved their money with banks and received their financial services from banks. When customers open account they received passbook from the banks with which the account would be operated and when it is a current account, they received cheque books for the same purpose.
Banking industry of the 21st century operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate. Information and Communication Technology (ICT) is at the centre of this global change curve of electronic banking system in Nigeria today (stevens; 2002) asserts that they have over the time been using electronic and telecommunication networks delivering a wide range of value added products and services. Managers in banking industry of Nigeria cannot ignore information systems because they play a critical impact in current banking system. They point out that the entire cash flow of most fortune banks are linked to information systems.
Today, the banking industry has moved into an era of menu- driven ultra robust specialized software programmes called banking applications. These applications can carry out virtually all banking functions relying heavily on information collections, storage, and transfer and processing (ovia, 2008).
The 21st century advancement in technology has played an important role in improving service delivery standards in banking industry. In its simplest form, Automated teller machines (ATMs) and deposits machines now allow customers carryout banking transactions beyond banking hours.
With online bank, individuals can check their account balances and make payments without having to go the bank hall. This is gradually creating a society where customers no longer pay for all their purchases with hard cash. For instance bank customer can pay airline ticket and subscribe to initial public offerings by transferring the money directly from their account balances by electronics transfer of credit to the seller’s account. As most people now own mobile phone, banks have also introduced mobile banking to cater for customers who are always on the move. Mobile banking allows individuals to check their account balances and make fund transfer using mobile phones. E-banking has made banking transactions easier around the world and it is fast gaining acceptance in Nigeria. The delivery channels today in Nigeria electronic banking are quite numerous as it is mentioned here, Automated teller machine (ATM), point of sale (POS), Telephone banking, smart cards, internet banking etc. Personal computer in the banking industry was first introduced into Nigeria by society general bank as the popular PC. Easy access to the internet and the World Wide Web (www) which is generally part of electronic banking. The delivery products by banks on public domain is an indication of advertisement which is known as electronic commerce which involves the transfer of information across the internet between individuals and business organizations using electronic media.
It is on the basis of these developments in banking industry that the study seeks to empirically examiner the impact of electronic banking on bank performance.
Historically first bank of Nigeria PLC was established in 1894 and has itself as a leading banking institution and major contributor to economic advancement and development in Nigeria. The bank has 536 branches across the nation.
At inception the bank was incorporated as a limited company under the name; Bank of British West Africa (BBWA), with the head office originally in Liverpool. The bank was restructured in 1957 and the name changed to Bank of West Africa (BWA). In 1966 the bank merged with standard bank, UK and adopted the name standard bank of West Africa limited. The bank kept on developing until the company’s decree of 1968 finally changed the name in 1979 and 1991 to First bank of Nigeria limited and First of Nigeria PLC, respectively.
According to Awe (2005), the criteria for picking First bank as the number one in the country include tier 1 capital, asset base, capital assets ratio, profit growth, profit on capital, returns on assets and cost- income ratio. He also attested to giant steps the bank has made in e- banking for its leading initiative in developing information and communication technology (ICT) in its operations across the country. He said and I quote “First Bank’s ability to deploy sophisticated ICT banking system is particularly note worthy when one considers the prevailing poor infrastructure, which more or less present a sizeable barrier to business operations in Nigeria.”
First bank as a foremost Interswitch member bank provide an avenue for the populace to use debit cards which can be used on all payment terminals (ATM and POS, etc) deployed by Interswitch and Card Technology Limited (CTL), both switch networks.
Interswitch limited, a transaction switching and processing company that provide online, real time interactive commerce solutions announced the signing of interconnect memorandum of understanding with Cards Technology Limited (CTL), First bank was the first company in Nigeria that was approved by MasterCard Service Provider (MSP).
1.2 Problem of the Study
Einsten and Infield (1971:24-31) asserts that “the formulation of a problem is often more essential than its solution” Electronic banking as adopted by banks across the country and First Bank in particular was aimed at; Enhancing the performance of the bank as regards operating profit, profit before taxation, profit after taxation and ensuring that the money spent on e-banking does not exceed the returns which the system will yield thereafter. Finally, to increase the speed, efficiency and accuracy of bank transactions. Customers as well as attached various expectations on e-banking based on their transaction and information needs.
In Nigeria, customers of banks today are no longer worried about safety of their funds and increased returns on their investments. Customers demands efficient fast and convenient services that will meet their particular needs and support their business goals. They want to be able to check their balance online, find out if a cheque is cleared, transfer fund among accounts even want to download transaction records into their own computer at work or home. All these are only achieved through electronic banking.
In line with rendering quality and acceptable services, most banks in Nigeria are investing large sum of money in information and communication technology, expectedly such banks services have improved. United Banks for Africa (UBA), First Bank of Nigeria PLC (FBN) and Guarantee Trust Bank (GTB) are in the forefront in the use of IT and rendering services to their customers (the guardian newspaper April 18, 2008 P21). It also seeks the challenges involved in electronic banking industrial practice and approach of implementing them in Nigeria banking sector.
Despite the deployment of sophisticated information and communication technology in bank transactions across Nigeria, banks and customers still suffers some shortcomings associated with the introduced electronics banking system such as; the presence of queue in bank halls and around the bank delay of transaction alert messages, outage of service and breakdown associated with ATMs (Automated Teller Machines), POS (Point Of Sale) and internet banking at large.
The above misfortunes have made banks lose a lot of customers, process transactions slowly, and make a lot of errors in the computation of balances and preparation of banks financial statements.
Above all, these challenges have made banks not to fully derive the benefits or yields or e-banking as planned.
1.3 Objectives of the Study
Research work is normally goal oriented. This study intends to discuss and exchange views on the impact of electronic banking on the performance of banks in Nigeria.
This research work is designed to achieve the following objectives:
1. Examine the impact of e-banking on performance, using operating profit.
2. Examine the impact of e-banking on bank performance, using profit before taxation.
3. Examine the impact of e-banking on bank performance using profit after taxation.
1.4 Research Questions
This research is an attempt to study the impact of e-banking on bank performance and also to indentify the problems and prospects. To fulfill this, the researcher will answer the following questions via findings;
1. To what extent does e-banking affect the performance, using operating profit?
2. To what extent does e-banking affect performance, using profit before taxation?
3. To what extent does e-banking affect performance using profit after taxation?
1.5 Research Hypotheses
Keliger (1973:431-485) described hypothesis as “conjectural statement of relationship between two or more variable and these must be measurable.
A hypothesis is a prediction or a tentative statement about a problem that is under investigation. Such statement stands the chance to being accepted or rejected after carrying out activities involved in the research; it is a set of assumption that is accepted provisionally as a basis of investment.
A hypothesis is very necessary because it makes available to a study, a sense of direction and purpose. It narrows the scope within which the researcher’s thinking with respect to the previous work and the work that follows.
The fact the researcher intends to investigate is the impact of electronic banking on bank performance. Stating the hypothesis we have;
1. Ho: there is no significant relationship between e-banking and performance, using operating profit (OP)
2. Ho: there is no significant relationship between e -banking and performance, using profit before taxation (PBT)
3. Ho: there is no significant relationship between e-banking and performance, using profit after taxation. (PAT)
1.6 Significance of the Study
With the rapid development of Information Technology (IT) banks are beginning to rely heavily on conducting banking transactions electronically.
The study would enable the banks executives and indeed the policy makers of the banks and financial institutions to be aware of electronics banking as a product of electronic commerce with a view to making strategic decisions. The research is equally significant because it would provide answer to factors militating against the implementation of electronic banking in First Bank of Nigeria plc.
It is the researcher’s intention that when this work is completely carried out, it will contribute immensely to the existing literature on the general application of e-banking services in modern day business. It will also contribute to efficient and effective performance of the staff that comes closer to the use of electronic banking services. This will eventually widen the horizon of business executive and employee in the application of electronic banking services in such vital accounting systems, investment appraisal and a host of others.
Furthermore, the problems associated with the manual process like delay, inaccuracy, inefficiency which is the bottleneck, the impact of e-banking will show how it has completely phased it.
1.7 Scope and the Limitation of the Study
In pursuance of the objective of the study; attention shall be focused on electronic banking among other banking services or electronic commerce implementation.
In order to conduct an empirical investigation into the adoption electronic banking in Nigeria and will also examine the nature of e- banking operations of first bank of Nigeria plc.
This work, for want of time could not cover all the banks in Nigeria that have e-banking services. The work is therefore limited to First Bank of Nigeria plc, Makurdi branch only. These limitations in one way or the other might have affected the fullest realization of this research. The limitation are lack of adequate and up-to date data necessary for successful completion of t his work. It is a laid down fact that the Information and Communication Technology (ICT) World is an ever dynamic world. It takes an appreciable account of money and time to get these developments to this part of the world. For this reason, the researcher then decided to conduct the study within the technological framework available in Nigeria and at first bank to be precise. Another problem that has affected the full realization of this study is time constraint. This work is to be concluded within a short period of time and this restriction in time employed made it impossible for the researcher to exhaust all areas affected.
1.8 Structure of the Study
The researcher has planned the research work such that the first chapter introduces how it will be carried out, the background to the topic of the study and the problems being faced by the researcher in the course of doing the research. Also, objectives of the study are being stated, the research questions, hypotheses and significance of the study are being stated. Inclusively, the scope and structure of the study and finally, definition of terms and rendered up with references.
Chapter two will deal basically with the literature review of e- banking services, functions and identify the benefits of e-banking among other things. This chapter will also analyze the problems of e- banking and recommendations of the possible e-banking system solutions.
Chapter three will be concerned with research methodology and design. The various methods use in this research to collect data will be stated in the chapter.
Chapter four will be more of data presentation, analysis and interpretations.
Finally, chapter five contains the summary, conclusion and suggested recommendations.
1.9 Definition of Terms
ATM (Automated Teller Machine): An ATM combines a computer terminal, record keeping system and cash vault in one unit, permitting customers to enter a financial firm’s book keeping system with either a plastic card containing a Personal Identification Number (PIN) or by punching a special code number into a computer terminal linked to the financial firms computerized records 24 hours a day. The ATM card is a complex circuit that process micro-processors with a single clip that contain complete arithmetic and logic unit of computer.
POINT OF SALE (POS): This refers to a computer facility that permits a customer to instantly pay for goods and services electronically by deducting the cost of each purchase directly from his or her account. The customer presents an encoded debit card to the store clerk who inserts it into a computer terminal connected to the financial firm’s computer system. The customer’s account is charged for the purchase and funds are automatically transferred to the stores deposit account.
ELECTRONIC DATA INTERCHANGE (EDI): this is the transfer of financial or business information or document between originations in machines readable form.
ELECTRONIC MONEY: this is referred to the money value measured on an electronic device in the customer’s possession. This electronic value can be purchased and hold on the device until reduced through purchases or transfer.
INTERNET BANKING: this is a banking service that uses the internet to carryout financial transactions and also linking customers with financial service providers. Through the internet a customer can verify real-time account balances anytime from any location, move funds instantly from one account to another, confirm that deposits have been made, cheques have been cleared and submit an application for loan and credit cards. It has to be noted that internet banking is just and aspect of electronic banking.
MOBILE BANKING: this is a product that offers customers of a bank access to services as they move from one place to another. Customers can make their transactions anywhere, such as account balances transaction enquiry, account verification, bill payment, electronic fund transfer, updates and history and transfer between accounts etc.
TRANSACTION ALERT: Customers carryout transactions on their accounts and need to keep track of these transitions prompted the creation of alert transactions. The system also serves as notification system to reach out to customers when necessary information need to be communicated.
ELECTRONIC BANKING (E - Banking): This is a web based service that enables a banks customer to access his/her account.
INFORMATION TECHNOLOGY: This represents the various types of hardware, data base management, telecommunication and other information processing technologies used in a computer based information system.
COMPUTER: A compute is any automatic device usually electronic which is capable of storing relatively large complicated sequence of mathematical and logic operations without human intervention.
ELECTRONIC DATA PROCESSING (EDP): This is the use of electronic computer to process data automatically.