CHAPTER ONE

1.0       INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Business of marketing transaction is incomplete without an effective and an efficient payment system. Traditionally, goods purchased or services enjoyed are paid for through cash, cheque, bank draft, postal orders, money orders and letter of credit. This traditional system of payment for goods and services is usually cumbersome unsecured and inefficient.

In an attempt to make the economy a cashless economy, many countries through their banks and other financial institutions are making use of advancement or development in information technology.

Information technology is defined as electronic means of capturing, processing and communication information, in other words, it is a means to advance the knowledge of the society and it serves as a transmission belt, to generate access, disseminate and share knowledge, data information, communication and practice at all social levels. Thus information technology is the collection of storage manipulation and transfer or communication of information using electronic method or computer based system. The developments in information technology resulting in electronic payment systems are in the areas of internet and networking.

Internet is the global network of computers and users all over the world has made instantaneous and decentralized communication; it is an interconnected system of computers all over the world that store information in multimedia formats (Dayo, 2005).

Crayforth (1995), viewed network as the integration of computer system terminals, data and communication so as to snare data and resources these innovations have made electronic payment possible via electronic banking.

Electronic banking, otherwise known as cyber banking for online banking or home banking or internet banking is the carrying cut of various banking activities from home, office or on the road instead of a physical bank location. It saves time and money for users. Banking activities that can be carried out on line includes:

•          Checking current, savings, deposit, credit cards and money market account as anytime

•          Obtaining change and credit card statement

•          Electronic payment system

•          Downloading account transactions

•          Transferring money between accounts

•          Balancing account

•          Communicating with bank through –email

•          Assessing and handling finances when traveling

•          Paying cheque or money into a customers account in-bank through another branch of the same bank.

1.1.1    BRIEF PROFILE OF UNITED BANK FOR AFRICA PLC

United Bank of Africa Plc was incorporated on 23rd February, 1961 to take over the assets of liabilities of the Bangue Nationale Pour le Commence et industries, a bank which was established in France in 1932 and incorporated in Nigeria in 1999. In 1982, UBA plc opened a representatives offices in New York, which later metamorphosed into a full branch in 1989 and remains the only Nigerian bank with branch in New York, one of the world”s financial capitals.

In addition to UBA Plc another history by being the first and only Nigeria bank registered a branch in George Town, Caryman Island in 1983. It is imperative to relate standard Trust Bank (STB) Plc story prior to its merger with UBA Plc. STB Plc emanated from crystal Sank of Africa limited and obtained its universal banking license on 5th March, 1990. In 1997, the distressed group of new investors led by the current group managing Director/CEO of UBA Plc, Mr. Tony Elumelu MFR and the end of its second financial year  and post acquisition, the bank declared a profit before tax of over 1 billion.

UBA Plc is registered as a bank under the Nigeria law. It remains the largest bank in the country in term of total asset under management and contingents liabilities, excess of 1 trillion, Africa”s 13th largest bank as stated by Africa investor magazine in November 2006 and the only bank in Nigeria with the largest bank in country and the West African sub-region. The merger of the old UBA plc and STB Plc, which formed the new and enlarged UBA plc, was affected on 27th July, 2005 the bank subsequently took over continental Trust Bank plc in the December, 2005 and recently acquired the physical assets and private sector deposit of trade bank plc in December, 2006.

1.1.2    BRIEF PROFILE OF GURANTY TRUST BANK PLC

Guaranty Trust Bank Plc was incorporated in July, 1990 as a private limited liability company and wholly owned by Nigeria individuals and institutions, they currently was staff due to the personnel development and forward looking policies, in September1996, GTB became a publicly quoted company and now the Nigeria stock exchange president merit and that same year. It repeated the feat in 2000, 2003, 2005 and 2006.

The bank obtained a Universal Bank License and was appointed a settlement by the central bank of Nigeria (CBN) in 2003 its major quest is to continue to add value to the business of its stakeholders. This is evidenced in its introduction of real time on time banking in 2002, slip free banking in 2006 and the first truly. Interactive self service call centre GTB connect in 2006. It also became the first Nigerian bank to be rated by the standard and poor”s (S and P) and International Rating Agency as the most customer friendly bank and best bank for brand development. GTB plc maintains a very healthy relationship with it host communities, educational institutions, charity and governmental organizations. A share of its yearly profit goes towards supporting these bodies and other numerous causes. A number of educational institutions across the country have also benefited from the bank”s contributions to the sector as well as rehabilitation of health care centers.

1.2       STATEMENT OF THE PROBLEMS

In spite of the glamour and acceptance of electronic payment system over the manual payment system, yet the system posses some under listed problems which includes the following:

•          The Electronic System Abuse: Fraudsters are typical examples of the problems. Theft and robbers which have as their objective obtaining the property, money, services political and business advantages. Physical damage i. sabotage is also tantamount to fraudulent practices.

•          Absence of Legal frame Work and Policy: An enabling legal frame work to guide operations of e-payment system in Nigeria is currently lacking such as guidelines should define relationships, right and obligations, as well as the scope of electronic payment system.

•          Lack of Awareness and Social Acceptance: Awareness and social acceptance remain a dominant issue that will for long times confront electronic payments system would predominate in Nigeria.

•          Death of Electronic Work Force: Without an effective electronic work force or knowledgeable managers that can use an maintain services and other tools for enabling electronic banking, the development and growth of electronic payment system will be hampered.

1.3       OBJECTIVES OF THE STUDY

The main aim of this study is to examine the Electronic payment system and its impact on bank profitability, its workability and at the same time its acceptance by the populace that its, how practicable and how effective and efficient electronic payment system has been since, being applied and modernized the Nigerian payment system. The objective of the study is focused on the following:

•          To ascertain how inter-bank communication is carried out through e-mails.

•          To ascertain the procedure for the transfer of money between accounts

•          To ascertain how cheque or money can be paid into a customer”s account through another branch of the same bank.

•          To understand the procedure in balancing account through electronic payment system.

1.4       RESEARCH QUESTIONS

The relevant research question that relate to the purpose of studying the Electronic payment system and its impact on bank profitability are as stated below:

•          How can inter-bank communication improve the efficiency and effectiveness of banking industries?

•          How does accounting methods help banking industry?

•          How does subsidiary banks help in achieving the objectives of the banking industry?

•          How does inadequate communication between banks affects the improvements of banking industry?

1.5       RESEARCH HYPOTHESES

The hypotheses to be formed are:

•          Alternative hypotheses

•          Null hypotheses

This is based on the research question stated earlier. Efficiency and effectiveness of banking industry to a large extent.

H1: Electronic payment system has improved the efficiency and effectiveness of the banking industry to a large extent

H0: Electronic payment system has not improved customers relations in banking industry.

H1: The electronic payment system (EPS) has improved customers relationship in the banking industry.

Ho: The electronic payments system (EPS) has not improved customers relations in banking industry.

H1: Electronic payment system enhances growth in the profitability of banks.

Ho: Electronic payment system does not enhance growth in the profitability of banks.

1.6       SIGNIFICANCE OF THE STUDY

The successful outcome of this project based on its validity, reliability and dependability will enable various individuals, organizations and the society as a whole have a true industry to go into the world of computerization through electronic payment system in the nearest future, it will also be a matter of necessity for students or individuals to be literate and conversant with the use of electronic payment system as this will help to reduce highway robbers as well as giving people more confidence handling cash. The project will benefit individuals most especially students wishing to have verse knowledge on the importance and relative experience on the banking operations as regards to their efficiency and profit performance. In addition, it will also expose financial institutions to the advantages, that will amount to them if the electronic payment system is embarked upon. It will motivate organization to advance their operation since it serve as a measure or paramount for improving efficiency of environment as profit maximization objective which is the primary aim of a business, the society will also benefit from the outcome of the project since it informs, educates and enlightens then as to merit to be derived from operating and transacting business with the electronic payments system, as compared to the stress involved when manual system were been used.

1.7       SCOPE OF THE STUDY

The electronic payment system and its impact on bank profitability is rather a very broad topic and area of study entails a lot. However, for the purpose of this study, the research will be restricted to United Bank for Africa Plc, GTB and selected. But theoretically, some investigation into other commercial banks are relevant reports on the topic will be included in the project.

1.8       LIMITATION OF THE STUDY

In  the course of carrying out this research work, the researcher experienced the following constraints.

•          Time: in carrying, out the research work, few selected bank were used as time could not permit the researcher to visit numerous banks.

•          Finance: In addition to the time constraint the researcher was also faced with financial problems as she was unable to embark on some journey that required financial back up.

•          Crime Rate: Crime rate in the society was also a limiting factor to this research work as bank authorities could not released the required information for this research work.

1.9       DEFINITION OF TERMS

For better understanding various forms of electronic system will briefly be explained and other terms used in the study.

•          Electronic Fund Transfer: this is an instrument or tool that is used to effectively transfer the value of the exchange process for goods, services, ideas or information from one bank account to another account in another bank.

•          Electronic Fund Transfer at Point of Sale: This is an electronic means of transferring funds from the account of a customer to a customer to a company”s account at the point of sale of goods and services.

•          Electronic cheque: electronic cheque is the electronic equivalent of paper cheque. E-cheque uses digital certificate system that secures the transfer of payment between buyers, sellers and banks. Each party to the  transfer has a piece of software which allows them to issue or receive cheques.

•          Electronic Letter of credit: the activities relating to setter of credit can now be conducted online much faster than they can be offline. Such activities include the following:

a.         Letter of credit insurance

b.         Letter of credit arrangement

c.         Letter of credit advising

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