IMPROVING SECURITY IN CASHLESS APPLICATION

CHAPTER ONE

1.1 INTRODUCTION

The introduction of electronic banking, online transactions and mobile banking in Nigeria has paved way for a new era of development where the use and demand for physical cash is gradually declining. These recent evolution of technology in the Nigerian financial institutions posses interesting questions for economist, financial institutions, business analyst and the government regarding the current economical status, logistics, and availability of instruments to guarantee economic growth and stability, efficiency and effectiveness of the cashless policy.

Since the inception of humanity, various payment methods have been used to purchase goods and services starting with the trade by barter. The trade by barter method of transaction has been the foundation for the introduction of money and coins to solve the problem of double coincidence of wants and divisibility faced by trade by barter. The use of money/coins was introduced after the use of trade by barter method, and it has solved various challenges associated with trade by barter, but the use of money as an exchange medium has its own challenges and disadvantages and can still be replaced with a better payment systemthe cashless policy/banking.

Various advantages enjoyed by more developed nations such as the US has prompted the Central Bank of Nigeria CBN to adopt the cashless policy. At the end of the 1980s the use of cash for purchasing consumption goods in the US has constantly dropped with inflation Humphrey, 2004. Nigerias aim to be among the biggest economy by 2020 has driven her to gradually move from a pure cash economy to a cashless policy. Since Nigeria gained her independence in1960, there have been different constitutional reforms, change in economic and banking policies mainly aimed at stabilizing the economy, enhancing social welfare and enhancing economic growth and development.

In view of being one of the best and biggest economies in 2020, the CBN has started implementing the cashless policy/banking in some major states/cities in Nigeria such as Lagos, Kano, PortHarcourt and Onitsha. The CBN and Pro cashless policy activists have asserted reduction in crime rates, minimized risk associated with carrying huge sums of money, reduction in political corruption, reduction in banking cost, improvement on monetary policy in management of inflation and the overall growth and development of the economy of Nigeria as advantages associated with the implementation of the cashless policy.

1.2 BACKGROUND OF THE STUDY

Cashless economy is an economy where transaction can be done without necessarily carrying physical cash as a means of exchange of transaction but rather with the use of credit or debit card payment for goods and services. The cashless economy policy initiative of the Central Bank of Nigeria CBN is a move to improve the financial terrain but in the long run sustainability of the policy will be a function of endorsement and compliance by endusers Ejiro, 2012. The CBN cash policy stipulates a daily cumulative limit of N150, 000 and N1, 000,000 on free cash withdrawals and lodgments by individual and corporate customers respectively in the Lagos State with effect from March 30, 2012. Individuals and corporate organizations that make cash transactions above the limits will be charged a service fee for amounts above the cumulative limits. Furthermore, 3rd party cheques above N150, 000 shall not be eligible for encashment over the counter with effect from January 1, 2012. Value for such cheques shall be received through the clearing house. All Nigerian banks were expected to cease cash in transit lodgment services rendered to merchantcustomers from January 1, 2012.

The policy through the advanced use of information technology facilitates fund transfer, thereby reducing time wasted in Banks. Wizzit, a fast growing mobile banking company in South Africa has over three hundred thousand customers across South Africa. Likewise, MPESA was introduced in Kenya as a small value electronic system that is accessible from ordinary mobile phones. It has experienced exceptional growth since its introduction by mobile phone operator Safaricom in Kenya in March, 2007 and has already been adopted by nine million customers, which is about 40 of Kenyas adult population. Wizzit and other mobile financial services including MPESA in Kenya are helping low income Africans make financial transaction across long distance with their cellphones, thereby reducing their travel cost and eliminating the risks of carrying cash and also avoiding most banking charges Akintaro, 2012. It is assumed that the proper implementation of mobile phones and other technologies can aid the implementation of cashless policy and hence, the growth of cashless economy in Nigeria.

The introduction of the implementation of cashless policy policy is program of actions adopted by government began in Lagos State, Nigeria. Why Lagos According to Central Bank of Nigeria CBN, 2011 Lagos state accounted for 85 of POS and 66 of cheques transaction in Nigeria. Cashless economy aims at reducing the amount of physical cash circulating in the Nigeria economy and thereby encouraging more electronicbased transaction. According to Central Bank of Nigeria CBN, 2011 the policy is expected to reduce cost incurred in maintaining cashbased economy by 90 upon its full implementation in Nigeria. This study aims to look at the impact of cashless economy in Nigeria.

1.3 STATEMENT OF THE PROBLEM

Monetary policy as a technique of economic management to bring about sustainable economic growth and development through cashless policy and banking introduced by the Central bank of Nigeria CBN is not fully operational due to high rate of illiteracy, inadequate sensitization/education of the benefits of the cashless policy, and inadequate logistics such as the provision of internet connections in commercial areas, computers and Point on Sale POS machines.

Apart from the physical challenges, economic data and indicators are not fully available and reliable. There is a great challenge in attempting to analyse the true impact of the cashless policy on the economy of Nigeria as only few monetary and macroeconomic indicators can be traced with relation to the subject matter. Several scholars have attempted to analyze the cashless system or ebanking. However, it becomes clear that few studies present a comprehensive evaluation of cashless banking implications in developing countries. Most ignore its economic benefits of the equation while some do incomplete examination of its negative implications. This is often due to unreliable panel data for monetary and macroeconomic indicators. Although, this study focuses on Nigeria, it is difficult to translate cashless studies from one country to another. Even payments instruments that look similar across countries on the surface may be different due to historical and legal variations Daniel et al, 2004.

1.4 OBJECTIVES OF THE STUDY

The main objective of the study is to examine the impact of the cashless policy on the economy of Nigeria and how it affects economic growth. Specific objectives of the study include:

1. design a new system that will enhance the operations of the cashless system more effectivly

2. To examine the impact of the cashless policy on economic growth of Nigeria.

3. garanttee a secure means of authentication of transaction in the cashless economy/system

4. To examine the various challenges associated with the implementation of the cashless policy/banking.

5. To proffer suggestions on how cashless policy and other monetary policies can be managed for better contribution to the economic growth and development of Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

The study will give various insights into the various implications the introduction of the cashless policy will have on the economy of Nigeria. Through examining various economic indicators such as the gross domestic product GDP and inflation, the study will examine and compare growth trends and changes to determine whether the cashless policy introduced by the CBN has a negative or positive effect on the economy of Nigeria.

Various challenges and prospects identified in the study will also enable various stakeholders to tackle these challenges effectively by making policies that will address them and boost the economy of Nigeria.

1.6 SCOPE OF THE STUDY

In pursuance of the objective of the study; attention shall be focused on electronic banking among other electronic commerce implementation. In order to conduct an empirical investigation into the adoption of Electronic banking in Nigeria and will also examine the nature of electronic banking operations from the CBN bulletin from20102012.

1.7 LIMITATION OF THE STUDY

This research work is cantered on cashless transaction operation with a particular reference to online commence using tokens and one time key as a means of account verification system

Network Issues: This work requires internet connectivity for operation and functionality

Cost: The new system needs high cost maintenance to keep it running in the sense that a guru has to keep updating the system to secure it more from treats

Power: This new system requires power supply to run and execute its operation, of which, without it cannot function

1.8 DEFINITION OF TERMS

Access Products Products that allow consumers to access traditional payment instrument electronically, generally from remote locations

ATM Card An ATM card also known as a bank card, client card, key card, or cash card is a payment card provided by a financial institution to its customers which enables the customer to use an automated teller machine ATM for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.

CBN Central Bank of Nigeria.

Chip Card Also known as an integrated circuit IC Card. A card containing one or more computers chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.

Electronic Data Interchange EDI The transfer of information between organizations in machine readable form.

Electronic Money Monetary value measured in currency units stored in electronic form on an electronic device in the consumers possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Internet Banking This is a product that enables the Bank leverage on the Internet Banking System Module inbuilt on the new Banking Application BANKS implemented by the Bank to serve the Internet Banking needs of the Banks customers.

Mobile Banking This is a product that offers Customers of a Bank to access services as you go. Customer can make their transactions anywhere such as account balance, transaction enquiries, stop checks, and other customers service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balances, updates and history, Customer service via mobile, Transfer between accounts etc.

Payment System A financial system that establishes that means for transferring money between suppliers and of fund, usually by exchanging debits or Credits between financial institutions.

Point Of Sale POS Machine A PointofSale machine is the payment device that allows credit/debit cardholders make payments at sales/purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement etc.

Smart Card A Card with a computer chip embedded, on which financial health, educational, and security information can be stored and processed.

Transaction Alert Our customers carry out debit/credit transactions on their accounts and the need to keep track of these transactions prompted the creation of the alert system by the Bank to notify customers of those transactions. The alert system also serves as notification system to reach out to customers when necessary information need to be communicated.

Western Union Money Transfer WUMT Western union Money transfer is a product that allowed people with relatives in Diaspora who may be remitting money home for family upkeep, Project financing, School fees etc. Nigerian Communities known for having their siblings gainfully employed in other parts of the world are idle markets for Western Union Money Transfer.