AN ASSESSMENT OF THE EFFECT OF E-NAIRA PLATFORM ON NIGERIA COMMERCIAL BANKS

CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study

Nigeria's financial landscape has never been static. New services and products are offered on a regular basis, changing the way Nigerians engage with financial institutions and the Nigerian monetary and payment system (Adelman 2015). Prior to the introduction of electronic devices in the delivery of banking services in Nigeria, banking operations were and continue to be plagued by ineptitude, time-consuming bureaucracy, bottlenecks, long queues, crowds, and other public complaints (Chinwendu 2021). However, the most significant millennium development that has substantially influenced business operations around the world today is the rise of the information age. Every sector of the Nigerian economy, especially financial institutions, has been impacted by the information age. As a result, Automated Teller Machines (ATMs) and Point of Sale (POS) Terminals were developed and regarded as unique and inventive in previous decades. With their introduction, Nigerians with bank accounts are able to receive a debit card, enabling them to travel without cash and utilize ATMs and POS terminals.

Furthermore, with the creation of the Nigerian Interbank Settlement System (NIBSS), which serves as the central switch for Nigeria (NRA 2016), internet banking was introduced with the goal of assisting Nigerians in easily transferring money from one place to another speedily, rather than standing in long queues at banking halls to achieve the same goal. As a result, the emergence of mobile banking and mobile money has made the banking procedure appear less onerous.

These payment systems and procedures are currently the backbone of Nigeria's payment infrastructure. The Central Bank of Nigeria (CBN), on the other hand, has further established a new digitized payment system to generate various extensions to support and complement the infrastructure through the creation of eNaira. According to Emeka (2021), e-Naira, like the Naira note, is a legal tender and a form of payment system through which merchants, business entities and individuals can carry out financial activities. Prior to the development of eNaira, the banking sector introduced the mobile and internet banking system, which appears to be one of the generally accepted innovations in the banking sector as it promoted a cashless economy (Chinwendu 2021). This time, individuals do not carry physical cash all the time, and moreover, they can perform international transactions from the comfort of their destinations, though they bear the high cost of charges by banks. The development of this system was as beneficial to banks as it increased revenue (Abdulkareem, 2021).

Due to the creation of the eNaira, which appears as a strong competitor to commercial banks' products and services, banks in Nigeria have raised concern and alarm about how the launch of the e-Naira may affect their operations. eNaira is set to promote rapid transactions, low-cost diaspora remittances, direct government aid, simpler local payments, and secure banking, most of which are among the top-tier services provided by Nigerian banks. As a result, the establishment of eNaira appears to present a competitive challenge to Nigeria's banking sector. Therefore, upon this background, this study is aimed at analyzing the effect of the eNaira on commercial banks in Nigeria.

1.2 Statement Of The Problem

Modern-day monetary transactions have their roots in the barter system of ancient times. Over thousands of years, physical money has become a vital part of our daily lives until the idea of replacing cash with digital currency was popularized (UNB 2021). However, the genuine idea of replacing cash has not possible been achieved until recently with the development of mobile financial services and digital currencies (UNB, 2021).

Digital currency is a form of currency that is available only in electronic form.  That is, the transactions will take place virtually without any physical interaction. Globally, the financial sector has unquestionably embraced the present transition from physical currency to practically digital currencies via technology. Hence, given the expanding use of digital currency dispensation, various governments across the world, including Nigeria, have expressed interest in digital currency operations, with the CBDC option emerging as the perfect starting point for Nigeria (Emeka, 2021).

With the Nigerian government realizing the global and economic relevance of digital currencies, as well as their relevance to the Nigerian fiscal system, it has launched a digital currency platform called eNaira for its currency. eNaira is a central bank digital currency (CBDC) issued by the Central Bank of Nigeria as a legal tender. It is the digital form of the Naira and will be used just like cash (SearchNGR, 2021).

However, one of the pitfalls of implementing the eNaira is that it could disrupt the banking system negatively. Individuals may choose to hold eNaira rather than make deposits, reducing the amount of money available to banks for loans and other financial items (Wale, 2021). To keep people's money, local banks may have to hike their interest rates, hence  may have an impact on the interest rates that banks charge on loans, as banks may raise interest rates to assure timely payment into interest-bearing accounts.

Furthermore, the manual approach to bank services and management in Nigeria has been characterized by long queues, tally numbering, stress, and the waste of valuable work hours, among other things (Ayodeji, 2021).

Thus, the development of the eNaira appears promising to Nigerians because it would relieve them of a lot of bank stress, but commercial banks seem uneasy about this new development. As a result, the purpose of this study is to investigate the impact of e-Naira on commercial banks.

1.3 Objective Of The Study

The general objective of this study is to carry out an assessment of the effect of the e-Naira platform on Nigeria's commercial banks. Specifically, the study is set to:

1.        Determine if eNaira is beneficial to banks as it is to individuals and business organizations.

2.        Determine if eNaira will affect the utilization of commercial banks' services by customers,

3.        Determine if eNaira will negatively affect the banking operations in Nigeria.

1.4 Research Hypotheses

This study will validate the following hypothetical statement:

H01: eNaira is not beneficial to banks as it is to individuals and business organizations.

H02: eNaira will not affect the utilization of commercial banks' services by customers.

H03: eNaira will not negatively affect commercial banks' operations in Nigeria.

1.5 Significance Of The Study

This study will be useful to all forms of commercial banks in Nigeria, and also to the central bank of Nigeria, as it will help enlighten them on whether or not eNaira is beneficial to banks as it is to individuals and business organizations, whether or not eNaira will affect the utilization of commercial banks' services by customers, and lastly, whether eNaira will negatively affect the banking operations in Nigeria. For students and researchers, this study will serve as a source of information for them when conducting research on related topics.

1.6 Scope Of The Study

The study is focused on assessing the effect of the e-Naira platform on Nigeria's commercial banks. However, the study will also determine if eNaira is as beneficial to banks as it is to individuals and business organizations; if eNaira will affect the utilization of commercial banks' services by customers; and if eNaira will negatively affect the banking operations in Nigeria. Due to the nature of this study, respondents will be obtained from selected commercial banks in Ikeja, Lagos State, Nigeria.

1.7 Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced.

1.8       Definition of Terms

E-Naira: eNaira is a central bank digital currency (CBDC) issued by the Central Bank of Nigeria as a legal tender. It is the digital form of the Naira and will be used just like cash.

Banks:A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes. There are several different kinds of banks including retail banks, commercial or corporate banks, and investment banks.

Digital currency: Digital money (or digital currency) refers to any means of payment that exists in a purely electronic form. Digital money is not physically tangible like a dollar bill or a coin. It is accounted for and transferred using online systems.

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