Chapter One
Introduction
1.1 Background to the study
In Nigeria as it is in many developing countries, cash is the main form of payment. This makes the Nigeria to be heavily cash- based economy. However, the cost of cash to Nigeria financial system is high and increasing. It is in this regard that the Central Bank of Nigeria (CBN) introduced the cashless policy with the objective of promoting the use of electronic payment channels instead of cash (Nigeria). This study seeks to entails what has been happening and challenges of such policy, in a developing economy like Nigeria and mainly the traders in Jimeta modern market, Adamawa state
.Technology has impacted almost everything in today’s world by changing subsistence socialorders a modern social society. Electronic payments are broadly acknowledged in developednations today and in developing countries. Majorly, customers can be able to choose how tomake and get installments, adjusting the scope of qualities, for instance, security, comfort,speed as well as cost (AgingInPlace.org).
According to Ajayi (Ajayi)one of the prerequisite for the development of national economy is to encourage a payment system that is secure, convenient, and affordable. In this regard, developed countries of the world, to a large extent, are moving away from paper payment instruments toward electronic ones, especially payment cards (Humphrey). In these countries, for example, it is possible to pay for a vending machine snack by simply dialing a number on one‘s phone bill.
Payment systems have advanced into a near cashless society. This is because of the high development in technology, government laws and the presence of both private and public financial industry offer monetary clearing such as banks and credit card companies. These forms of cashless payment mainly include credit cards, cheques, debit cards and electronic money transfers. Credit cards are the most frequently used electronic payment system in the United States (Balaji & Balaji, 2017). The introduction of cashless payment was mainly to reduce the cost of money management, developing the efficiency of payment framework, and driving monetary consideration (Balaji, 2017) . Ĺwiecka (2015) stated that expanded utilization of cashless payment framework has stimulated forecast of cashless society. Shoppers can make installments over the web and other electronic installment frameworks in a cashless society.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.
Money is often said to have three functions: (i) a unit of account function, (ii) a medium-of-exchange function, and (iii) a store-of-value function. In a cashless economy, the third is not operative and, probably, neither is the second. Cashless economy does not refer to an outright absence of cash transactions in the economic setting but one in which the amount of cash-based transactions are kept to the barest minimum. It is an economic system in which transactions are not done predominantly in exchange for actual cash (Daniel)
Cashless policy is an initiative made by the Central Bank of Nigeria to decrease the amount of physical cash that is in circulation and also encouraging the use of electronic platforms for settlement or payment of goods and services. The Central Bank of Nigeria (CBN) has introduced a new policy on cash-based transactions which stipulates a cash handling charge on daily cash withdrawals that exceed N500,000 for Individuals and N3,000,000 for Corporate bodies. The new policy on cash-based transactions (withdrawals) in banks, aims at reducing (NOT ELIMINATING) the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions(Nigeria).According to the Central Bank of Nigeria,” the cashless policy was introduced in linewith Nigeria’s vision 2020 goal of being one of the top 20 economies of the world, and todrive the development and modernization of the Nigerian payment system. However,according to Nwaolisa and Kasie (2014), the use of cash in carrying out transactions hasremained relatively high in Nigeria. This is because of the poor network connections in theuse of Point-Of-Sale (POS) and bank transfers which result in debiting customers’ accountsmore than once, high transaction charges, as well as security and technical setbacks. Theseare some of the factors still posing challenges in crossing into a cashless society. Thetransition to a cashless economy raises a lot of concern as it seems there is yet no substantialevidence to justify its implementation in Nigeria. Thus, this research is to evaluate the impactof cashless policy on the financial performance of supermarkets” (Nwani Jemima John,2020).
Cashless policy also aims at controlling some negative aspects relating with high holding of liquid cash at hand, which brings about robbery and corruption, high subsidy, inefficiency and informal economy. Holding cash also leads to financial loss in case of fire outbreaks or flooding incidents. Analysis by the CBN has showed that only 10percent of daily banking transactions are above 150k, but the 10percent amount for majority of the high value transaction. This suggests that the entire banking population subsidizes the costs that the tiny majorities 10percent incur in terms of high usage. The use of high cash also results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth.
Through the advanced use of information technology, the policy facilitates funds 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. Also, M-PESA was introduced in Kenya as a small value electronic system that is accessible from ordinary mobile phones. It has experience exceptional growth since its introduction by mobile phone operator (safaricom) on Kenya in March, 2007 and has already been adopted by nine million customers, which about 40% of Kenya’s adult population. Wizzit and other mobile financial services including M-PESA in Kenya are helping low income Africans make financial transaction across long distance with their cell phones, thereby reducing their travel cost and eliminating the risks of carrying cash and also avoiding most banking charges. 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”(A.T.)
1.2 Problem Statement
The main focus of the Central Bank of Nigeria (CBN) as to the introduction of the cashless policy was to drive development and modernization of our payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020. It is generally believed that an efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth. Keying to this understanding substantial efforts have been put by Nigerian government to ensure implementation of cashless policies in Nigerian economic transaction especially the domestic trading system. Although there are many problems associated the transition into a cashless society in Nigeria, including bad network connections, high bank charges and security difficulties. Despite these challenges the overall effects of the policy on different segments of Nigerian economy is not completely ascertained. For this reason this study seeks to evaluate the impact of cashless policy on traders in Jimeta modern market, Adamawa State.
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