Critical analysis of the digital payment system in the Nigerian banking system | By Muhammad Adamu


Like most contemporary African states, Nigeria is the result of European imperialism. It was named after the vast Niger River, the dominant physical feature of the country. The name was suggested in the 1890s by British journalist Flora Shaw, who later became the wife of then colonial governor Frederick Lugard. The current population of Nigeria¹ is 212,052,977, with 923,768 square kilometers.

Banking is defined as the business activity of accepting and protecting money held by other people and entities, and then lending that money to carry out economic activities such as making a profit or simply covering business expenses. operation. As Karl Marx once said, “Money plays the greatest role in determining the course of history.”

The banking system evolved in the 14th century in Italy. By the 18th century, London merchants had started storing their gold with goldsmiths who charged fees and issued receipts. However, the Nigerian banking sector emerged during colonial times with the establishment of colonial banks, with the primary purpose of serving the business needs of the colonial government. This happened years after traditional methods of saving money like, inside mattresses, under pillows, or digging in the ground to hide coins, were still prevalent. The banking system in Nigeria has been regulated by the Central Bank of Nigeria since July 1, 1959, when it began to operate.

With an increased population, Nigeria’s economy is ranked 27th among the world’s economies in terms of nominal GDP and 24th in terms of purchasing power parity. In 2019, the number of online shoppers in Nigeria reached 76.6 million with over 73 million active bank customers. With the advancement of technology, the banking industry has become simpler, faster, more accurate and even faster. Cash, checks, dividend warrants, travelers’ checks, money orders, debit and credit cards, bank transfers, automatic clearing house transfers, value chip cards, point of sale (POS), automated teller machines (ATM) and much more.

The demanding environment has exposed them to various challenges facing the Nigerian population, especially those of poverty and the high cost of shelter and banks are doing their utmost to create solutions by granting loans and accepting. mortgages.

The last decade has witnessed major changes in the financial sector: new banks, new financial institutions, new instruments, new windows and new opportunities, and with all of these, new challenges. The demand for new products, especially derivatives, is forcing banks to diversify their product line and rapidly change their processes and operations to remain competitive in the globalized environment.

But with the advancement of the world and to adapt to the test of time where everything goes digital, including money, Nigeria is not lagging behind. Online banking services were introduced in 2010 and were first implemented in Lagos in 2012 and have been adopted by all citizens and to some extent have had a positive impact on the Nigerian economy.

Digital payment services are forms of contactless, cashless and paperless payment methods. A digital payment, sometimes referred to as an electronic payment, is the transfer of value from one payment account to another using a digital device such as a mobile phone, point of sale (POS) or computer, digital channel communication such as mobile wireless data or SWIFT. (Society for Global Interbank Financial Telecommunications). Including payments made by bank transfers, mobile money and payment cards, including credit, debit and prepaid cards.

Digital payment methods have undoubtedly helped the Nigerian economy by saving time and reducing the frequency of bank trips and round trip transportation costs. And the security of the time-based token code and password (OTP) has given customers additional advantages in digital payment security.

A developing country like Nigeria has a huge population. Banking services need to reach people, even in remote and fragmented places. It is sad to see government agencies handing money over to traders and exposing them to all forms of negativity from the immoral to profit. Banks are also suffering from declining employee satisfaction, opening more branches in remote areas will help make digital payment reach everyone and more opportunities for the unemployed. Exposing the bank to potential and valuable customers would be one of the consequences if this were to be done.

Decentralized currency must be protected

Our world is moving forward, and everything is getting faster and easier. Cryptocurrency is undoubtedly currently the safest method of intercontinental digital payment system, but the fastest that the world has ever known. Imagine you are sending money from Abuja and the recipient receives it within a minute in China, yes! Just in a few minutes. Our banks need to ensure that decentralized digital currency is not just ignored, but protected in such a way that people can have more confidence to enter it rather than accept an outright ban on the deregulated system because the government cannot have access to an individual’s assets.

A cryptocurrency bank should be established or banks should have a side wedge inside their banks that deals with crypto to boost the morale of the population to engage in it more. That’s right, the crooks are there. Banks have also come under the scanner recently, due to various scams and embezzlement. The Nigeria Inter-Bank Settlement System⁴ (NIBSS) has made it known; Nigerian financial services companies lost 5.2 billion yen to fraud between January and September 2020. All in 9 months.

Cryptocurrency shouldn’t be banned just because of crooks or decentralization. Instead, it should be celebrated because for the first time in history citizens can have one hundred percent control of their funds and the government cannot for the first time freeze a person’s crypto wallet. as it can do in the banking system.

Equity must be brought to the banking system by loan

With the high level of poverty and starvation, people were forced to go to the bank to apply for loans to settle with the bank without conscience in terms of interest. The range of interest requests is simply too high. Banks should be aware of the interest charges. If the CBN can reduce its monetary policy rate (TPM) by 12.5% ​​⁴⁴, banks struggling to survive in a competitive market will be forced to reduce their interest on citizens as well since they are free to set their rates. ‘interest.

Unused humans

All humans must be taken away and the disadvantaged group must be able to benefit from the digital banking system in Nigeria. These groups include the illiterate and the disabled. Our technology is advancing and competitive spinoff banks should use the technology to empower incapable groups.

There is no doubt that the digital banking system has reduced the rate of cash transactions to the lowest possible minimum, while saving time and money for many Nigerians. If cryptocurrency can be accepted into the Nigerian banking system, the speed and time limit of intercontinental banking will be made possible, and the disabled group should also be able to integrate more people into the banking system.

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