CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The use of information technology, broadly referring to computers and peripheral equipment, has seen tremendous growth in service industries in the recent past. The most obvious example is perhaps the banking industry, where through the introduction of information technology related products in internet banking, electronic payments, security investments, information exchanges (Berger, 2003), banks now can provide more diverse services to customers with less manpower. Information technology is a powerful force that drives the world towards a converging commonality (Levitt, 1992). From the beginning of the human era, technology has been of the most essential and most important factor for the development of mankind (Coombs et al, 1987).
During the last two hundred years, technological changes have often been related to economic growth in the forms of new types of goods and services Smith (1776) first wrote about technical changes in the form of new machines as some of the important causes of increasing incomes more than 200 years ago. Research shows that information technology affects financial institutions by easing enquiry, saving time and improving service delivery (ALU 2002). Information technology also provides solutions to the needs of modem societies in health care delivery, library services, education and communication networks within organizations etc. Seeing this pattern of growth, it seems obvious that information technology can bring about equivalent contribution to profit. Some available telecommunication and information technologies which are presently being used in the banking industry in Nigeria are telephone, facsimile, wireless radio phone, very small Aperture Terminal Satellite (USAT), telegraphy, computer system, magnetic ink character recognition (MICR) which provides room for encoding of cheques and all documents on a character in magnetic ink, electronic fund transfer (EFT), credit or value card etc.
According to Alu (2002), some banks in Nigeria have LANS (Local area network) in most of their branches but none of the banks have deployed home banking applications. As a result of the increased demand for customer deposits Nigeria banks especially the new generation banks have realized the imperative of good and prompt customer service. Also, due to the fact that some customers lost their deposits in the erstwhile technically insolvent or distressed bank customers have now become wiser, more discerning, alert and sophisticated with regards to choosing where it is safe to put their money and where they would be served promptly, preferably in a pleasant, courteous and friendly environment. Thus they have started looking at the level of services, with regards quality, speed and efficiency has become the major imperative. On the parts of the banks, they have realized that one way in which they can provide quality service is through the use of technology. Hence, there is a growing rate of adopting new technologies in Nigeria banking operations.
Moreover, there is growing evidence that customers have started associating quality of service in a bank with the bank’s possession of an online, real time system. Infact, possession of such system is now judged to be the sine qua non of a high quality banking service, in Nigeria, so a bank to be perceived as providing high quality service, that banks have to have an information technology system, which it uses to deliver services to customers in a more timely, friendly and considerate manner at no extra cost to the customer. To most people, information technology in banks means 24 hours access to cash through an automated teller machine (ATM) or paychecks deposited directly into saving or checking account. But information technology in banking now involves many different types of transaction. Hence, it uses computer and electronic technology as substitute for check and other transactions. Many financial institutions use ATM or debit card and personal identification number (PIN) for this purpose. Some use other forms of debt cards such as those that require at the most the signature of the customer of a scan.
Despite the fact that many of the new generation banks base their marketing strategy on the possession of supposedly online, real time systems, they find that their systems links are down for about 50 percent of the time. Many customers feel cheated by this reality and complain about the incessant “downtimes”. They were promised an online real time system, only to find out that the banks systems are down at least half the time, and that the national carrier NITEL (Nigeria Telecommunication) is to blame. Whilst the responsibility of the affected banks to take care of these problems and that they should be given the nationwide, online, real-time banking services they were promised. Faced with this dilemma, many banks in the country are resorting to alternative personal solutions by using the very small Aperture Terminal (USAT) satellite systems for long distance electronic communication. For short distances the MDS (Metropolitan Digital Services) system is often used. The problem here is that all the banks are trying to procure appropriate VSATS independent of one another. In other words, there is no collaboration between the banks in solving this very expensive technology and thereby providing a cost effective solution to the problem. It would also be fair to say that Nigeria banks are generally imbed with an overly competitive mind-set, which tends to foreclose the benefits of synergy of collaboration in solving most of their common problem.
1.2 STATEMENT OF THE PROBLEM
Banking industry in Nigeria has in recent times become highly competitive and the competition is expected to intensify as new players of local and global scope enter the industry. In an attempt to maintain their competitive edge as the terrain becomes more challenging to navigate, some banks have introduced information technology in one form or the other. From all indication, the nations banking environment can reasonably be said to be changing gradually from manual to an automated system with keenness and determination already being displayed by many banks towards information technology, the attainment of the highest level of information technology using internet of other types of online means) architecture is no doubt around the comer in the country. Apart from making business processes easier and more accessible in banks, the introduction of information technology in Banking industry has brought with it series of innovations.
The innovations have been manifested in many areas such as the introduction of automated teller machine (ATM), Smart cards, telephone banking, etc. Information technology in banks offers customers advantages such as speed and convenience. Inspite of its benefits, information technology will pose a lot of challenge to the banking industry (Nigeria inclusive) and to regulatory or supervisors in the system. Some of the challenges will include system failure, customer protection, the loss of audit trait and legal issues including money laundering or cybercrime. Above all, information technology also present some security challenges. The effort of the research will be directed to finding solutions to the following problems: The change of information technology to the banking sector. To attain the highest level of information technology in the banking industry. Providing a cost effective solution, so that all banks can source for this very expensive technology in other to provide quality service to customers. The present operating system of the banking industry and how information technology improves on business process making it more easier and accessible.To determine the basic impact of information technology. The ineffectiveness of information technology to tackle better banking services.
1.3 STATEMENT OF RESEARCH OBJECTIVES
The main aim of the study is based on the examination of the impact of information technology on the banking industry in Nigeria.
1. To review the impact of information technology on the banking industry in Nigeria.
2. To identify the various types of information technology devices and products used for banking services.
3. To identify those factors that could affect the development or adoption of information technology.
4. To examine the regulatory/supervisory challenges of development of information technology on the banking industry in Nigeria.
5. To examine the Central Bank of Nigeria (CBN) capacity, acts and guidelines on information technology.
6. To identify the impacts of information technology on bank customer satisfaction.
7. To examine the future prospect of information technology in the banking industry in Nigeria.
8. To recommend measures on how to improve the information technology on banking industry in Nigeria.
1.4 STATEMENT OF RESEARCH QUESTIONS
1. What are the factors that could affect the development or adoption of information technology?
2. What are the various types of information technology devices and products used for banking services?
3. What is the future prospect of information technology on banking industry in Nigeria?
4. What is the Central Bank of Nigeria (CBN) guidelines on information technology?
5. What are the measures recommended to improve information technology on banking industry in Nigeria?
6. What are the basic impact of information technology to bank customers.
1.5 STATEMENT OF HYPOTHESIS
Research hypothesis means an assumption in mind, which is yet to be verified but put forward as a starting point for reasoning and explanation of some theories or proposition concerning the topic of this project. When an idea is verified, it becomes a theory as an accepted assumption in small area when uphold. If it happens in a wide area then it becomes a law.
HYPOTHESIS ONE
Ho: That the impact of information technology in banking industry does not improve the operations of banks in Nigeria.
H1 : That the impact of information technology on banking industry improves the operations of banks in Nigeria.
MODEL SPECIFICATION
Y = f(x)
=> Y = β0 +β1 +X1 + β2 +X2 + β3 + X3 + U
Where Y = Returns from shareholders fund
β0 = Intercept
β1 = Parameter
X1 = Growth rate in computer technology cost
X2 = Interest: Interbank
U = Stochastic error
HYPOTHESES TWO
HO: Information technology does not provide banks with profits.
HI : Information technology provides banks with profits.
MODEL SPECIFICATION
Y = f(x)
=> Y = β0 +β1 +X1 + β2 +X2 + β3 + X3 + U
Where Y = Bank profits
β0 = Intercept
β1 = Parameter
X1 = Total Bank Asset
X2 = Total Deposit
X3 = Total Computer (Asset) Cost
U = Stochastic error
1.6 RELEVANCE OF THE STUDY
Considering the present political and economic situation in Nigeria and the condition that the numbers of banks in the increase tremendously due to technological advancement in the banking industry. There is every tendency for the research to be conducted to know the contributions and future challenges of information technology in the banking industry in Nigeria. Banks being one of the main stays on the financial sectors of the economy is very important to the society and need to be critically looked into since the world at large is fast growing in technology. And this has high effect on the banking sector of the economy, which in turn effects the economic situation of the nation. This study will also give true picture of banks to the public irrespective of information technology facilities so that they will be aware of this innovation.
1.7 SOURCES OF DATA AND METHODOLOGY
This Involves the process of research design that Is, how we are going to source for data or Information to be able to analyze the research topic. In order to access the perception of banking services with the use of regression model. The entire data would be carefully analysed and aggregated, processed and developed into descriptive statistic utilized for the evaluation of information technology on the banking industry.
1.8 SCOPE OF STUDY
The scope of this study will be restricted to the First Bank of Nigeria Plc, Ikorodu branch to be precise because of the number of branches the bank has in Nigeria
1.9 LIMITATION OF THE STUDY
The introduction of information technology will have a significant effect on the updating of banks services in order to maintain their existing customers and attract more shares of the target market. The basic limitation of the study will be the inadequate literature or the subject being the fact that it is a new trend in the banking industry in Nigeria. However, a good research requires a lot of work but there are constrains that may likely hinder the research from carrying out a very successful research work. Some of these constrains are the difficulties in getting proper and vital information’s from journals and articles.
1.10 DEFINITION OF TERMS
1. i. Automated Teller Machine (ATM): It is called 24 hours teller. It is an electronic terminal that allows customers to bank almost anytime.
2. ii. Electronic Fund Transfer: This is a system that allows a customers account to be credited electronically within 24 hours anywhere in the country
3. iii. Computer: The term computer is used to describe a service that’s made up of a combination of electronic and electro mechanical components.
4. iv. It is used to store every information as regards to customers services.
5. v. Electronic Check Conversion (Ecc): It converts a paper check into electronic payment at the point of sale such as when a company receives your check in the mail.
6. vi. Home UNK: This is an electronic products that allows banks and customers to transact business at home.
7. Internet Banking: This is a system of banking in which personal computer (PC) connected to the bank i.e. personal computer via the internet allows a customer to transact banking business when, where and how he/she wants it with little or no interaction with the bank physically.
8. Counting Machine: It is used for counting notes and has assisted in counting large amounts during savings and withdrawals by customers. It helps in reducing the mistakes of the bank staff in counting boredom. And also, the customer now spends few minutes in transacting banking business.
9. ix. Security Door: This is used as a means of security check to prevent people from gaining access into the bank with unwanted or very harmful materials e.g. guns, knives or heavy metallic objects etc.
10. x. Smart Card: A type of store-value card in which one or more dips or microprocessors are embedded, making the card capable of storing data, performing calculations or performing special purpose.
11. xi. Prepaid Card: A stored value card as well, on which monetary value is stored and for which the customer has paid the issuer in advance.
12. Personal Identification Number: It is a sequence of digits used to verify the identity of a device holder.
13. Value Card: This was generated from the idea of smart card, it is an electronic equivalent of cash (substitute for cash and coins) reloaded and could be accepted as a means of payment for goods and services.
14. Mobile Banking: This is a banking system that offers customers the freedom of banking with mobile phone.
15. Telephone Banking: This involves the transaction of banking business through telephone from anywhere there is access to telephone anytime of the day.
16. Pre-Authorized Debit (OR Automatic Bill Payment): A form payment of regular, recurring bills from his or her account on a specific date, and usually for a specific amount e.g. car payments, housing payments, budget plan utility bills). The funds electronically transferred from the customer’s account to the creditors account.
17. Electronic Bill Presentation and Payment: This is a form of bill payments by which bills are presented to a customer online, via either e-mail or a notice in an e-banking account. After presentment, the customer may pay the bill online when convenient. The payment is electronically deducted from the customer’s account.
18. Direct Payment: Also known as electronic payment, it is a form of payment that allows a customer to pay bills through electronic fund transfer. Funds are electronically transferred from the customer’s account to the creditors account. Direct payment differs from a pre-authorized debit in that the customer must initiate each direct payment transaction.
19. Direct Deposit: This is a form of payment by which an organization (such as employer or a government agency) pays funds (such as employer benefits) via an electronic transfer. The funds are transferred directly into a consumer’s bank account.
20. Debit Or Check Card: A card used at an ATM or a point-of-sale terminal that enables a customer to have funds directly debited from his or her bank account. Payroll Card: It is a type of stored-value card issued by an employer instead of a paycheck that enables an employee to access his or her pay at aims or point-of-sale terminals. The employer adds the value of the employee’s pay to the card electronically