DEFINITION OF ELECTRONIC BANKING
The term electronic banking means all day access to cash through an Automated teller machine or direct deposit of pay checks into checking or savings account. But electronic banking involves many different types of transactions, rights, responsibilities and sometimes, fees. Electronic banking can also be defined in a very simple form, it can mean provision of information or services by a bank to its customers, via a computer, television, telephone, or mobile phone.
ORIGIN OF ELECTRONIC BANKING IN NIGERIA
During the Structural Adjustment Programme (SAP) in 1986, in Babangida regime brought to an end the kind of banking services rendered by the first generation of banks in Nigeria. The SAP changed the content of banking business. Just as the number of banks increases from 40 in 1985 to 125 in 1991, the SAP provided licence to more banks which posed more threat to existing ones and the more aggressive the marketing techniques adopted by them. In the process competition among themselves, the adoption of electronic banking was put in place in order to maintain a good competitive position.
EVOLUTION OF ELECTRONIC BANKING IN NIGERIA
Banking as come from a very long way from the periods of ledger card and other manual filling system to a period of computer age. Computerization in the banking industry was first introduced in the 1970s by Society General Bank (Nigeria) Limited. Until the mid-1990, the few banks that were computerised made use of the Local Area Network (LAN) within the banks. The sophisticated ones among the banks then implemented the WAN by linking branches within cities while one or two implemented intercity connectivity using leased lines (Salawu and Salawu, 2007).
Banks have adopted technology to their operations and have advanced from very simple and basic retail operations of deposits and cash withdrawal as well as cheque processing to the delivery of sophisticated products which came as a result of keen competition in view of unprecedented increases in the number of banks and branches. There was the need to modernize banking operation in the face of increased market pressure and customers demand for improved service delivery and convenience. According to Sanusi (2002) as cited by Dogarawa (2005). The introduction of e-banking (e-payment) products in Nigeria commenced in 1996 when the CBN granted All States Trust Bank approval to introduce a closed system electronic purse. It was followed in February 1997, with the introduction of similar product called ‘Pay card’, by Diamond Bank.
CBN additionally gave permission to a number of banks to introduce international money transfer products, on-line banking via the internet, and telephone banking though on a limited scale. It must also be stated that the deployment of Automated teller machine (ATM) by some banks to facilitate card usage and enhance their service delivery. Today, nearly all banks in Nigeria make use of a website. The service or ordering bank drafts or certified cheque made payable to third parties has also been increasingly automated (Irechukwu, 2000).
CHANNELS OF ELECTRONIC BANKING PRODUCT IN NIGERIA
The revolution in the Nigerian banking system which led to the increase in paid up capital from N2 billion to N25 billion effective from 1st of January 2006. This result to liquidation of weak banks in Nigeria that could not find merger partners. The revolution brought about changes to banking operations in Nigeria with aggressive competition among various banks. Each banks came up with new products, repackaged the old ones and came up with more efficient service delivery strategies. This more efficient service delivery was made possible through investment in information and communication technology (ICT) (Sanni, 2009). The huge investment in ICT has been the backbone of electronic banking, using different distribution channels. It should be noted that electronic banking is not just banking via the Internet. The term electronic banking can be described in many ways.
Personal Computer used by customers allows the customer to use all e-banking facility at home without them going to the bank. It gives consumers a variety of services so they can move be able to move money between accounts, pay their bills, check their account balances, and buy and sell goods.
Mobile phones are used a lot for financial services in Nigeria. Banks enable their customers to conduct banking services such as account inquiry and funds transfer through the mobile telephone.
AUTOMATED TELLER MACHINE
This is an electronics device provided by the banks which allows bank’s customers to make to withdraw cash and to check their account balances at any time of the day without the need for a human teller. Many ATMs also allow people to transfer money between their bank accounts or even buy postage stamps. To withdraw cash, make deposits, or even transfer funds between accounts, you will insert your ATM card and enter your personal identification number known as pin. Some ATMs impose usage fee on consumer who are not member of their institution. ATMs must allow the customers to be aware of the fee that will be charged provided on the terminal screen or on a sign next to the screen. If one incurred a loss or stolen ATM card, he or she should notify the bank.
This is involves conducting of banking transactions through the use of electronic cards such as (Value Card, ATM Card, Debit Card, Credit Card etc.). It makes it easy for bank customers to have access to cash, carry out transfers and make enquiries about their accounts balance without them visiting the banking hall.
(i) Credit cards: These are cards that are plastic in nature encoded with electromagnetic identification. Credit cards allow the holders of the cards to make purchases without any immediate cash payment. Credit limit is fixed by the issuing banks based on the financial history of the user.
(ii) Debit card: When compare with credit cards is an instrument which enables an immediate charge or debt into cardholders account on the sales of goods and services made to him or her in other words the holder is using the balance standing in is deposit account
POINT OF SALE TERMINAL (POS)
A Point of Sales (POS) Terminal are machines that are used to accept cards for payment of goods and services. POS Terminal allows owners of card to have a real-time online access to funds and information in his or her bank account through the use of debit or cash cards.
Customers carry out debit or credit transactions on their accounts on daily basis and the need to keep track of those transactions prompted the creation of the alert system by the Bank to notify customers of those transactions when it take place. The alert system also notify or reach out to customers when necessary information need to be communicated.
ELECTRONIC DATA INTERCHANGE (EDI)
The transfer of information between organizations in machine readable form.
Internet banking permits bank customers to perform or conduct transaction on the account from any location across the world such as making enquiries, bills payment etc. with speedy respond through the web and email system online.
This allows users of the internet to pay their bills directly over the internet without having to send the paper cheque.
BENEFIT OF ELECTRONIC BANKING
Electronic banking is important to both customers and banks in various ways
(1) Improve customer service: Electronic banking allow banks to provide new, faster and better service to its customers, thereby, bringing up the banks to international standards and enhancing competition among other banks.
(2) Reliability of transaction: when transaction are done manually, error is prone to happen, but Electronic banking helps to ensure accurate and timely transactions.
(3) Satisfy: Electronic banking ensures the safety of bank dealing with their customers. Unsafe banking practice can cause huge loses to the bank especially in the cause of misrepresentation of account owners.
(4) Reduction in workload: Due to introduction in electronic banking the workload of the bank as reduce as more people conduct their various transactions electronically rather than them coming to the bank.
(5) Information: Electronic banking makes it easy for banks to convey information about their service to customers through the use of internet, banks can also easily communicate or send information to customers through the use of Electronic mail.
These are some of the services provided by banks to customers, they can also provide statement of account easily to their customers, by sending it to their e-mails, this will make it more comfortable for the customers.
Electronic banking provide various benefit to customers such as;
(1) Availability of cash: Electronic banking makes it easy for customers to easily get cash any time they need it from their account, this is possible through the use of Automated Teller Machine (ATM)
(2) Stress Relieve: Since transaction can be done anywhere through the use of electronic banking, this will make customers comfortable.
(3) Payment of bills: It is easy for customers to pay their bills such as PHCN bills (Power holding company of Nigeria) Payment for DSTV card when it as expire. This is possible because banks as provide various means for this payment to occur such as Quick teller etc.
(4) Access to Information: Bank customers can easily get information from their banks about the provision of new product or about a problem that as occur.
(5) For Consumers: Increase convenience for customers, more service options for customers, reduced risk of cash-related crimes, cheaper access to banking services and access to credit.
REASONS FOR AUTOMATION OF BANKING OPERATION
According to Idowu (2005), the following are the reasons for adoption of e- banking in Nigeria; (a) to the bank
(1) Facilitation for easy decision making
(2) Availability of quality information
(3) Improve in service delivery
(4) Development of new product
(5) Savings in space and running costs
(6) Relevance among league of global financial institution.
(b) To the customer
(1) The quality of service they enjoy
(2) Reduction in time being spent at banking halls
(4) Statement of account obtain easily
(5) 24 hours service delivery.
(6) Customer account could be accessed almost anywhere in the world
(c) To the economy
(1) Creation of jobs
(2) Improvement in commerce
(3) Development in technology
(4) Data bank for National planning
CHALLENGES OF E-BANKING IN NIGERIA
Some of the problems facing electronic banking in Nigeria are;
(1) MONEY LAUNDERING: Money laundering can be defined as a derivation of washy money from illicit activities especially drugs trafficking, advance fee fraud and other forms illegal activities. Development in Electronic banking makes it possible to transact business electronically which can be used to launder money.
(2) FRAUD: Fraud which literally means a conscious and deliberate action by a person or group of persons with the intention of altering the truth or fact for selfish personal gain. The high exposure of the system to fraudsters, and other criminally minded persons who could access confidential information from the system if security measures are weak to check personal files is a challenge of electronic banking.
(3) CONSUMER PROTECTION: Another problem of electronic banking is the absence of regulatory body to protect the consumers of the product or services.
(4) SYSTEMS OPERATIONAL RISKS: Bank rest on the use of electronic banking to conduct business which could result to system failure.
(5) POOR NETWORK: Bad network is a major challenge facing electronic banking in Nigeria, poor network can lead to inability to withdraw money from the Automated Teller Machine (ATM), inability to send alert to the customer if money has been deposited into is account or if money has been deducted from is account.
(6) LITERACY ISSUES: This can be refer to as a situation when all targeted people are not educated, while some do not know how to make use of electronic banking. For instance, a dubious businessman may see a customer finding it difficult to operate the POS (POINT OF SALE) terminal and decided to deduct more than what the person consume.
THREATS OF CYBER ‘ CRIMES ON THE NIGERIAN BANKING PREMISES
Fraudsters or 419, which is one of the most popular of all internet frauds in Nigeria, Has its origin from Nigeria in the 1980s. Its development and spread started through the developments in information technology at inception. Later in the early 1990s, it became integrated into the telecommunication facilities such as fax and telephone from the late 1990s following the introduction of internet and computers, 419 crimes became prevalently perpetrated through the use of e-mail and other internet means (Amedu, 2005). The latest dimension taken by this fraudsters is the use of fake internet bank site, and using it to encourage victims to open accounts with them. These issues basically causes problem to electronic banking, which includes confidentiality, integrity and availability.
Several factors are responsible for the above situation. They include weakness of the judicial institutions to make and enforce laws on cyber-crimes; inordinate tolerance for corruption among Nigerian public and government agencies; unemployment among graduates, and the gap between the rich and the poor caused mainly by bad governance. In the main, erosion of good value principles and corruption constitute the greatest cause of rising cyber-crimes among Nigerian (Domestic electronic payment in Nigeria) (Amedu, 2005).
Jamal (2003) defined customer satisfaction as the meeting of one’s expectations relating to the product used by the customer; these are sentiments and feelings about the product used by the customer. Previous studies (Schultz and Good, 2000; Churchill and Surprenant, 1982; and Patterson, (1993) they agreed that the service performance has direct impact on customer satisfaction. They believed that interaction between them and the customer plays a key role in organizational success or failure and customer satisfaction is a critical performance indicator. File and Prince, (1992) according to File and Prince they explained that satisfied customers will be loyal to the organization and they will tell others about their favourable experience thereby leading to positive word of mouth advertising. Sahereh et al, (2013) identified ten (10) factors influencing satisfaction as follows:
(1) Properly behaviour with friendly: Being polite and friendly to customers will definitely generate more customers and will make customer relationship with bank strong. Friendly service is a necessary condition for development of activities and impress a good name about the bank.
(2) To speed in delivery of services: Anything that leads to customer satisfaction will help them to reach their goal earlier.
(3) Accuracy in providing services: This factor wants to minimize in error rate of doing things and improving quality of work to the standards and acceptable by the people so as to result to the trust and confidence of customers and increasing their satisfaction.
(4) Standard-Oriented: If customers have to ensure that the relationship does not rule and providing facilities request them is done based on standard and criteria, trust isn’t deprive and will not lead to their disappointment.
(5) Interest of deposits: Without doubt depositors are attending to the actual interest that should be considered inflation and other costs carefully.
(6) Secrecy: The banks customers expect that bank personnel in maintaining statements of accounts function or other financial issues do not disclose their account to anybody even their closest relatives.
(7) Skills of personnel: based on the researches done the necessary conditions for employment post include: The ability to move, speed in the work, balancing, and the ability of such.
(8) Guiding and presenting the necessary information and helpful: The right guidance on how to use customers from service will result to the speed of work and customer satisfaction.
(9) Discipline: Discipline is a very important features in all aspect of human life. Discipline led to focusing on the work and higher level of service delivery.
(10) Ease of access to services: Banks could easily apply to most services, this will result to greater customer satisfaction.
BANK CUSTOMER RELATIONSHIP
Bank customer relationship, is a special contract where a person entrusts valuable items (the customer) with another person (the bank) with the intention that such items shall be retrieved on demand from the keeper by the person who so entrust. The banker is the one entrusted with above mentioned valuable items, while the person who entrust the items a view to retrieving it on demand is called the customer.
The relationship between the bank and customer is based on contract. It is based on certain terms and conditions. For instance, the customer has the right to collect his money on demand personally or by proxy. The banker is under obligation to pay, so long the proxy is duly authorized by the customer. The terms and conditions governing the relationship should not be allowed to be leaked to a third party, particularly by the banker. Also the items kept should not be released to a third party without authorization by the customer.
A key issue here is how to handle the rising level of frauds prevalent in the entire banking system, and how to make the Internet banking fit so well in the banking structure of a country.
GUIDELINES ON ELECTRONIC BANKING IN NIGERIA
TECHNOLOGY AND SECURITY STANDARDS
CBN will monitor the technology acquisitions of banks, and all investments in technology, which exceed 10% of free funds, will henceforth be subject to approval. Where banks use third parties or outsource technology, banks are required to comply with the CBN guidelines.
STANDARDS FOR COMPUTER NETWORKS & INTERNET
(a) Networks used for transmission of financial data must be demonstrated to meet the requirements specified for data confidentiality and integrity.
(b) Banks are required to deploy a proxy type firewall to prevent a direct connection between the banks back end systems and the Internet.
(c) Banks are required to ensure that the implementation of the firewalls addresses the security concerns for which they are deployed.
(d) For dial up services, banks must ensure that the modems do not circumvent the firewalls to prevent direct connection to the bank’s back end system.
(e) External devices such as Automated Teller Machines (ATMs), Personal Computers, (PC’s) at remote branches, kiosks, etc. permanently connected to the bank’s network and passing through the firewall must at the minimum address issues relating to non-repudiation, data integrity and confidentiality. Banks may consider authentication via Media Access Control (MAC) address in addition to other methods.
(f) Banks are required to implement proper physical access controls over all network infrastructures both internal and external.
STANDARDS ON PROTOCOLS
Banks must take additional steps to ensure that whilst the web ensures global access to data enabling real time connectivity to the bank’s back-end systems, adequate measures must be in place to identify and authenticate authorized users while limiting access to data as defined by the Access Control List.
Banks are required to ensure that unnecessary services and ports are disabled.
Standards on Application and System Software
(a) Electronic banking applications must support centralized (bank-wide) operations or branch level automation. It may have a distributed, client server or three tier architecture based on a file system or a Database Management System (DBMS) package. Moreover, the product may run on computer systems of various types ranging from PCs, open systems, to proprietary main frames.
(b) Banks must be mindful of the limitations of communications for server/client-based architecture in an environment where multiple servers may be more appropriate.
(c) Banks must ensure that their banking applications interface with a number of external sources. Banks must ensure that applications deployed can support these external sources (interface specification or other CBN provided interfaces) or provide the option to incorporate these interfaces at a later date.
(d) A schedule of minimum data interchange specifications will be provided by the CBN.
(e) Banks must ensure continued support for their banking application in the event the supplier goes out of business or is unable to provide service. Banks should ensure that at a minimum, the purchase agreement makes provision for this possibility.
(f) The bank’s information system (IS) infrastructure must be properly physically secured. Banks are required to develop policies setting out minimum standards of physical security.
(g) Banks are required to identify an ICT compliance officer whose responsibilities should include compliance with standards contained in these guidelines as well as the bank’s policies on ICT.
(h) Banks should segregate the responsibilities of the Information Technology (IT) security officer / group which deals with information systems security from the IT division, which implements the computer systems
STANDARD ON DELIVERY CHANNELS
Mobile Telephony: Mobile phones are increasingly being used for financial services in Nigeria. Banks are enabling the customers to conduct some banking services such as account inquiry and funds transfer. Therefore the following guidelines apply:
(a) Networks used for transmission of financial data must be demonstrated to meet the requirements specified for data confidentiality, integrity and non- repudiation.
(b) An audit trail of individual transactions must be kept.
Automated Teller Machines (ATM): In addition to guidelines on e-banking in general, the following specific guidelines apply to ATMs:
(a) Networks used for transmission of ATM transactions must be demonstrated to meet the guidelines specified for data confidentiality and integrity.
(b) In view of the demonstrated weaknesses in the magnetic stripe technology, banks should adopt the chip (smart card) technology as the standard, within 5 years. For banks that have not deployed ATMs, the expectation is that chip based ATMs would be deployed. However, in view of the fact that most countries are still in the magnetic stripe conversion process, banks may deploy hybrid (both chip and magnetic stripe) card readers to enable the international cards that are still primarily magnetic stripe to be used on the ATMs.
(c) Banks will be considered liable for fraud arising from card skimming and counterfeiting except where it is proven that the merchant is negligent. However, the cardholder will be liable for frauds arising from PIN misuse.
(d) Banks are encouraged to join shared ATM networks.
(e) Banks are required to display clearly on the ATM machines, the Acceptance Mark of the cards usable on the machine.
(f) All ATMs not located within bank premises must be located in a manner to assure the safety of the customer using the ATM. Appropriate lighting must be available at all times and a mirror may be placed around the ATM to enable the individual using the ATM to determine the locations of persons in their immediate vicinity.
(g) ATMs must be situated in such a manner that passers-by cannot see the key entry of the individual at the ATM directly or using the security devices.
(h) ATMs may not be placed outside buildings unless such ATM is bolted to the floor and surrounded by structures to prevent removal.
(I) Additional precaution must be taken to ensure that any network connectivity from the ATM to the bank or switch are protected to prevent the connection of other devices to the network point.
(j) Non-bank institutions may own ATMs, however such institutions must enter into an agreement with a bank for the processing of all the transactions at the ATM. If an ATM is owned by a non-bank institution, processing banks must ensure that the card readers, as well as, other devices that capture/store information on the ATM do not expose information such as the PIN number or other information that is classified as confidential. The funding (cash in the ATM) and operation of the ATM should be the sole responsibility of the bank. (k) Where the owner of the ATM is a financial institution, such owner of the ATM must also ensure that the card reader as well as other devices that capture information on the ATM does not expose/store information such as the PIN number or other information that is classified as confidential to the owner of the ATM.
(l) ATMs at bank branches should be situated in such a manner as to permit access at reasonable times. Access to these ATMs should be controlled and secured so that customers can safely use them within the hours of operations. Deplorers are to take adequate security steps according to each situation subject to adequate observance of standard security policies.
(m) Banks are encouraged to install cameras at ATM locations. However, such cameras should not be able to record the keystrokes of such customers.
(n) At the minimum, a telephone line should be dedicated for fault reporting, and such a number shall be made known to users to report any incident at the ATM. Such facility must be manned at all times the ATM is operational.
Banks should put in place procedures for maintaining the bank’s Web site which should ensure the following:-
(a) Only authorized staff should be allowed to update or change information on the Web site.
(b) Updates of critical information should be subject to dual verification (e.g. interest rates)
(c) Web site information and links to other Web sites should be verified for accuracy and functionality.
(d) Management should implement procedures to verify the accuracy and content of any financial planning software, calculators, and other interactive programs available to customers on an Internet Web site or other electronic banking service.
(e) Links to external Web sites should include a disclaimer that the customer is leaving the bank’s site and provide appropriate disclosures, such as noting the extent, if any, of the bank’s liability for transactions or information provided at other sites.
(f) Banks must ensure that the Internet Service Provider (ISP) has implemented a firewall to protect the bank’s Web site where outsourced.
(g) Banks should ensure that installed firewalls are properly configured and institute procedures for continued monitoring and maintenance arrangements are in place.
(h) Banks should ensure that summary-level reports showing web-site usage, transaction volume, system problem logs, and transaction exception reports are made available to the bank by the Web administrator.
(a) Banks are obliged not only to establish the identity of their Customers (KYC principle) but also enquire about their integrity and reputation. To this end, accounts should be opened only after proper introduction and physical verification of the identity of the customer.
(b) Digital signature should not be relied on solely as evidence in e-banking transactions, as there is presently no legislation on electronic banking in Nigeria
(c) There is an obligation on banks to maintain secrecy and confidentiality of customer’s accounts. In e-banking scenario, there is the risk of banks not meeting the above obligation. Banks may be exposed to enhanced risk of liability to customers on account of breach of secrecy, denial of service etc. because of hacking /other technological failures. Banks should, therefore, institute adequate risk control measures to manage such risks.
(d) Banks should protect the privacy of the customer’s data by ensuring:
(1) That customer’s personal data are used for the purpose for which they are compiled. (2) Consent of the customer must be sought before the Data is used
(3) Data user may request, free of cost for blocking or rectification of inaccurate data or enforce remedy against breach of confidentiality
(4) Processing of children’s data must have the consent of the parents and there must be verification via regular mail.
(5) Strict criminal and pecuniary sanctions are imposed in the event of default.
(e) In e-banking, there is very little scope for the banks to act on stop payment instructions from the customers. Hence, banks should clearly notify the customers the time frame and the circumstances in which any stop-payment instructions could be accepted.
(f) While recognizing the rights of consumers under the Nigerian Consumer Protection Council Act, which also apply to consumers in banking services generally, banks engaged in e-banking should endeavour to insure themselves against risks of unauthorized transfers from customers account’s, through hacking, denial of services on account of technological failure etc., to adequately insulate themselves from liability to the customers.
(g) Agreements reached between providers and users of e-banking products and services should clearly state the responsibilities and liabilities of all parties involved in the transactions.