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The economy is predominantly cash based, reflecting the preference of economic agents and
the weakness of the legal system to enforce contracts. The unintended social and economic
cost are the risks and inconveniences associated with cash transactions such as armed
robberies use of counterfeit banknotes as well as the inconvenience of carrying large
quantities of currency notes. This study assessed the payments system in the central bank of
Nigeria is undertaken to establish whether or not a relationship exist between payments
system and economic development in Nigeria. It provides an overview, structure and
development of the Nigeria payments system. It evaluates the role and highlights the problem
of establishing an efficient payments system in Nigeria. This study administered survey
questioners to the central bank officials. The findings of the study reveal that; the payment
system has promote effective transaction in the banking system, the payment system tools
such as ATM card, e-payment, debit note etc have promoted the economic growth in Nigeria,
The payment system in Nigeria is easy to use (user friendly), the CBN regulates, monitors
and enforces the payment system in the Nigerian banking sector, there are challenges facing
the use of payment system in Nigeria, the CBN has made enough efforts in promoting
effective use of payment system, there are uniform standards in banking sector for the use of
payment system, the Federal government micro finance policies enhance the economic
growth through the payment system, the payment system promotes economic growth through
the use of IT and adequacy of electrical power supply promote the effectiveness of payment
system. Based on the above findings, the study recommended that the Central Bank should
continue to improve the use of ATM, improve the central payment system for more efficiency
and encourage the populates on the use of ATM. In addition, more introduction of IT to the
payment system in order to reach the local level.
Title Page i
Certification ii
Dedication iii
Acknowledgements iv
Abstract v
Table of Contents vi
1.1 Background information/statement
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypothesis
1.6 Significance of the Study
1.7 Scopes of the Study
1.8 Organization of the Study
1.9 Definition of Terms
2.1 Conceptual Clarification
2.2 Theoretical Framework
2.3 Empirical Reviews
3.1 Research Design
3.2 Research population
3.3 Sample and Sampling Technique (s )
3.4 Research Instrument (s)
3.5 Validity and Reliability of Instruments
3.6 Data Collection Technique(s)/ method(s) of Data Collection
3.7 Data Analysis Technique(s)
4.1 Introduction to Data Analysis
4.2 Analysis of all Data Collected
4.3 Description of Research Instruments used in the Analysis and why each is
used for purpose it is used for
4.4 Summary of Data Analysis and the result achieved
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendation
5.4 Research for further studies
Appendix I: (Research Questionnaires)
1.1 Background Information/Statement
The payment system consist of institutions, set of instruments and procedures through which
financial obligations are discharged by economic agents. An efficient payment system
ensures that financial with minimum delay and cost to the economy. It is therefore,
imperative for the financial architecture to be developed to engender and efficient payment
system that guarantees that transaction are concluded efficiently and at minimum risks.
The payments system is an important anchor for economic and social development in any
economy. An efficient payments system enhances the operation of a market economy and
assists in the maintenance of monetary and general economic well-being though the
transmission of money that over time, it has become a core function of central banks
worldwide to ensure the efficiency, integrity and safety of the payments system by instituting,
in collaboration with other key stakeholders in the payments process, sound operating
policies and practices.
Malosh (2004) sees payments system as a mechanism that facilitates intermediation through
the transfer and the processing of the value of money from the payer (buyer) to the payee
(seller) in the process of exchanging goods and services. The system invariably includes not
only the instruments, such as cheques, money orders, wire transfers, electronic transfers and
other payment instrument, but also organization, operating, procedures and information, and
communication agreement that are used in initiating and transmitting payment instruction
from one party to another in settling obligation. The payment system enables the financial
sector to serve the real sector, and there for its development sophistication is a necessary
precondition for the business development both domestically and internationally. Payment
instrument are of many forms such as cash, cheques, traveler‘s cheques, money orders, debit
and credit cards, wire transfers, mobile phones, automated clearing house transfers, point of
sales and automated teller machines (ATMs)A stable financial system is a prerequisite for
growth and development. Some of the major criteria for a stable financial system are the
existence of efficient financial markets and financial instruments as well as efficient payment
and settlement system. A well functioning payment system is of primary importance,
especially in the implementation of monetary policy, particularly, in liquidity management.
Typically, banks are better equipped to play the rule of payment intermediaries because they
hold account of those who engaged in economic activates, and also provide the liquidity for
the entire economy. In most developing economies, effort are geared towards improving the
payments system in order to expedite the processing of payments, reduce the risk and
uncertainty associated with non-cash payment, facilities the adoption of indirect instrument of
monetary policy, and depend financial market. In Nigeria the central Bank of Nigeria (CBN),
has taken giant steps to ensure the smooth running of the payment system. Some of the action
taken includes the establishment of clearing houses across the country and sponsoring of
legislations aimed at ensuring the soundness and stability of the banking system. The
legislation includes the promulgation of dishonored cheques offences Act and Failed bank
financial Malpractice in banks Acts. In order to reduce the settlement circle, the CBN
introduced the Magnetic Ink Character Recognition (MICR) processing, fully automated the
cheques clearing system for the Lagos clearing zone and most recently, introduce a new
clearing and settlement arrangement that segregated banks into ―settlement and nonsettlement banks‖. The introduction of the wide area network in the banking system has also
reduced to cycle-time for intra-bank settlement
In Nigeria today, cash is the more popular form of payment for consumers but cash is the
most costly and list profitable payment instrument. The use of cheque as a payment
instrument is not a widespread practice due to a number of reasons, including back of trust in,
and dishonesty on the part of the issue of the cheque and the non-enforcement of the Dud
Cheques Acts, which criminalize the issuance of cheque on unfunded accounts in Nigeria.
The challenge to the central Bank of Nigeria and other stakeholders in the financial industry
is how to enhance the use and acceptance of other forms of payment instrument in Nigeria.
Efforts must be made to enhance the use of wire payments, debit and credit cards other
electronic instruments, in order to reduce the over reliance on cash as the major means of
1.2 Statement of the Problem
While remarkable improvements have been made to date to improve and develop a viable and
reliable payments system, the system is still bedeviled by several problems which have
continued to militate against its optimal operational, growth and development. The economy
is predominantly cash based, reflecting the preference of economic agents and the weakness
of the legal system to enforce contracts. The unintended social and economic cost are the
risks and inconveniences associated with cash transactions such as armed robberies use of
counterfeit banknotes as well as the inconvenience of carrying large quantities of currency
notes. For individuals, the cost of cash transaction lies in the frequently trips to banks as well
as time lose as a result of long period of waiting. For the monetary authority, the cost lies in
frequent printing of bank notes arising from the short life circle of note and the cost of
moving large amount of cash to banks around the country. Vanguard Nigeria had reported
new economy policy that will help to save Nigeria over N192bn. According Vanguard, CBN
said, that the cost of processing, handling and managing cash, if not checked, will cost
Nigeria about N192 billion by next year.
CBN‘s Deputy Director, Currency Operations, Mr. Albert Ikmseedun, who disclosed this at a
sensitization programme on the proposed cashless economy policy for the Muslim
community in Lagos, said it was high time Nigerians embraced the new cashless policy due
to the high cost of cash to the financial system.
He said the disadvantages of transacting businesses with cash, outweighs its advantages,
noting that in 2009, the total cost spent on cash-in-transit was N27.3 billion, while cash
processing stood at N69 billion.
He appealed to residents of Lagos State to embrace the new policy when it becomes
functional in the state, adding that the new policy would in the long run, help to bridge the
gap between lending and deposit rates in the country. According to Ikmseedun, the policy
does not mean that cash would no longer be in existence in the country, but that it was aimed
at moderating the volume of cash in the system. He identified robbery, high cost of
processing cash, revenue leakages, and inefficient treasury management, among others, as
some of the negative side of a cash-based economic system.
He said: ―If there is reduced cash in the system, banks would be able to compete favorably.
There are so many alternative payment systems in Nigeria which are even more convenient
and safe, but people are not using them. With the improvement in communication in the
country, there have been a lot of improvements in the payment system. Cashless Lagos does
not mean there would not be cash in Lagos again, but it is an industry collaborative effort
aimed at executing the payment transformation plan of the state. We are going to
significantly increase the amount of Point of Sale (PoS) terminals in the state. We chose to
start from Lagos because over 50 per cent of the money supply in the country ends up in this
state. If it works here, then it can work in any other part of the country. The market is in
Lagos and Lagos is mini-Nigeria‘‘.
1.3 Objectives of the Study
The general objective of the study is examining payment system and financial intermediation
as it affects economic growth, bearing in mind with the following specific objectives:
i. To establish a relationship between payments system and economic development in
ii. To examine the structure and development of the Nigeria payment system.
iii. To evaluate the role of the central bank of Nigeria in the payment system.
1.4 Research Questions
Some of the pertinent questions the study will find solution to are:
I. Does any relationship exist between payment system and economic development in
II. What are the structures and development of the Nigeria payment system?
III. Does the central bank of Nigeria have any relationship with the payment system?
1.5 Research Hypothesis
Attempts were made to test the study within the following hypothesis:
H0: payment system has no significant relationship with economic development in Nigeria
HI: payment system has significant relationship with economic development in Nigeria.
1.6 Significance of the Study
The study is significant to many, particularly those persons or corporate bodies whose
businesses relate to financial intermediation. Those that will benefit from this study include
the following: all financial institution like commercial, development and community banksthis study will enable such banks to manage their credit effectively. Organizations that are
involved in cash management –the study will enable such organization to manage cash
effectively so that the issue of cash shortage may not arise.
-students carrying out research in this field will benefit from this study, as it will be a
stepping stone to their work
-the general public engage in commercial banking activities will benefit from this study in the
sense that they will be rest assured that their moneys are in safe hands when banked.
1.7 Scope and Limitation of the Study
The study will be restricted to the central bank of Nigeria. There are 25 (twenty five)
departments in the central bank of Nigeria grouped in order of related performance and job
descriptions (JDs)to facilitate smooth operations and management of those department. The
formation of these directorates also reduced the pressure that would have brought to bear on
the chief executive (the governor CBN) each directorate is headed by deputy governor (D/G).
In the course of this study the researcher encountered some constraints which militate against
the study. Nevertheless the researcher was able to manage the difficulties.
Some of such problem includes:
i. Insufficient and scarce related materials
ii. Insufficient funds to carry out the research beyond the scope of this study: most
especially during the period of economic recession in Nigeria.
iii. There are equally the problems of time constraint which chocked the period of this
study or investigation ought to have been done.
iv. Uncooperative and intimidating attitude of some unfriendly Nigerians during the
quest of interview militated against the speed of time.
1.8 Organization of the study
The study is organized into five chapters. Chapter one introduces the study by giving the
background information, research problem, objectives, research questions, research
hypothesis and significance of study. Other areas in this chapter are scope and limitation of
study, organization of the study and definition of terms. Chapter two deals with the review of
relevant literature on payment system in Nigeria as it affects economic development. Chapter
three consist of the research methodology, population, design, sample and sampling
techniques for carrying out the secondary and primary data collections and how results were
analyzed. Chapter four presented data and its analysis as well as hypothesis testing and
discussion of findings. Chapter five states the conclusion drawn from the research findings
and recommendations.
1.9 Definition of Terms
Payment: this is an amount of money that is paid or is due to be paid. it is an act of paying
System: A system is a complex whole formed from related parts. It is a combination of
related parts organized into a complex whole. it is a set of organs or structures in a body that
have a common function.
Bank: A Bank is financial intermediary that transfers money from surplus economic units to
deficit economic unit. It is a business that keeps money for individual people or companies,
exchanges currencies, makes loans, and offers other financial services.
Central Bank: it is a financial institution whose function is to regulate monetary activities, in
a country. It is responsible for the issue of bills and for controlling the flow of currency in an
Economy: it refers to efficiency and conservation of effort in the operation or achievement of
Development: this is an event causing change: an incident that causes a situation to change
or progress. It is a process of change: the process of change and becoming larger, stronger, or
more impressive, successful or advanced or of causing somebody or something to change in
this way.
Financial Intermediation: is a productive activity in which an Institutional unit Incurs
liabilities on its own account for the purpose of acquiring financial assets by engaging in
financial transactions in the market; the role of financial intermediaries is to channel funds
from lenders to borrowers by Intermediating between them.


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