ABSTRACT
The introduction of electronic banking has improved banking efficiency in rendering services to customers. It also brought to fore a number of issues of regulatory/supervisory concern, such as adequacy of legal and regulatory frame work for electronic banking, security of financial transactions, potential risk of electronic banking, customer protections, supervisory capacity, cross border issues such as money Laundering and Jurisdictional issues. The Central Bank of Nigerian recognises this and knows that electronic banking and payment services are still at the early stage of development. For this reasons, and also arising from the three major role of The Central Bank of Nigeria in the areas of monetary policy, financial system stability and payment system oversight, The Central Bank issued a ‘’Guideline on Electronic Banking in Nigeria’’ in August 2003; The guideline is expected to inform the future conduct of financial institutions in electronic banking in Nigeria. The purpose of this work is to examine the Legal and Regulatory Challenges, that have arisen as a result of the introduction of electronic banking in Nigeria, with a view to determining the adequacy or otherwise of the legal and regulatory framework, to cope with those challenges. Chapter one deals with the introduction, meaning of banking, and historical evolution of banking legislation in Nigeria. Chapter two focuses on electronic banking in Nigeria, types of electronic banking, the impact of electronic banking in Nigeria, legal/institutional frame work for regulation of electronic banking in Nigeria. Chapter three is on legal challenges, while chapter four is on regulatory challenges. Finally, chapter five focuses on recommendations and conclusion of the work.
CHAPTER ONE
INTRODUCTION
1.1Background of the Study
The financial sector particularly banking is one of the strongholds of any economy. Technology has brought with it advancement and thus the nexus between banking and technology is an avenue for endless opportunities. The Corona Virus pandemic has also brought the world to its knees limiting human interaction encouraging alternative methods i.e. online services particularly e-banking. The enormous potential of electronic banking for the Nigerian banking sector and the economy at large is not in doubt.[1]Due to emergence of global economy, electronic banking has increasingly become an inevitable tool of banking business strategy and a strong catalyst for economic development.[2]
With this in mind, practitioners and academics all seek ways to evaluate online banking system leading to a wealth of wisdom and plethora of opinions. Various authors have lent their opinions on the issue of banking at a global scale. Some of these writings border on advantages of e-banking, historical development in same, even criminal activities in e-banking as well as banking as an economic tool. It is from this that the legal framework of online banking at length particularly as it relates to two jurisdictions- Nigeria and South Africa is borne.
According to Clive, W.[3] in his Academic dictionary of banking, electronic banking is defined as a form of banking in which funds are transferred through an exchange of electronic signals between financial institutions, rather than an exchange of cash, cheques or other negotiable instruments. Another author[4] defines electronic banking as a system in which funds are moved between different accounts using computerized on line/real time systems without the use of written cheques. Yet another author[5] in international Journal of investment and finance, electronic banking is defined as a system by which transactions are settled electronically with the use of electronic gadgets such as ATMs, POS terminals, GSM phones, and V-cards e.t.c. handled by e-holders, bank customers, and stake holders.
The term Electronic banking (e-banking) is defined as the automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels[6]. E-banking includes the systems that enable financial institution customers, individuals or businesses, to access accounts, transact business, or obtain information on financial products and services through a public or private network, including the internet.[7] Customers access e-banking services using an intelligent electronic device, such as a personal computer (PC), personal digital assistant (PDA), automated teller machine (ATM), kiosk, or Touch Tone telephone. The Internet has the capability to integrate and transform a traditional business to a model of electronic commerce (e-commerce) in providing banking alternatives and facilitating for the convenience to their Internet banking customers.[8]
There are five basic services associated with e-banking: view account balances and transaction histories; paying bills; transferring funds between accounts; requesting credit card advances; and ordering checks for more faster services that can be provided by domestic and foreign bank. E-banking reaps benefits for both banks and its customers.[9] From the banks’ perspective, e-banking has enabled banks to lower operational costs through the reduction of physical facilities and staffing resources required, reduced waiting times in branches resulting in potential increase in sales performance and a larger global reach[10]. From the customers‟ perspective, e-banking allows customers to perform a wide range of banking transactions electronically via the bank's website anytime and anywhere[11]. In addition, customers no longer are confined to the opening hours of banks, travel and waiting times are no longer necessary, and access of information regarding banking services are now easily available.[12]
Despite the barriers associated with E-banking and the internet, the advancements and benefits of E-banking to consumers as well as banking institutions are irreplaceable.[13] From the consumer’s perspective, E-banking has provided them with the ability to pay bills, manage accounts, and shop all from the convenience of their homes. This alternative has also reduced cost for the banking institutions that offer the service, “an online transaction costs the bank much less than a face-to-face interaction with a bank’s teller”[14]
In an attempt to remain on the cutting edge in the evolutionary world, banks and bank managers are challenged by the new technology and software systems used to make the finance world run smoothly.[15] Along with the benefits attached to the e- banking, the inherent security issues in terms of confidentiality, integrity and privacy have always been a challenging factor stalling the advancement of its progress.[16]These security issues seem to be an open-ended list of issues, prominent among them are; confidentiality of information exchanged, authentication of the relevant instructions, integrity of the e-banking platform, etc. All these security issues, no doubt, are also related and sometimes complementarily overlapping.
Secure transactions must possess integrity, meaning the transaction was not altered while being transmitted. Without integrity, there is no guarantee that the message your customer sent to the bank matches the message that the bank actually received. Secure transactions must also possess confidentiality, that is, the content of messages remains private as they pass from the customer through the internet to your bank. Without confidentiality, anyone can view the transaction message and gain private information.
A confidential transaction requires a transaction to be authenticated, meaning you know who sent the transaction. Authentication is one element of confidentiality. And without good authentication techniques, you have no way to be sure that the person sending the instructions is the person they say they are.
There exists numerous threats on online banking; financial services providers are faced with complex challenges that directly affect their bottom line and, potentially, their very survival in a high-churn market. Protecting sensitive and critical data, no matter where it resides, and ensuring that only the appropriate persons have access to that data is a core requirement of every company’s security strategy. With the rising incidence of threats to sensitive data, and increasing requirements to protect that data, banks must focus squarely on their security infrastructure.
Basically, electronic banking (e-banking) is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution. That is, automated delivery of new and traditional banking products and services directly to customers through electronic, interactive communication channels.[17]
1.2 Statement of the Problem
The advent of e banking has fundamentally altered the competitive environment in the banking system. Apart from the local competition within our banking system, new competitors are accessing the same market via the Internet. Even local competition has been exacerbated, as banks do not necessarily need physical presence to offer services to customers. Banks' management should envision these changes and proactively strategize to meet these new challenges. The introduction of e banking has also given rise to new security concerns with respect to confidentiality and integrity of information, non-repudiation of transactions, authentication of users and access control[18].
Since the internet, for instance, is a public network, banks offering internet services run the risk of unauthorised persons accessing their data base, information so obtained could be used for fraudulent purposes. Accessing such information by unauthorised third parties also impinges on the legal requirement of confidentiality of customer information by banks and could give rise to debilitating legal battles. The ability of unauthorised persons to access banks' websites also raises question regarding the authenticity and integrity of available data. This is because such persons could alter and transmit wrong balances or create non-existent liabilities or counterfeit electronic money[19]. Internal control is usually facilitated by the ability to trace transactions through the accounting system. The development of electronic banking gives rise to accounting procedures that do not lead to the creation of documents, this is known as “loss of audit trail”[20]. This makes the appraisal of such systems difficult, making them vulnerable to frauds. Infrastructure inadequacies in electricity and telecommunication are another fundamental challenge to electronic banking in Nigeria. Power outages and poor telephone services impinge negatively on banks' ability to deliver electronic services. The availability of personal computers and Internet access to customers and potential customers have been low, leading to low patronage of electronic products. This makes these services unprofitable and discourages banks from offering them. Additional credit administration challenges are faced by banks, which offer these services via the Internet. This is because their advantage of personal knowledge of customers and the operating environment is lost, as they may have to deal with far-flung customers. Issues like authentication of customers' identity, perfecting of securities, verification of collateral, etc, will take a new and difficult dimension. This is because negative information will travel with the same ease with the possible consequence of triggering a run on a bank or the banking system. The ability of customers to withdraw funds from their accounts from any location at any time of the day further compounds this situation making the liquidity of electronic banks more volatile and the possibility of ‘virtual bank run' imminent
1.3 Research Questions
- What are the key legal and regulatory challenges facing e-banking in Nigeria?
- How do these challenges impact the adoption and effectiveness of e-banking services?
- What measures can be taken to address these challenges and improve the legal and regulatory framework for e-banking in Nigeria?
1.4 Aims and Objectives of the Study
The primary aim of this study is to critically appraise the legal and regulatory challenges of e-banking in Nigeria. The specific objectives are to:
- Identify the key legal and regulatory frameworks governing e-banking in Nigeria.
- Analyze the challenges and gaps in the current legal and regulatory framework.
- Examine the impact of these challenges on the adoption and effectiveness of e-banking services.
- Propose recommendations to enhance the legal and regulatory framework for e-banking in Nigeria.
1.5 Significance of the Study
The study will be of immense benefit to several groups of people both in the Nigerian banking sector and the academics. First, the study will be of relevance to board members, bank management and staff in the banking sector in Nigeria espacially. The aim of every bank is to achieve maximum level of returns on investment at the lowest possible cost and to secure a larger market share. The adoption of electronic bankingis vital to the attainment of such goal.
Moreover, the product of this research will add to the knowledge base on electronic banking platforms and deployment to which managers in the banking sector can tap into to achieve their organization’s objectives.
Again, customers, shareholders, employees and other stakeholders in the banking sector will benefit from the result of the study, in the sense that if the banks deploy electronic banking in their operations, it will impact positively on the quality of services rendered by the banks and the rate of returns on investment.
Furthermore, the outcome of this research is also expected to be of significance to industry watchers and analyst. This group of people will utilize the platform of this study in their analysis on electronic bankingin the Nigerian banking sector. Similarly, the general public, through the findings of this research, will be better informed onelectronic bankingin the Nigerian banking sector.
1.6 Scope of the Study
This study will focus on the legal and regulatory challenges of e-banking in Nigeria. It will cover aspects such as cybersecurity, data protection, regulatory compliance, and consumer protection. The study will also made use of primarily and secondary sources of data, including relevant laws, regulations, and scholarly articles.
1.7 Research Methodology
This research utilizes the use of doctrinal method on the basis of existing literature and articles on the field of research. This research examined the Nigerian Laws, statutes as well as cases and judicial precedent on the subject matter.
1.8 Definition of Terms
Cards: – Debit card, credit card, prepaid card are banking cards enhanced with automated teller machine and point of sale (POS) features which can be used at anylocation. It is a quick transaction between the holder and his personal bank account. A debit card is linked to an individual’s account, allowing funds to be withdrawn at the ATM and point of sale without writing a cheque.
Mobile Banking:- Mobile banking also known as M-banking or SMS banking is a term used for performing balance checks, account transactions, payments etc. through a mobile banking products such as a mobile phone. Mobile banking products provides basic banking services to customers from their mobile phones. It is a SMS driven platform which facilitates access to banking services using cell phones. The services available on the mobile banking product include mini statements and checking of account history, alerts on account activity or passing of set thresholds, monitoring of term deposits, domestic and international fund transfers, micro-payment handling, bill payment processing, portfolio management services, status of requests for credit, including mortgage approval and insurance coverage, cheque book and card requests, ATM location.
[1]Acha, Ikechukwu A.,(2008), Electronic Banking In Nigeria: Concept, Challenges And Prospects, International Journal of Development and Management Review (INJODEMAR) Vol. 3 No. 1 May, 2008 97
[2]Onodugo, Ifeanyi Chris, (2015), “Overview Of Electronic Banking In Nigeria”, Volume: 2, Issue: 7, 336-342 July 2015 www.allsubjectjournal.com e-ISSN: 2349-4182 p-ISSN: 2349-5979 Impact Factor: 3.762
[3]Clive, W. (2007). Academics Dictionary of Banking, New Delhi, India: Arrangement Academic New Delhi.
[4]Omotayo, G. (2007). A Dictionary of Finance, West Bourme, England: West Bourme Business School.
[5]Edet, O. (2008). Electronic Banking in Banking Industries and its Effects. International Journal of Investment and Finance, Vol. 3, A.P 10-16.
[6] Geetha1 &V.Malarvizhi M., ‘Acceptance of E-Banking Among Customers’ Journal of Management and Science Vol .2, No.1
[7] See ‘Saudi Arabian Monetary Agency: E-Banking Rules’ published by the Banking Technology Department, Saudi Arabia, April 2010.
[8]Steinfield, C., ‘Understanding Click And Mortar E-Commerce Approaches: A Conceptual Framework And Research Agenda’ Journal of Interactive Advertising, (2002) 2(2), 1-10. Proceedings of the 2nd International Cyber Resilience Conference 83
[9] Hamid, M. R. A., et al., ‘A Comparative Analysis Of Internet Banking In Malaysia And Thailand’ Journal of Internet Business (2007) (4), 1-19
[10] Jain, A., Hong, L. &Pankanti, S. ‘ Biometric identification. Association for Computing Machinery, Communications of the ACM’,(2000) 43(2), 90-98.
[11] Van Jaarsveld, I. (2000). “Domestic and International Bank Supervision and Regulation-Defying the Challenges”. South African Law Journal, vol 119 (Part1) , 19, 71.
[12] Hutchinson, D., & Warren, M. ‘A Framework Of Security Authentication For Internet Banking’ Paper presented at the International We-B Conference (2nd), 2001, Perth.
[13]Gunasekaran, A., & Love, P., ‘Current And Future Directions Of Multimedia Technology In Business’ International Journal of Information Management, (1999) 19(2), 105-120. See also Karim, Z., et al., ‘Towards secure information systems in online banking’ Paper presented at the International Conference for Internet Technology and Secured Transactions, 2009 (ICITST 2009), London
[14]World Almanac & Book of Facts, 2001. See also X. L. Qiu, Chinese Customers’ Banking Habits and E-banking Barriers Vol. 3, No. 2 International Journal of Business and Management, p. 2
[15] Stewart, J. Jr. (2000). Changing technology and the payment system.Current Issues in Economics and Finance,6(11), 1-5.Ibid
[16]Panida S., and Sunsern L., ‘A Comparative Analysis Of The Security Of Internet Banking In Australia: A Customer Perspective’ (2011) being a discussion paper delivered at the 2nd International Cyber-Resilience Conference, Australia.
[17]Imiefoh, P. (2012). Towards Effective Implementation of Electronic Banking in Nigeria. International Multidisciplinary Journal, Ethiopia, Vol. 6 (2), Serial No. 25.
[18] Zarma, A. B. (2001) Electronic Banking: Practices from other Countries, Associated Risks and Implications. Nigerian Deposit Insurance Corporation Quarterly. Vol. 11, Nos. 3&4 pp. 61-102
[19] Vartanian, I. P. (2000) The Future of Electronic Payments: Roadblocks and Emerging Practices http://www.friedfrank.comm/bancmail/bankpage.htm
[20] Oluyemi, S. A. (2001) Development of Electronic Banking in Nigeria: The Associated Regulatory/Supervisory Challenges. Nigerian Deposit Insurance Corporation Quarterly. Vol. 11, Nos. 3&4 pp. 36-60
