Electronic payment system
Chapter 2
- Introduction
This chapter is going to give an outline of the literature concerning the electronic payment system and how this advanced system has been used in the market. The research theories presented in this chapter are based on a review of various theoretical models. The chapter also discusses how the revolution in technologies has facilitated the expansion of the cashless transaction systems and the inception of new types of payment instruments. This research subject is based on a review of various literature on previous research. Theories suggested in this study are to show the superiority of the electronic payment system over the conventional method, how it is regarded as a cost-effective alternative to cash for small-value transactions, and as a convenient medium to pay over the internet. At the end of the chapter, hypotheses to the study will be developed for analysis and recommendations to be made.
- Defining Topic
The cashless transaction system is a payment method that involves the transaction of goods and services without cash but preferably through electronic transfer or cheque payment (Tee & Ong, 2016). It was explained that the concept of cash transaction was first introduced in 1962 by Roger, where he justified how innovations in the information system are instilled into humans’ social system gradually (Rogers, 1995). It is believed that when individuals interact through interpersonal networks, meaningful innovations will be made.Misangoet al. argue that if the cashless transaction is not adopted in the business dealings today, then entrepreneurial growth and development will be very slow (Misango, Njeru&Kithae, 2016).
- Critical Literature Review of the Variables
Fox (1986) argued that in the 1960s and 1970s, cashless transactions would be the best alternative for cheques and cash transactions as the main mode of payment in many parts of the world. Currently, the increase rate of the use of electronic payment is outstanding as it is a more convenient, safer, and swifter payment method.A Nigerian entrepreneur suggested that the Nigerian economy will become more stable and grow positively once they adopt the electronic transaction system (Oyewole, Gambo, Abba &Onuh, 2013). A research was done to examine how the adoption of electronic retail payment across 27 European countries from the period 1995–2009 is related to theoverall economic development. The results showed that the adoption of an effective electronic retail payment would lead to a definite increase in the global growth of the economy, consumption, and business dealings. Nevertheless, the use of credit cards, debit cards, fund transfers, and chequeshas a relatively low impact on the economy of these countries (Hasan, Renzis&Schmiedel, 2012).
Another study discovered that cashless transactions are relatively proportional to the consumption of the economy. In this case, when the cashless transfer system is implemented, it boosts the economy of a country (Tee et al., 2016). It was revealed that the long-term shift to electronic transactionsencourages economic growth of 56 countries worldwide. Furthermore, the extensive use of the cashless methods is key to transparency, accountability and a solution to cash related fraud, leading to growth and development of a country (Zandi, Singh & Irving, 2013)
In another study, Liao et al. (2010) discovered that cashless transactionswould replace all other conventional payment systems, including cash and cheque transactions, to a large extent. However,the use of cash in transactions will not be replaced. Advancement in ICT and other technological aspects has brought significant improvement and innovation in cashless payment systems including but not limited to the use of ATM card, debit card, online credit transfer,cheques, and security related issues.The adoption of electronic transactions, however, has some shortcomings such as non-IT practicality users, phishing emails, loss of money, and the fear of exposing private information. These shortcomings have sparked fear for consumers to adopt the cashless transaction system. Park (2012) conducted a study on more than 70 countries worldwide, where he sampled third world countries such as Bangladesh as well as first world countries such as the United States for a period of three yearsfrom 2002 to 2004. The study reveals thatfraud in the banking sector could hinder economic growth because the allocation of funds for private investment will be biased.
In general terms, an electronic transaction system or an e-payment transaction system allows minimaluse of cash in the daily lives of a given community. Buying and selling goods and services are done electronically through the following modes, including but not limited to the mobile transaction, direct debit, electronic funds transfer, mobile payments, multi-functional ATMs, and internet banking. In simple terms, it implies extensiveuse of information technology in the financial dealings.Ezuwore-Obodoekweet al. (2014) suggests the advantages of an electronic transaction are enormous as it regulates, controls, and safeguards the financial system of the global economic situation.
- Underpinning Theories/ Model
4.1 The New Monetary Economics and Keynes’ Theory of Money
The New Monetary Economics (NME) and Kynes Theory of Money make use of electronic payments media that would overturn current monetary economics. However, the main principles of New Monetary Economics bring the rejection of both the quantity theory and liquidity preference based on Keynes’ theory of money.
- Valid research framework
- Summary
References
Tee, H. H., & Ong, H. B. (2016). Cashless payment and economic growth. Financial Innovation, 2(1), 4.
Rogers EM (1995) Diffusion of innovations, Fourth Edi. The Free Press, New York.
Misango, S. B., Njeru, P. W., &Kithae, P. P. (2016). Analysis of knowledge and competence on the adoption of cashless payment system among passenger service vehicles in Nairobi city county, Kenya. International Journal of Economics, Commerce and Management, 4(9), 309-320.
Fox, K. H. (1980). Another Step toward the Cashless Society: The 1978 Federal Electronic Fund Transfer Act. Am. Bus. LJ, 18, 209.
Oyewole, O. S., Gambo, J., Abba, M., &Onuh, M. E. (2013). Electronic payment system and economic growth: a review of transition to cashless economy in Nigeria. International Journal of Scientific Engineering and Technology, 2(9), 913-918.
Hasan, I., De Renzis, T., &Schmiedel, H. (2012). Retail payments and economic growth. Bank of Finland research discussion paper, (19).
Zandi, M., Singh, V., & Irving, J. (2013). The impact of electronic payments on economic growth. Moody’s Analytics: Economic and Consumer Credit Analytics, 217, 2.
Liao, W., &Handa, J. (2010). Is the modern economy heading toward a cashless and checkless one? evidence from the payments system in Canada. IUP Journal of Bank Management, 9(4), 48-71.
Park, J. (2012). Journal of International Money and Finance. Journal of International Money and Finance, 31, 907-929.
Ezuwore-Obodoekwe, C. N., Eyisi, A. S., Emengini, S. E., &Chukwubuzo, A. F. (2014). A critical analysis of cashless banking policy in Nigeria. IOSR J Bus Manag, 16(5), 30-42.