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CHAPTER ONE

INTRODUCTION

1.1          1.1  Background of the Study

In banking, security is paramount to protect depositors’ funds. It is in the light of this that the Central Bank of Nigeria (CBN), through the Bankers’ Committee, Deposit Money Banks and Nigeria Interbank-Settlement System (NIBSS), introduced the centralised biometric identification system, and tagged Bank Verification Number (BVN) (Ehi 2015).

Therefore, going by the spate of frauds and cashless policy, the CBN in conjunction with all Nigerian banks launched the BVN project to enhance the operation of banks.

The BVN became imperative following the increasing incidence of compromise on conventional security systems such as password and Personal Identification Number (PIN) of customers (Vanguard Newspaper 2015). 

The Bank Verification Number, BVN, is a unique identification number for all Bank Customers within the Nigerian banking industry. BVN is a biometric authentication of Each Bank Customer, especially those who make electronic and cashless transfers through a unique set of digits (Daily Trust Newspaper, March 8 2016).

The initiative is part of the overall policy of the Financial Sector Strategy, FSS, to ensure that Nigeria becomes one of the twenty largest economies in the world by the year 2020 (Ehi 2015).

According to the apex bank, customers are expected to walk into a selected bank fill and submit the BVN enrolment form. Following this, such customer will present him or herself for facial and fingerprint capturing. Thereafter, an acknowledgment slip with the transaction identification will be issued to the customer whose enrolment will be confirmed and a unique BVN, generated. The customer will immediately be notified via sms with the bank verification number. This is in compliance with the directive from the Central Bank of Nigeria (CBN) that by the 30^th of June 2015, all bank customers should have the BVN while as from march same  year, transactions valued at hundred million naira and above should only be allowed for customers with bank verification number. (Tribune Newspaper October 29, 2015)

The Central Bank of Nigeria considered the exercise as a key component of knows customer policy of banks. It is also a plan to eliminate fear in banks and make the country to be in league with developed countries of the world. As the Bank Verification Number enrolment closes tomorrow, it is therefore imperative for all Nigerians to ensure that they are enrolled. It is believed that if the BVN enrollment is properly managed, it will not only enhance credit advancement to bank customers, but also reduce reported cases of scam, fraud and account impersonation while at the same time  assist commercial banks in keeping authentic records of their clients.  (Ade, 2016)

Apart from these, the BVN will simplify banking operations especially inter-bank transfer, improve services and reduce unnecessary queues within banking halls.

At this junction, observers believe that there is need for the apex bank to consider extending the enrolment period in view of the large number of Nigerians who are yet to be registered.

          Above all the Central Bank of Nigeria should use the various platforms to publicize the intricacies of the policy. This study therefore analyzes the effect of BVN delivery of banking service in Enugu metropolise.

1.2     Statement of Problems

The role of BVN aimed at controlling hazards associated with social security and credit risk cannot be underestimated. In recent times, biometric technologies have been used to analyze human characteristics as an enhanced form of authentication for real-time security processes. In the face of increasing incidents of compromise on our conventional security systems (password and PIN), the need for greater security on access to sensitive or personal information in the Banking system becomes inevitable (Sarah, 2014).

In the same vein, the extent to which violation in the credit policies and credit monitoring system weakens the financial intermediary system continue to attract empirical and theoretical debate on how well Bank Verification system would thwart those issues of default and scam.

In addressing existing challenges with identity management, the Central Bank of Nigeria, through the banker’s committee in collaboration with all Nigerian banks in February 14, 2014 launched a centralized biometric identification system tagged “Bank Verification Number (BVN)”.

The BVN gives each Bank customer a unique identity across the Nigerian Banking industry that can be used for easy identification and verification at Point of Banking operations. Biometrics refers to identification of an individual based on physiological or behavioural attributes- fingerprint, voice, signature, facial features etc (Ehi, 2015).

Bank Verification Number (BVN) is an initiative of the Central Bank of Nigeria to give customers a unique number that can be verified across the Nigerian banking industry. BVN helps to protect every bank customer’s information by assigning to their account a unique identification number. The Bank verification number uses bio-metrics. Which means, the BVN is unique to every individual with respect to their physiological or behavioral attribute with the use of fingerprint or thumbprint or electronic signature etc? This helps to strengthen any banking security system so as to protect individual account from fraudsters or against any fraudulent act from infringed third party.

BVNs are created through the use of biometric data capture machines, which rely on data such as fingerprints and facial recognition technology to establish for each customer “a unique identity across the Nigerian Banking industry for easy identification and verification.” The implementation of BVNs is a part of CBN’s Financial Sector Strategy (FSS) goal of helping the country become “one of the top 20 largest economies in the world by 2020.”

The role through which the BVN enhances the operations of the banking system in Nigeria is challenges that time will show it. This study therefore seeks to investigate the effect of  CBN policy on Bank Verification Number in improving the banking services in Nigeria using Enugu metropolise as a case study.

1.3     Objectives of the Study

The broad objective of this study is to examine the effect of  CBN policy on Bank Verification Number in improving the banking services in Nigeria using Enugu metropolise as a case study. Specifies objectives are:

1.     To determine the significant effect of B.V.N on number of cheque clear in the country.

2.     To determine the extent B.VN policy has effected saving account in Nigeria.

1.4     Research Questions

The following research questions guided the study. The research objectives were distilled into six research questions as stated below.

i.                   What is the significant effect of B.V.N on number of cheque clear in the country?

ii.                 What is the effect of BVN on saving account in Nigeria?

1.5     Hypotheses of the Study

1.       H₀:     BVN do not have significance effect on number of cheque clear. 

H₁:     BVN have significance effect on number of cheque clear. 

2.       H₀:     BVN policy has positive effect on saving account in Nigeria.

          H₁:     BVN policy does not have a positive effect on saving account in

Nigeria.

1.6     Significance of the study

          The results from this study will be useful to various sector of the economy, particularly the financial sector and government policy makers. It will broader the literatures on economic implications of money laundering and future effect of BVN on economy growth.

Also it will help to identify advantages and disadvantages of BVN to the banks and customers.   It will show the impact of BVN policy on money launder and customer satisfaction.

1.7     Scope and limitation of the Study

          The research topic is on the effect of BVN delivery of banking services in Enugu metropolise.

The limitation of the study among other things includes lack of data on BVN base on ground that it is new policy in Nigeria.  The behaviour of bank officers is another problem the researcher face in sourcing data. 

1.8     Definition of Terms

          It is important to give a brief definition of the following key terms, in order to know the meaning of the key concept and some words in this research.

1.       BVN:  Bank Verification Number is a new policy created by Central Bank of Nigeria to control and protect bank account holders from unauthorized access.  

2.       Money Laundering: is the procedure by which the proceeds f illegal acts are converted into apparently legal activities thus concealing their criminal origin.

3.       CBN: Central Bank of Nigeria, (CBN) is the apex bank in Nigeria,  their duty is to regulate  financial institution in the country.

4.       Commercial Bank: An institution charged with the primary function of accepting deposits, granting business loans and advances, and offering other relatedservices like issuance of letter of credit, bank drafts and FOREX trading among others.

5.       Deposits /Savings:  A deposit held with a bank in which the deposit is held for a fixed term or which requires notice for withdrawal, and where interest is paid.

6.       Microfinance: Microfinance is generally defined as specialized financial tools, such as small loans, savings accounts and insurance policies, available to poor households and small businesses that do not typically have access to financial services.

REFERENCES

Vanguard Newspaper (March 12, 2015)  Importance of Bank Verification Number http://www.vanguardngr.com/2015/03/importance-of-bank-verification-number. March 12, 2015.  Accessed on 20th March 2016.

Sarah Luo ( 2014) Central Bank of Nigeria (CBN) Implements Bank Verification Number (BVN) Identification System for Customers in Lagos. . Tuesday, July 29, 2014. Accessed on 10^th May 2016

Central Bank of Nigeria, ‘Bank Verification Number’ http://www.bvn.com.ng/ Accessed 10^th May 2016

Ehi Eric E. (2015) A Critical Analysis of The Bank Verification Number Project Introduced By The Central Bank Of Nigeria. DSC Publications Ltd. Online  www.researchgate.com. Accessed 10^th May 2016

Linkedin (2016) The Effect Of Bvn On Social Security And Credit Risk https://www.linkedin.com/pulse/effect-bvn-social-security-credit-risk-old-ogunleye-wale-?trk=prof-post&trkSplashRedir=true&forceNoSplash=true. Accessed 10^th May 2016

Tribune Newspaper (October 29, 2015)  31 million bank accounts may be barred as BVN deadline ends on Friday by Nwokoji  C. http://tribuneonlineng.com  Accessed 10^th May 2016 

Daily Trust Newspaper (March 8 2016)  As deadline for bank verification number draws near by Agabi C. http://www.dailytrust.com.ng/sunday/index.php/business/19835-as-deadline-for-bank-verification-number-draws-near. Accessed 10^th May 2016 

Premium Times Newspaper (November 15, 2014) 13 things bank customers must know about Bank Verification Number http://www.premiumtimesng.com/ business/ 171183-13- things-bank-customers-must-know-bank-verification-number.html Accessed 10^th May 2016

Punch Newspaper (March 20, 2016) Keeping your Bank Verification Number safe http://www.punchng.com/keeping-your-bank-verification-number-safe/s Accessed 10^th May 2016

Daily Trust Newspaper (November 2015)  BVN registration continues- CBN, NIBSS by Hamisu Muhammad & Sunday Michael Ogwu dailytrust.com.ng

CHAPTER TWO

LITERATURE REVIEW

This section use pool of knowledge of other scholars to address the three objectives of this study listed in previous chapter. It tends to discuss the work materials and opinions expressed by various authoritative authors, researchers and writers that relate to the objective of this study, which is major on bank verification number (BVN). The following subhead will be discussed on this chapter. They are:

2.1                      Conceptual Framework

2.2                      Theoretical Framework

2.3                      Empirical Framework

2.4                      Summary of Literature Review

2.1     Conceptual Framework

The financial institution is a vital institution responsible for regulating the financial activities of the nation. The financial situation of an economy to a large extent depends on the performance of the financial institution. It is therefore necessary for this institution to regulate, control and promote the financial capability of the economy. This can be done through the adoption of some technological innovations such as the Bank Verification Number (BVN), cashless policy, electronic banking etc. The adoption of these technological innovations also necessitates the desired to increase the level of customer satisfaction and banking confidence in customers (Bamiduro, & Ibojo, 2015).

The key aim of bank verification number in Nigeria is to control, check, minimize money laundering and banking crime. Especially in the situation where an individual has more than 30 bank accounts with different date of birth, state of origin and other information on different account. This is the major difference between Bank Verification Number and other e-banking policies. NEITI (2016) Nigeria, as Africa’s biggest economy and most populous country, and as a country highly exposed to the negative impacts of anonymous companies, Nigeria should seize the opportunity to lead the charge in the growing campaign for full disclosure of ownerships of companies and bank account across the country.

This is a situation whereby one person bears two names e.g. Mr. Tunde Chukwu registers in bank A and has account with bank B as Mr. Tunde Usman so charity the process of reconfirmation of his BVN at the second bank his biometric will real his identity as dual. A case where an individual collected 60 salaries from federal servant commission or NYSC wages can be checkmate and reduce with the help of BVN policy.  This control by the policy will help create job and improve Nigeria GDP because of usefulness of manpower. 

If the rate of money laundering and bank crime is minimized, it will help to boost the GDP of Nigeria economy. This is because a lot of money that go into individual accounts will be utilized in Nigeria economy and used to the societal development. The rate whereby politicians and contractors stole Nigeria resources will be minimized and help in improving infrastructure and development. This would also help in achieving improved and sincere documentation of the country’s financial assets.

          It is in the best interest of Nigeria and Nigerians as full ownership disclosure has practical implication for increasing government revenues, reassuring investors interested in partnering with local companies, reducing the incidence of corruption and money laundering, and cutting off funding for drug lords and terrorists. Full ownership disclosure will facilitate the present thrust of the Nigerian government to trace, recover and repatriate the country’s stolen assets in foreign jurisdictions. At present the problematic process of recovery of stolen assets in other jurisdictions is compounded by absence of relevant information occasioned by secrecy and opaqueness of the real actors behind the transactions (NEITI, 2016).

2.1.1  Banking Reform and E-Banking

          A vibrant banking industry in any country is pivotal to achieving economic growth development through efficient financial services as they provide a mechanical system to group savings and convert them into investment. Thus, a bank serves as an intermediary between savers or depositors and borrowers (Olanipekun, et al 2013). This is why the government establishes bank regulating bodies like Central Bank of Nigeria (CBN). These regulating bodies from time to time reform the sector to meet the current economic standard. 

          Financial reforms and attendant policy prescriptions are age-long phenomena.  They represent the various transformation and policy adjustments and overhaul that are directed at the art, practice, and activities of financial institutions and markets overtime in response to the nominal need for operation improvement and growth of both the institutions and the general economy. (Iganiga, B. O. 2010).  

Electronic banking is the conduct of banking business electronically which involves the use of information communication technology to deliver banking business for immediate and future goals. (Daniel 1999).

Alharji (2008) is of the view that electronic banking is the provision of banking services to customers through internet technology. The need to strengthened and empowered the banking system calls for the introduction of technological innovation such as the electronic banking where customers can request information and carry out banking services without entering the banking hall.

The issue of electronic banking has not only positively affected the performance of the banking system but has also positively affected the entire economy because of the introduction of electronic payment system, electronic transaction system, transaction alert and mobile banking. All these variables of electronic banking have projected the positive image of the banking system as well as promoting the banking and non-banking activities of the economy.

Simpson (2002) is of the opinion that what motivate investment in electronic banking are largely the prospects of minimizing operating cost and maximizing operating revenue.

          According to Obadeyi (2014) financial reforms is a possible change made to a household, system, firm, government, economies etc. in order to perform and operates in a more effective and efficient way within the context of stipulated regulatory policies. The reform of financial markets and banks remain a persistent force in the growth and development of financial sector in developed economies, developing economies and emerging markets (Nigeria inclusive). The reform of the financial sector could easily be traced to banks’ competitive actions, assisted with continuous rise in government regulations over the soundness of banks’ strong financial positions.

These reforms in banking sector have creating room for advancement in technology which gives birth to e-banking sector. The banking industry no doubt has witnessed advancement in technology just like any other sector; the adoption of e-banking is one of these as it affects banking operations entirely. With the adoption of Self Service Technology by the banks, e-banking system has continued to service the populace, e-banking is one of them (Adewoye, J. 2013).

E-banking was adopted by banks so as to improve their service delivery, decongest queues in the banking hall, enable customers withdraw cash 24/7, aid international payment and remittance, track personal banking transaction, request for online statement, even transfer deposit  to a third party account (Ogunlowore & Oladele 2014). 

According to Okoro (2014) quoted Omotayo (2007) which define electronic banking as a system in which funds are moved between accounts using computerized online or real time system without the use of written cheques. Okoro (2014) define e-banking  to include the provision of retail and small value banking products and services through electronic channels as well as large value electronic payments and other whole sale banking services delivered electronically.

Abaenewe et al (2013) view electronic banking as the conduct of banking business electronically which involves the use of information communication technology to drive banking business for immediate and future goals.

Alhajri (2008) views e-banking as the provision of banking services to customers through internet technology. However, Basel committee on banking supervision (2003) views electronic banking to include the provision of retail and small value banking products and services through electronic channels as well as a large value electronic payment and other wholesale banking services delivered electronically.

Timothy (2012) is of the fact that electronic banking refers to the use of the internet as a remote delivery channel for providing services, such as opening a deposit account, transferring funds among different accounts and electronic bill presentment and payment. Ahasanu (2009) Electronic banking is the newest delivery channel of banking services.

To prove this e-banking payment system the need for biometric tool was created to verification bodies and password of individuals. Adewale et al (2014) biometrics as categorized can be from physical body regions, medico-chemical body features or behvioural traits, defining high (for individuals) to low (for group) levels of distinction. Examples of biometrics from body regions include the occurs hand (fingerprint, palm-print, finger knuckle print, hand geometry, hand veins) and facial (face, ear shape, teeth); medico-chemical body features include body odor, DNA and heart sound; while behavioural trait include voice, gait, signature.

A biometric recognition system is a pattern recognition system recognition system that acquires biometric data from an individual, extracts a feature set from the acquired data, and compares this feature set with the template set in the database to decide whether to accept (genuine) or reject (impostor) the the individual.   

However, the e-banking and biometric has created a room for more problems. It is one of the reasons why many people now have many account numbers which they use to carry out different financial fraud that has affect the economy growth of Nigeria. To handle this issues the Central Bank of Nigeria created a policy called bank verification number (BVN).

According to Okoro  A. S. (2014) before the emergence of modern banking system banking operations was manually done and this may have led to a slowdown in the settlement of transactions. This system involved posting transactions from one ledger to another manually. Counting of money was done manually which were sometimes not accurate and these may have resulted to errors.  E-banking is the use of computers and telecommunications to enable banking transactions to be done by computer or telephone instead of human interaction. Most developed and some undeveloped countries has witnessed success stories in this century in banking technology.  He said that the use of various forms of e-payments has grown significantly within and after the past decade. Okoro A. S. (2014) uses Durbin Watson Statistics (DW) to analysis it study.

Ogbodo and Mieseigha (2013) the origin of this ‘devil’ (money laundering) could not be ascertained by anyone, but there are several opinions that it started several thousand years ago with Chinese merchants. In the words of Silkscreen (1994) and Steel (2006) they claimed that it all started from Mafia Ownership of Laundromats, in the United States where they needed to prove the genuine source for their monies, as they earned their cash from extortion, prostitution, gambling and bootleg liquor.  Ogbodo and Mieseigha (2013) concluded that government has to control loss of revenue, reputation risk, and economic distortion. Their conclusion may be one of the reasons for creating BVN.

According to Olanipekun et al (2013)  e-banking enhances the development of banking system and it is considered as a strategic weapon even as its emergence has made banks rethink their IT strategies in a competitive market. They opined that a vibrant banking industry in any country is pivotal to achieving economic growth development through efficient financial services as they provide a mechanical system to group savings and convert them into investment. They use chi-squares analysis to test their data. Their study revealed that e-banking has improved efficiency and effectiveness of service delivery.

Many newspapers in Nigeria carry out a column on BVN and some of their articles will be use to carry out this research. For instance the Vanguard Newspaper on March 12, 2015 has a column titled ‘Importance of Bank Verification Number’ which educated the public about the policy.

2.1.2  Verification and Authentication

Signature verification is the most common method used by financial institutions and their merchant clients to authenticate an individual’s identity. However, signature verification is a technique that requires practice and diligence. It also requires a valid signature for comparison. As such signature verification at the merchant’s site is neither practical nor effective. The back offices of financial institutions are the best places to verify signatures; however, those back offices are beset by two challenges:

• the volume of checks being presented for payment is too large for a bank to consider validating signatures on every item presented for payment; and,

• the proliferation of inexpensive optical scanning devices makes unauthorized signature replication a very easy method for creating counterfeit items.

The presentation of such identification cards as drivers’ licenses, social security cards, etc. are not an effective means of customer authentication. Websites are available on the Internet that provide counterfeit identity cards to any requestor without demanding any proof of that person’s true identity.