UNIVERSITY OF LAGOS

FACULTY OF LAW
DEPARTMENT OF COMMERCIAL AND INDUSTRIAL LAW
COURSE CODE: CIL 424
COURSE TITLE: LAW OF BANKING II

Assignment

How will the Rise of E-Cheques Likely Reshape the Landscape of Cheque
Payments in Nigeria?

Research made by Group 6

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 Abstract

A cheque is a payment system or a bill of exchange that is utilized by the drawer to

direct the drawee to make certain payments to the bearer. However, the traditional
mode of cheque payment is gradually being replaced by e-cheques due to the
benefits of the latter. This paper therefore seeks to analyze how the rise of e-
cheques is likely to reshape the landscape of cheque payments in Nigeria.
Eventually, this paper recommends the establishment of a robust legal framework
dedicated to e-cheques.

1.0 Introduction

Payment systems play a crucial role in the running of modern market economies,
by enabling the transfer of money and financial instruments between economic
players in a safe and efficient fashion1. One significant part of the payment system
is the cheque payment system, and the current trend of the Nigerian cheque
payment system is intended to support the system's robust growth and
development2. However, financial transactions over the years have witnessed a
tremendous shift from the traditional methods of carrying out transactions to
electronic means such as electronic cheques. Thus, this paper seeks to give an in-
depth analysis of e-cheques and the impacts they have on payment systems among
stakeholders.

2.0 Traditional Cheque Method

By Section 73 of the Bill of Exchange Act, a cheque is a bill of exchange drawn on

a banker payable on demand.3 The operation of a traditional cheque is to guarantee
a certain amount of money. It is printed for the drawing bank as a means of

1
T.D. Luis and C.D. Andre “Money talks-Nowcasting real economic activity with payment System data. Statistics
Department Bank of Portugal”, (2017) International Statistical Institute Regional Statistics Conference
2
Okonkwo, O. S. (2018). “An overview of the cheque payments system in Nigeria”. Bullion, 42(2), 5.
3
Section 73 of the Bill of Exchange Act, Cap; B3 LFN 2004, Vol.2.
providing to an account holder (the payor) to use. The payer issues the check to the
payee, who then takes it to their bank to withdraw or deposit.

2.1 Legal Framework for Traditional Cheque

The following are the legal framework for cheques in Nigeria viz, the Bill of
Exchange Act4, the CBN Guidelines on the issuance of cheques, the Nigerian
Cheque Standard (NCS) set up by the Nigerian Interbank Settlement System
(NIBSS), and the Dishonored Cheques Offences Act, 19775 which criminalizes
the act of offering dud cheques for credit as an offence6.

2.2 Challenges of Traditional Cheque Method

The following are challenges faced by traditional cheques; they are slower in
operation and can take several days to be cleared and paid to the payee. They are
open to security risks of being stolen and used by the wrong person if it is an open
cheque. Furthermore, cheques are also susceptible to being forged and
counterfeited for fraud purposes. The transaction amount is limited and not ideal
for large business models. The completion of a cheque transaction is dependent on
banking hours making it difficult for merchants and businesses to conclude certain
transactions on time. Finally, the declining acceptance of its use is also another
limitation with retailers and service providers unwilling to accept cheques for risk
of fraud.

3.0 E-Cheques

These are cheques processed electronically. The implication is that funds are
transferred electronically from the payer’s account to the payee’s account without
physical delivery. E-cheques have the following benefits, it is cheaper to process, it
is faster, it reduces chargebacks, it facilitates regulatory compliance, improves

4
CAP; B3 LFN 2004, VOL.2.
5
Cap D11 LFN 2004
6
Section 1(a) (b) of Dishonoured Cheques Offences Act, 1977
efficiency as it streamline the payment process, it enhances security, it provide an
audit trail of transactions that automatically document making it a vital reference
for future use or dispute resolution.

There is no current legislation that governs e-cheques in Nigeria. The Bill of

Exchange Act is primarily concerned with traditional cheques, it does not envisage
the use of e-cheques. It is therefore archaic and requires substitution or
consolidation. However, the CBN plays a crucial role in promoting and regulating
electronic payment systems. The CBN guidelines on electronic payments could
potentially be adapted to encompass e-cheques in the future.

3.1 Impact of E-Cheques on Payment System among Stakeholders

The introduction of electronic cheques as a digital substitute for conventional paper

cheques has brought about a radical change in the financial world. Many
stakeholders including individuals, companies, businesses, banks, and government
agencies are affected by this change in one way or the other. It is essential to
examine the effects that the use of electronic cheques has on different stakeholders
with regard to payment systems.7

3.1.1 Impact on Individuals

Due to the fact that e-cheques can be processed fully online, at any time and
location, unlike the traditional cheques, it enhances their convenience, erasing the
need for one to be physically present at the bank within its opening hours, making
transactions easier for individuals. Additionally, the use of digital signatures and
encryption helps to lower the possibility of fraud and strengthen security of e-
cheques as against traditional cheques which are vulnerable to forgery and
counterfeiting. People can now perform financial transactions with more
confidence due to this additional degree of security when compared to traditional

7
Mamudu U. Z, “Electronic Banking Payment System and Its Impact on The Nigerian Economy”, (2021) Sabinet
African Journal, 12(1)
cheques. Also, compared to paper cheques that take days to get cleared, e-cheques
can be processed and cleared considerably faster, even on the same day! 8 People
are better able to manage and access their money and take care of pressing
demands because of the speedier processing time.

Individuals without computer literacy however, may find it difficult to comprehend

and use compared to conventional cheques.

3.1.2 Business/Companies/Organizations

E-cheques help organizations enhance their efficiency. The fact that physical
transportation, human data entry, and reconciliation, and manual handling of paper,
all of which consume substantial amount of time and possess the element of human
mechanical errors, will no longer be required as organizations can now carry out
their businesses seamlessly and more efficiently. 9 The use of e-cheques also helps
businesses simplify their payment systems and help them allocate resources. 10
Another interesting point to note is cost reduction. Printing, mailing, and labor are
just a few of the costs associated with processing traditional cheques. These costs
are now eliminated since e-cheques perform transactions electronically. It therefore
helps businesses, especially those with large transaction volumes, save a
significant amount of money by reducing their overall costs. There is also better
cash flow management as businesses can control the inflow and outflow of cash
and prepare adequately for their future expenditure.

3.1.3 Impact on Banks and other Financial Institutions

E-cheques help decrease the manual processing of banks and financial institutions,
allowing them run more profitably. Consequently, by offering e-cheque services,
8
Brian Szymanski, “Unlocking B2B Efficiency — The Power of E-Checks in Modern Transactions!”
https://www.paycron.com/blog/unlocking-b2b-efficiency-the-power-of-e-checks-in-modern-transactions/ published
2 January 2024, accessed 7 July 2024.
9
Kathy Mertes, “The Rise of Check Fraud and How Digital Payments Can Help Combat It”
https://insights.conduent.com/conduent-blog/the-rise-of-check-fraud-and-how-digital-payments-can-help-combat-it
published 13 July 2023, accessed 7 July, 2024.
10
Ibid.
banks are able to satisfy the needs of their tech-savvy customers who appreciate
digital solutions and smooth transaction processes. Incidences of fraud are also
greatly lowered through security measures such as digital footprints, audit trail and
encryption. Banks and other finance institutions should intensify efforts in
mounting other e-payments channels to promote trade and commerce in Nigeria. 11
While a number of banks have deployed the necessary infrastructure in place to
ensure effective implementation, it is sad to note that some banks are still mot fully
ready for this new payment regime.12

3.1.4 Impact on Regulatory Bodies

Current regulatory frameworks for cheques now need new reforms to

accommodate the new technological development. In order to safeguard the
integrity of the financial system and prevent cyberattacks, regulatory agencies need
to set and implement security requirements to make sure that electronic
transactions and payment are carried out securely. This entails establishing rules
for encryption, authentication and data security.13

4.0 Conclusion

This paper has explored the definition, legal framework, benefits and how the rise,
of e-cheques would reshape the landscape of cheque payments in Nigeria
considering the way it impacts different stakeholders. It is found inter alia that e-
cheques allow for faster and seamless mode of payment which is incomparable to
the traditional mode of cheque payment. However, this essay noted the dearth of
extant legal framework that would guide the use of e-cheques for payment in
Nigeria, on this basis, the paper recommends the enactment of a special Act

11
Ehiedu, C., V, Onuorah C., A, Chiejina O., J., “E-payment System (EPS) and Efficiency of Banks in Nigeria.”
(2023) International Journal of Applied Research in Social Science, 5(1)
12
Okifo J., “Electronic Payment System in Nigeria: Its Economic Benefits and Challenges” (2015), Journal of
Education and Practice, 6(16).
13
“E-Cheque: A New Era of Payments in Hong Kong- Hong Kong Monetary Authority”
https://www.hkma.gov.hk/eng/news-and-media/insight/2015/10/20151029/ published 29, October 2015, accessed 7
July 2024
dedicated to an electronic payment system which would cover e-cheques and settle
the presumed ambiguity upon its legality.