AN EXAMINATION OF THE INFLUENCE OF MULTIPLE BANK CHARGES ON CUSTOMER BEHAVIOR

CHAPTER ONE

INTRODUCTION

Background of the Study

A stable banking industry is crucial for the development and stabilization of a country's economy, particularly in a competitive globalized business environment. As an effective flow of funds is ensured when a country has a robust banking sector. According to Uche (2018, the integration of mergers and acquisitions, together with technological advancements, has led to a more intricate yet highly efficient banking sector that plays a significant role in the country's financial system. 

The Central Bank of Nigeria functions as the primary financial banking system of the country, providing loans to commercial banks and the government. It formulates and implements Nigeria's monetary policy, while also overseeing the nation's reserves. The Central Bank of Nigeria collects and distributes all the statistics and financial data of scheduled banks. 

Over time, the banking industry in Nigeria has evolved dramatically, especially since the consolidation reforms of the early 2000s which aimed at creating a more resilient financial sector (Sanusi, 2010). Despite these reforms, the structure of commercial bank charges has remained a contentious issue. Nigerian commercial bank clients have lodged several complaints regarding the indiscriminate and excessive charges imposed on their bank accounts. According to Oladeinde (2019), excessive and arbitrary fees imposed on bank clients, such as those related to withdrawal limitations, deter individuals, particularly those with low incomes, from utilising the financial services provided by banks.  Oladeinde (2019) further asserts that certain respondents who stated that they have lost interest in bank services ascribed this to the controversial charges. These unfavourable circumstances have resulted in the cessation or suspension of several accounts in Nigeria (Oladeinde, 2019). Similarly, Olufemi (2018) expressed a similar perspective, contending that a significant number of clients of commercial banks are using social media platforms to announce their intention to either close their bank accounts or switch to a different bank. This is mainly attributed to the presence of excessive or inexplicable charges. Beyond that, several participants in the informal sector have mentioned that they choose not to have a formal bank account or have closed their existing account due to the excessive fees charged by banks without providing satisfactory services (Oladeinde, 2019; Tonuchi, 2020). 

In 2020, during the height of the coronavirus pandemic, certain bank clients turned to social media to express their dissatisfaction with the exorbitant costs imposed by banks. This has revitalised the phrase "end excess bank charges." Nimot (2020) said that Nigerian bank clients voiced their dissatisfaction and complaints on the exorbitant and repetitive charges collected from their savings accounts. However, due to the significance of customers' savings in investment and economic growth, as well as their ongoing trust in the financial system to manage their finances, policymakers such as the Nigeria Senate have intervened in the matter (Chidi, 2020). The Nigerian Senate observed that imposing exorbitant and arbitrary fees on consumers of financial institutions could impede the country's ongoing efforts to promote financial inclusion, which has been making substantial strides. Therefore, the chamber established a panel to study the matter (Chidi, 2020). Not just the Nigeria Senate, but also other important stakeholders have made substantial efforts to remedy the matter. The Central Bank of Nigeria, as the primary overseer of financial institutions in Nigeria, created regulations and guidelines to mitigate exorbitant bank fees in response to client grievances. The Central Bank of Nigeria (CBN) issued a set of instructions about banking fees in the years 2004, 2013, 2017, and 2019 (CBN, 2019). The 2019 banks charges guideline became effective on January 1, 2020. The 2019 banks' charges guide had significant modifications compared to the 2017 guide. Additionally, current account users will no longer be required to pay a cost for maintaining their cards, as they already pay maintenance charges for their accounts. Likewise, the bank charges for electronic funds transfer have been reduced.  It is unclear whether commercial banks have complied with this legislation, as most banks continue to impose higher fees on their consumers. The central bank has also made a substantial endeavour to mediate disputes between banks and their clients regarding excessive charges. The bank reported that it had successfully addressed about 16,263 complaints that were received from 2012 to November 30, 2019. The bank issued a refund of ₦76.75 billion and $20.90 million to consumers in response to many complaints submitted (CBN, 2020). The Central Bank of Nigeria (CBN) has outlined in its latest directive, the 2020 guide to bank charges, that any financial institution found to be in violation of the new regulations will be subject to a penalty of ₦2 million per infringement, or an amount decided by the CBN at its discretion. Non-compliance with the Central Bank of Nigeria's (CBN) instruction about any violation would result in an additional penalty of ₦2 million per day until the directive is followed, or as determined by the CBN periodically (CBN, 2020). As a reaction to the criticisms raised by both bank clients and critics, the ODCs have justified their charges by stating that they are in accordance with the guidelines set forth in the CBN Act, 2007 and the "Bank and other Financial Institution Act, 2020".Nevertheless, the survival of banks is contingent upon the establishment of a robust relationship between clients and banks including transparency and communication of bank charges. Otherwise, customers may attempt to switch to a different bank. Therefore, a survey will be conducted in order to examine the influence of multiple bank charges on customer behavior.

Statement of the Problem

The Nigerian banking system has experienced substantial changes in recent decades, characterised by structural reforms, regulatory changes, and advancements in technology. However, the presence of multiple bank charges remains a persistent issue that continues to impact customer behaviour. In Nigeria, bank charges refer to a diverse array of fees imposed on clients for various services, such as account management fees, transaction fees, ATM withdrawal fees, and service charges for digital banking platforms. The reason for these charges is typically to offset operational expenses, improve the quality of service, and sustain profitability in a fiercely competitive market (CBN, 2017).

Nevertheless, the abundance and perceived lack of consistency of these fees have sparked dissatisfaction among clients. Eze (2019) assert that these charges are often seen by clients as exorbitant and unwarranted, which can result in discontent and probable changes in banking behaviour. Also, research has indicated that undisclosed or unforeseen fees might undermine confidence in financial establishments, leading clients to explore other options or reduce their involvement with the banking system (Adeoye, 2018). The existence of several bank fees might have a considerable impact on these aspects, resulting in various client reactions. According to Ogunleye (2020), exorbitant fees  lead to a decline in client loyalty, a rise in complaints, and a shift towards alternative financial services including fintech solutions and microfinance institutions.

Furthermore, the way people perceive bank charges is also influenced by the degree of transparency and communication exhibited by the banks. Transparent and explicit disclosure of prices can alleviate unfavourable views, whereas concealed or inadequately communicated fees might intensify customer dissatisfaction (Igbinovia, 2017). Moreover, the importance of financial literacy should not be underestimated, as clients who have a comprehensive understanding of banking services are more likely to efficiently manage charges and make well-informed decisions. Hence, it is in the light of these that the study seeks to examine the influence of multiple bank charges on customer behavior.

 1.3  Objectives of the Study

The main purpose of this study is to examine the influence of multiple bank charges on customer behavior.  Specifically, the study will;

To determine the extent multiple bank charges are impost on customers by financial institutions in Nigeria.

2. To determine the extent multiple bank charges influences customers' usage of banking services.

3. To determine the extent multiple bank charges influences customers' loyalty in banking sector.

4. To determine the extent multiple bank charges instigate customers decision to switch banks.

1.4  Research Questions

The following questions have been prepared for the study:

To what extent are multiple bank charges imposed on customers by financial institutions in Nigeria?

How does the extent of multiple bank charges influence customers' usage of banking services?

What is the extent to which multiple bank charges influence customers' loyalty in the banking sector?

To what extent does multiple bank charges instigate customers' decisions to switch banks?

1.5 Research Hypotheses

H0: Multiple bank charges have no significant influence on customer behavior.

Ha: Multiple bank charges have a significant influence on customer behavior.

1.6 Significance of the Study

The study findings will help banks and financial institutions in designing better products and services and also identify potential areas of dissatisfaction that could lead to customer attrition.Additionally, consumer rights organizations will use the findings to advocate for fairer banking practices. Furthermore, subsequent researchers will use it as a literature review. Build on the findings to explore further aspects of the effects of multiple charges, contributing to the academic body of knowledge.

1.7 Scope of the study   

The scope of this study is boarded on the influence of multiple bank charges on customer behavior. Empirically, this study will determine the extent multiple bank charges are impost on customers by financial institutions, the extent multiple bank charges influences customers' usage of banking services, the extent multiple bank charges influences customers' loyalty in banking sector and the extent multiple bank charges instigate customers decision to switch banks.

Geographically, the study will be delimited to some selected banks in Ogun state.

1.8 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.9 Definition of Terms

Bank charge: refers to the charge required of a bank customer to access a service from the bank. 

Transaction costs: the charges incurred by a customer in a commercial bank for initiating and in need of a banking transaction.

Unfair charge: is conceived as perceived inequity, by a commercial bank customer in relation to the costs of services offered by a bank.