USE OF AUTOMATED TELLER MACHINE DEBIT CARDS TO MAKE PAYMENTS IN SUPERMARKETS IN KISII TOWN: CHALLENGES AND ECONOMIC IMPACT

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1 USE OF AUTOMATED TELLER MACHINE DEBIT CARDS TO MAKE PAYMENTS IN SUPERMARKETS IN KISII TOWN: CHALLENGES AND ECONOMIC IMPACT Nyanamba, Steve Ondieki 1 (Corresponding author) P.O. Box 3520,40200, Kisii, Kenya Anyoka, James 1 P.O. Box 62000, 00200, Nairobi Nyakeyo, Lucy Okenyuri 2 P.O. Box 103, 40404, Rongo, Kenya 1. School of Human Resource Management, Jomo Kenyatta University of Agriculture and Technology, 2. Rongo University College, ABSTRACT The main objectives of the study were to identify some of the impediments of supermarket customers in the use of ATM debit cards to offset payments in supermarkets and to determine the financial impact arising from lack of use of ATM debit cards in making payments in supermarket. The study collected information from a sample of 160 respondents from the four supermarkets using quota sampling methods over a span of one week, using a questionnaire. The data obtained was analyzed using descriptive statistics. The study found out that respondents did not use ATM cards to make payments in supermarkets, either because they don t remember to use the cards or because they forget to carry their identity card. Besides, some respondents did not use ATM cards because they feared higher transaction charges, because it is a long procedure or because they fear for forgery of their PIN Number. It was also noted that almost half of the shoppers incur withdrawal charges before getting money to pay for shopping. The study recommended that the management of supermarket should find a way of reminding the shoppers to use ATM cards to offset their bills, just as they remind them to present smart cards. Key words: ATM card, payment, supermarket, bank COPY RIGHT 2014 Institute of Interdisciplinary Business Research 337

2 1. Introduction Supermarkets are no longer places where only rich people shop; over the past ten years or so, they have spread from the wealthy suburbs of major cities to poorer areas and much smaller towns. This has happened in response to a number of forces, many of them interconnected: rising incomes, urbanisation, more female participation in the labour force and the desire to emulate Western culture, spurred on by the globalisation of the media and advertising (Traill, 2006). The adoption of western culture has led to most of the supermarkets embracing information and communication technology (ICT). The recent development in Information and Communication Technology (ICT) has no doubt brought with it dramatic changes in the way businesses are conducted worldwide. Different sectors of world economies are rapidly being affected by improved technology (Akujuobi, 2009). In sub-sahara Africa, developments in ICT are radically changing the way business is done. Electronic commerce is now thought to hold the promise of a new commercial revolution by offering an inexpensive and direct way to exchange information and sell or buy products or services (Issahaku, 2012). He further states that it is due to such advancement in technology that more and more electronic modes of payment that exist or are being continuously developed. Some common types of e-payment systems are cards which include Automated Teller Machine (ATM) cards, electronic purses/wallets, electronic funds transfer at point of sale, credit cards, debit cards, smart cards), mobile money transfer, internet payment, and electronic cheque. A growing number of consumers like the ease and convenience of using a debit card for shopping and banking (Consumer Action, 2007). This claim is supported by Musto (2008) who points out that debit cards are now easily the most popular card payment product in Europe and elsewhere, they account for the vast majority of bankcard transactions across Europe today and that debit usage is now growing faster than credit card to become the most important access instrument to the current account. He also observes that debit card will maintain its key role as the major current account access instrument and that processing flexibility and the ability to issue cards of more than one COPY RIGHT 2014 Institute of Interdisciplinary Business Research 338

3 payment scheme will be a major advantage for banks looking for market growth and expansion. Debit cards are issued by banks to customers with checking accounts and they can be used at cash machines (ATMs) to withdraw money from checking account and, like a check, they can be used to purchase items at stores and online. A debit card holder can use the card two ways: First, it can be used with a personal identification number (PIN) to withdraw cash from an ATM or to request cash back at stores when making a purchase and secondly, it can be used with the holder s signature or PIN to pay for goods, meals, gas and services (Consumer Action, 2007). According to Vassiliou (2004), debit instruments allow the payer to have purchases directly charged (debited) to funds on his/her account at a deposit-taking institution such as a bank. To make payment using the ATM debit card, one needs to have the national identification which will identify him/her as the true owner of the debit card before the payment is made. It is also worth noting that there is no grace period on debit card purchases. This is because the money is immediately deducted from checking account to the business s account (Consumer Action, 2007). On the other hand, Kumaga (2010) categorized the challenges as revealed by previous research works as follows: First, Security which refers to the practices, procedures and technology put in place which ensure that information is safeguarded from modification or accidental change (integrity), unauthorized access (confidentiality), and is readily available (availability) to authorized users on request. The second challenge is infrastructure, which includes computer network such as the internet and mobile network used for mobile phone. A study by Worku (2010) found out that the low level of internet and poorly developed telecommunication infrastructure were the major hindrances to smooth development and improvements in e-commerce in Ethiopia. The third challenge is the Socio-Cultural challenges: Kumaga, 2010; Taddesse & Kidan, 2005) observes that consumer s confidence and trust in the traditional payments system has made customers less likely to adopt new technologies. The other notable challenges noted include lack of acceptance of debit cards by the Ghanaian populace to use Electronic products, COPY RIGHT 2014 Institute of Interdisciplinary Business Research 339

4 ignorance, network issues, lack of tips, general illiteracy of electronic banking products (Kumaga, 2010; Yaqub, et al., 2013), limited availability of electronic transaction platforms, low level of acceptance (Kumaga, 2010; Yaqub, et al., 2013), Frequent power interruption: Lack of reliable power supply is a key challenge for smoothly running e- payments and e-banking (Yaqub, et al., 2013) and lack of understanding and co-operation from partners fellow banks. Besides the above challenges, Consumer Action (2007) found out that just like credit cards, debit cards can be used fraudulently by copying your authorized signature or stealing your PIN, hence the need to go over your bank statement as soon as you receive it to make sure there are no unauthorized transactions. Musto (200) lamented that the growing cost of compliance as one of the major challenges facing debit card issuers among the European Banks. There are several challenges which face debit cards in their use in making payments. Issahaku (2012) s study on the challenges of electronic payment systems in Ghana found out that link failure, frequent breakdown of machines, slow process of service delivery, long queues and inaccessibility of the point of sale devices before and after banking hours, were some of the challenges that are militating against the success of the e- ZWICH service. The study recommended that sensitization workshops should be organized by the Ghana Interbank Payment and Settlement System to encourage Ghanaian companies and individuals and in particular the rural folks to patronize the service. Prochaska-Cue (2007) identifies several advantages of using debit cards to make payments. First, there is convenience of paying with the card, perhaps without additional fees. Secondly, there is no need to carry a checkbook. Thirdly, with a joint account, you don t have to juggle two checkbooks or carry loose checks. Further still, you do not have to get cash as often. Besides, you can t spend more than is in the account, unless you have an automatic overdraft credit line attached to the card. One such benefit, as Appiah and Agyemang (2006) point out, is the fact that electronic payments enable bank customers to handle their daily financial transactions without having to visit their local bank branch. Electronic payments products could save merchants time and expense in handling cash. Humphrey et al, (2001) also support the fact the introduction and use of COPY RIGHT 2014 Institute of Interdisciplinary Business Research 340

5 electronic payment instruments holds the promise of broad benefit to both business and consumers in the form of reduced costs, greater convenience and more secure, reliable means of payment and settlement for a potentially vast range of goods and services offered worldwide over the internet or other electronic networks. However, Prochaska- Cue (2007) also observes that besides the advantages, it is also carries disadvantages with it. For instance, there is no leverage if you buy something defective and ask for your money back like you have with a credit card. Some business enterprises also have a minimum purchase for which you can offset with the debt card. For your debit card to work, you must have enough money in your checking account to cover transactions unless you have overdraft protection (Consumer Action, 2007). 2. Statement of the Problem ATM debit cards are widely used to offset payments in different parts of the world. However, it has been noted that regardless of the fact that ATM debit card holders may payment for their purchases directly in the supermarket using the ATM card, many shoppers still prefer going to the respective bank s ATM to withdraw and then go to pay for shopping. This has robbed them of the transaction fees, which varies from bank to bank. Besides, others go to withdraw and then use part of it to make payments, instead of them using the cash back facility. It is for this reason that the study is undertaken so as to fill the gap. 3. Empirical Literature Stavins (2012) s study on potential effects of an increase in debit card fees, realized that consumers with the least amount of education (less than a high school diploma), the lowest annual income (below $25,000), and the youngest age (under 25 years) consider cost to be the most important payment characteristic. Besides, the study also noted that credit cards are the closest substitute for debit cards, and that consumers who rated the cost of debit cards as low relative to the cost of other payment methods were significantly more likely to adopt and to use debit cards. However, the study warned that if the cost of using debit cards rises, consumers are more likely to substitute credit cards for some of COPY RIGHT 2014 Institute of Interdisciplinary Business Research 341

6 their debit card transactions. Agbolade (2011) observed that marginal change in the level of the investment and adoption of ICT in the banking industry will result to a proportionate increase in the profit level. Hassen (2012) s study on the Role of ICT for the growth of small enterprises in Ethiopia, found out that that small enterprises in the Ethiopia are on a very low level of utilizing ICT and e-commerce due to scarcity in infrastructure development and expertise in the area coupled with barriers from government policy and bank regulations. The main objectives of the study were to identify some of the impediments of supermarket customers in the use of ATM debit cards to offset payments in supermarkets and to determine the financial impact arising from lack of use of ATM debit cards in making payments in supermarket. The study was carried out in Kisii Town in Kisii County, Kenya. Currently, there are four supermarkets in Kisii Town which allow the use of ATM debit cards to make payments. These are Tuskeys Supermarket, Nakumatt Supermarket, Uchumi Supermarket and Naivas Supermarket. By administering a questionnaire, the study collected information from a sample of 160 respondents from the four supermarkets using quota sampling methods over a span of one week. The choice of this sampling technique deemed appropriate because it was perceived that the manner in which the customers visited the supermarkets was in itself at random and therefore would provide an assorted group of customers from all walks of lifestyle. Data was obtained using structured questionnaires with open and closed ended questions. The data obtained was analyzed using descriptive statistics. 4. Findings 4.1 Respondents Membership on Banks The study sought to identify the banks in which the supermarket shoppers held account(s). Findings of the study revealed that majority of the shoppers had multiple accounts in various banks. The result of the study identified Equity Bank, Co-operative Bank and Kenya Commercial Bank as the three major banks with which shoppers had active account(s). Specifically, 62.5% of the respondents were noted to have an account COPY RIGHT 2014 Institute of Interdisciplinary Business Research 342

7 with Equity Bank while 40.6% of the respondent had an account with Co-operative Bank and a further 30.6% of the respondents had an account with the Kenya Commercial Bank. 4.2 Frequency of Shopping The study sought to establish the frequency with which the respondents did shopping from the supermarkets. The study revealed that 30% of the respondents did their shopping on weekly basis, while 34% of the respondents did their shopping whenever they are in town. The study also found out that 18% of the respondents did their shopping twice a month, 11% of the respondents did their shopping their shopping once a month and 7% of the respondents shopped thrice a month. 4.3 Challenges of using ATM to offset Bills The researcher wanted to know how frequently respondents use ATM cards to make payments. The results revealed that only 7.5 % of the respondents use ATM cards to make payments while 92.5% of the respondents do not use ATM cards to offset their bills. The study also wanted to know the reasons why respondents don t use ATM cards to offset their bills. A list of possible reasons was provided from which respondents were asked to identify the reason(s). The study noted that 84% of the respondents fail to use their ATM cards to offset bills because they forget to use the cards. The study further indicated that 39.3% of the respondents fail to use ATM card to make payment because they forget to carry their identity card, 25% of the respondents fail to use their ATM cards because they fear higher transaction charges. The study further indicated that 23% of the respondents indicated that they do not use their ATM cards to make payments because it seems a long procedure while only 8.6% of respondents do not use ATM cards because they fear for forgery of their Personal Identification (PIN) Number. 4.4 Economic Impact of not using ATM Card for Payment Although 93% of the respondents were aware that one can use the ATM debit card to make payments at the supermarkets, the research noted that 41.3 % of the respondents had made withdrawal from their bank accounts so as to use in shopping. This means that they had incurred some charges in their banks as they made the withdrawal. This implies that at least 41.3% of the shoppers incur a cost of at least 30 shillings withdrawal charges COPY RIGHT 2014 Institute of Interdisciplinary Business Research 343

8 which is charged by most banks before getting money to pay for shopping, an expense which would otherwise be avoided if they used their ATM debit cards to offset their bills. 5. Discussion From the results above it is evident that there are there are a number of challenges which hamper the use of ATM cards to make payments in supermarkets, either because they don t remember to use the cards or because they forget to carry their identity card. It was also noted that others fail to use ATM cards to carry out their purchases because they fear higher transaction charges, it is a long procedure or because they fear for forgery of their PIN Number. It was also noted that almost half of the shoppers incur withdrawal charges before getting money to pay for shopping. 6. Conclusion From the findings of the study, it is evident that quite a good portion of the shoppers have ATM cards which can be used to offset bills instead of using hard cash. Therefore the management of supermarket should find a way of reminding the shoppers to use ATM cards to offset their bills, just as they remind them to present smart cards, a card which is used to accumulate the shoppers points each time s/he undertakes shopping worth sh.100 or more. The use of the cards to offset bills is also likely to reduce robbery in the supermarket since most of the transactions will not be involving hard cash. The supermarkets management should also try to offer the service faster, since some shoppers, though willing to use ATM in payment, got frustrated by the procedure involved in carrying out the transaction. COPY RIGHT 2014 Institute of Interdisciplinary Business Research 344

9 References Agbolade, O.K. (2011). Information And Communication Technology And Banks Profitability In Nigeria. Australian Journal of Business and Management Research Vol.1 No.4, Akujuobi, A.B.C. (2009). Information and Communication Technology and Bank Performance: The Case of Nigerian Commercial Banks. An International Multi- Disciplinary Journal, Vol. 3 (5), Appiah, A. and Agyemang, F. (2007). Electronic Retail Payment Systems: User Acceptability and Payment Problems in Ghana Caonsumer Action (2007). Understanding debit cards Plastic with a difference. Downloaded on 28 th February 2014 from Hassen, Y.A. (2012). Role of ICT for the growth of small enterprises in Ethiopia. Master s Thesis in Information Systems, University West Trollhättan, Sweden Humphrey, D. B., Pulley, B. L. and Vesala, J. M. (2000). The check s in the mail: whythe United States lags in the adoption of cost-saving electronic payments. Journal of Financial Services Research 17: Issahaku, H. (2012). Challenges of Electronic Payment Systems in Ghana: The Case of e-wich. American Journal of Business and Management Vol. 1, No. 3, 2012, Kumaga, D. (2010). The challenges of implementing Electronic Payment Systems The Case of Ghana s E-zwich Payment System. Musto, M. (2008). Managing the Debit Cost Challenge in a Changing Payments Landscape A First Data Perspective. Available on pdf. Downloaded on 27th February, 2014 Prochaska-Cue, K. (2007). Using Debit Cards Wisely. University of Nebraska Lincoln Extension Publications. Available at on 20 th February, 2014 COPY RIGHT 2014 Institute of Interdisciplinary Business Research 345

10 Stavins, J. (2012). Potential Effects of an Increase in Debit Card Fees. Federal Reserve Bank of Boston. Available at downloaded on 26 th February, 2014 Taddesse W & Kidan T (2005). e-payment: Challenges and Opportunities in Ethiopia Traill, W. B. (2006). The Rapid Rise of Supermarkets? Development Policy Review, 24 (2): Vassilliou, C. (2004). Electronic Payment Systems and Marketing: A literature review Worku, G. (2010). Electronic Banking in Ethiopia Practices, Opportunities and Challenges. Journal of Internet Banking & Commerce, August 2010,Vol. 12 No.2 Yaqub J. O; Bello H. T; Adenuga I. A and Ogundeji M. O. (2013). The Cashless Policy in Nigeria: Prospects and Challenges. International Journal of Humanities and Social Science Vol. 3 No. 3; COPY RIGHT 2014 Institute of Interdisciplinary Business Research 346