Dynamics of Digitalisation and its Implications on the Nigerian Financial System Performance

Abstract

This paper examines the impact of digitalisation on the performance of Deposit Money Banks (DMBs) in Nigeria. Using the Dynamic Ordinary Least Squares (DOLS) method, the results revealed that Web pay, and the Nigeria Inter-Bank Settlement System (NIBSS), Instant Payment (NIP) transactions, have a significant and positive impact on the Capital Adequacy Ratio expressed as a percentage of risk-weighted credit of banks’ exposure. However, Point of Sale (PoS) and Web payments (Web pay) transactions showed a positive, but insignificant impact on the Liquidity Ratio of banks for the period, indicating that both are sources of liquidity in the financial system, but not significant. Also, NIP showed a positive, but not significant impact on the Asset Quality of banks. Further, an insignificant negative effect of PoS transactions and NIP on the profitability of banks in Nigeria was also established. Importantly, mobile payment transactions exerted a positive, significant impact on banks’ profitability during the study period. These findings presuppose those technological innovations in the banking sector of Nigeria’s economy are key to the profitability of banks. Therefore, DMBs in Nigeria should continue to leverage technological innovations, using the various digital banking channels, especially, Web pay, NIP, and mobile payments to boost their performance.