Impact of Financial Innovation on the Competitiveness of Deposit Money Banks in Nigeria

Abstract

The world has changed dramatically, since the industrial revolution and innovation is now at the forefront of every industry. Scholars have identified innovation as a critical factor that aids economic expansion, accelerates financial development and facilitates investment diversification. However, despite the undeniable importance of financial innovation in fostering growth, questions remain on whether such innovation boosts competitiveness among banks in Nigeria. Therefore, this study investigated the impact of financial innovation on the competitiveness of Deposit Money Banks (DMBs) in Nigeria. Ninety-six bank officers were randomly selected from the twenty-four DMBs in Nigeria, to provide responses to a structured questionnaire, developed in line with the objectives of the study. A Structural Equation Model (SEM) was used to specify the relationship between the dimensions of financial innovation (mobile banking, internet banking, ATM banking & CBN digital currency) and banks’ competitiveness. The model assessment was done using the standard factor loading, composite reliability, construct and the discriminant validity tests. The Partial Least Squares (PLS) technique was further used to estimate the model parameters and test the research hypotheses, via the Smart-PLS 3 statistical software. The results revealed that both internet banking and CBN digital currency directly and significantly affect banks’ competitiveness. The study concludes that internet banking and CBN digital currency are key financial innovation tools influencing competitiveness among DMBs in Nigeria. Therefore, it is recommended that management and stakeholders in Nigerian DMBs should encourage frequent usage of their internet banking platforms by making it more customer-friendly and enhancing its safety features. Furthermore, the government should by way of policy encourage businesses and individuals to embrace the E-naira for carrying out financial transactions.