Impact of Digital Financial Services Innovation on the Performance of Deposit Money Banks in Nigeria, 2012 to 2024

Abstract

The main objective of the study was to investigate the impact of digital financial services innovations on the deposit money banks in Nigeria within the period of 2012 to 2024. Specifically, the study aims to examine the impact of the volume of Automated Teller Machine (VATM) digital financial services innovation on Return on Asset (ROA) in Nigeria; evaluate the impact of the volume of Point of Sales (VPOS) digital financial services innovation on Return on Assets (ROA) in Nigeria; investigate the impact of the volume of mobile-based (VMOB) digital financial services innovation on Return on Asset (ROA) in Nigeria; and assess the impact of the volume of web-based (VWBP) digital financial services innovation on Return on Asset (ROA) in Nigeria. This study, conducted for the period from 2012 to 2024, utilized the ordinary least squares regression method to investigate the impact of digital financial services innovation on the performance of deposit money banks in Nigeria. Secondary data were sourced from the Central Bank of Nigeria's Statistical Bulletin and Statistics and Economic Reports for various years. Empirical findings revealed that the volume of ATM, POS, mobile-based, and web-based digital financial services innovation had a favorable and critical impact on the deposit money banks in Nigeria. Consequently, the study concluded that digital financial services innovation contributes to enhancing deposit money banks in the country. To promote further growth in the deposit money banks, the study recommends expanding the deployment and usage of digital finance channels such as the volume of ATM, POS, mobile-based, and web-based channels, encouraging their utilization for financial services innovation by participants.

Keywords: Innovation, Digital, volume of web -based OLS, ROA

1 Introduction

Just before the emergence of ICT means of exchange, the Nigerian remittance system was mainly through the usage of cash with little use of cheques. The old method of remittance was given through cheques, while electronic method entails remittance through ATM, POS, web pay, mobile pay etc. (Babarinde et al, 2024).

The Nigerian population discovered that digital finance has come to stay as from 2012 when the Nigerian populace discovered digital finance had come to stay, and the attendant gains, the old method of remittance started declining. The value of usual method of remittance (cheque-based transaction) went down seriously from 97.86 per cent in 2009 to 2.61 per cent in 2019; while the digital form of remittance went so high from 2.14 per cent in 2009 to 97.39 per cent in 2019. For that particular reason the total of 167,014.33 billion Naira were paid through the electronic means in the 2019 while the old method only accounted for 4,481.67 billion Naira of the total of 171,496.00 billion Naira paid (Babarinde et al, 2024).

Information and Communication Technology has been a facilitator to the provision of financial transaction since man have learn to accept the ICT in their financial affairs. The newest of particular importance is digital technology and its application to the financial services sector.

As a matter of fact, digital financial services are done by both banks and non-bank financial organizations. Digital finance has found to expand the position of financial services innovation. Digital technologies also offer cheap and ease to consumers of financial services to prevent, make remittances, access credit, and obtain insurance. Due to the gains of internet-based digital technologies, some developing countries newly moved for the acceptance of digital economy by enhancing capital flows from rich to the poor countries (Okoyeuzu & Isa, 2020).

The 2007 to 2009 global financial crisis served as a stimulant to the use of digital financial services method by financial institutions in their financial deals like processing of cross border remittance, management of customer’s account (Ozili, 2023).

The growth in digital financial services innovation in Nigeria and the level to which digital finance affects the DMBs has been unclear (Igoni et al., 2021).

Also, Ozili (2020) checked the digital financial services in US, UK, India and Nigeria and shows that Nigeria has more debit card usage than India while India has higher credit card usage than Nigeria.

Therefore, the main purpose of the study was to ex-ray the position of digital financial services innovation on the performance of Deposit Money Banks in Nigeria within the period, 2012 to 2024.

Specific Objectives of the Study

In specific terms, the study sought to:

• Examine the impact of volume of Automated Teller Machine (VATM) digital financial services innovation on ROA of DMBs in Nigeria;
• Evaluate the effect of volume of Point of Sales (VPOS) digital financial services innovation on ROA of DMBs in Nigeria;
• Investigate the impact of volume of mobile-based (VMOB) digital financial services innovation on ROA of DMBs in Nigeria; and
• Assess the impact of volume of web-based (VWBP) digital financial services innovation on ROA of DMBs in Nigeria.

Statement of Hypotheses

• Volume of Automated Teller Machine digital financial services innovation did not have favourable and critical impact on ROA of DMBs in Nigeria;
• Volume of Point of Sales digital financial services innovation did not have favourable and critical impact on ROA of DMBs in Nigeria;
• Volume of Mobile-based digital financial services innovation did not have favourable and critical impact on ROA of DMBs in Nigeria; and
• Volume of Web-based digital financial services innovation did not have favourable and critical impact on ROA of DMBs in Nigeria.

2 Review of Literature

Digital Financial Services

Digital financial services are those services utilized by customers through digital technology such as e-money, digital wallet and digital payment (https://www.digitalfinance.worldbank.org, 2026).

Pazarbasioglu et al., (2020), stated that digital financial services are the financial services that are based on digital technologies for delivery and use by customers. Digital financial services in developing countries enables individuals with limited access to financial services to access these services using their mobile phones at their convenience and without going to the physical bank.

Pazarbasioglu et al. (2020), further stated that nations with more sharp financial systems shows speedy of economic growth and more reduction in inequality and poverty gaps. Digital financial services reduce business costs by encouraging transaction pace, security, and openness and encourage a more solid financial services to the gains of the poor (Pazarbasioglu et al., 2020).

Automated Teller Machine (ATM): This is an electronic device which gives the individuals of a financial institution with opportunity to financial performance in an open pace without help from a human clerk or bank staff. It is a computer managed system which gives away and render other services to individuals who know them with a personal identification number (PIN). The gains of ATM to a bank are a very important channel that attract and retain more customers, improve cash in a customer’s hands, render simple service for customers, reduces the amount of bad cheques, saves lots of unknown costs etc (Appah & Inini, 2019).

Point of Sales (POS): This is a services machine used to conduct retail transaction, a checkout counter in a shop, or the location where a transaction occurs. It is a computer facility in stores that permit a customer to instantly pay for goods and services electronically by deducting the cost of each purchase directly from a customer’s account.

Mobile Banking: This is provision and av ailment of banking and financial services with the help of mobile telecommunication devices (Agu, 2025).

Appah and Inini (2019), mobile banking refers to the provision of banking and financial services with the help of mobile telecommunication devices. It is a system that allows customers of a financial institution to conduct a number of financial transactions through a mobile device such a mobile phone. It is a term used for performing balance checks, account transactions, payments, etc. via a mobile device such as the mobile phone.

Web Banking: This is an online platform through which customers of the bank can get their account and financial transactions using the internet. Customers can view account, transfer funds between sister accounts, invest in a tenor deposit, confirm cheque issued and transfer funds in favour of third party (Appah & Inini, 2019). It uses the electronic card infrastructure for executing payment instructions and final settlement of goods and services over the internet between the trader and the customer.

Return of Asset

Return on Assets (ROA) is a financial metric that measures a company's profitability in relation to its total assets, indicating how efficiently management is using its assets to generate profit. The formula is ROA = Net Income / Average Total Assets, expressed as a percentage. A higher ROA suggests better efficiency, while a lower ROA may indicate underutilized resources or failures in operations.

Return on assets (ROA) is an important metric for deciding the profitability of an organization. It represents a organization's net income as a percentage of total assets. However, it is not the only relevant metric, and investors should make use of to know the full picture when they compare different organizations. (Online copy, 2025)

2.2 Theoretical Framework

Technology Acceptance Model (TAM)

We based this study on the technology acceptance model (TAM) propounded by Davis (1989). This is an information system theory that explains how users of information technology come to understanding and use and adopt system known. Davis (1989) introduced the technology acceptance model to show the important reasons responsible for individual target to understand and use new technology. The study found that the two major points encouraging individual reason to adopt and use new technology are perceived importance and ease of use.

2.3 Empirical Review

Abubakar (2020) ex-rayed the outcome of automated teller machine (ATM) on user satisfaction in Nigeria: A study of united bank for Africa in Sokoto metropolis. The research was carried out using a cross-sectional survey design which questioned respondents on ATM services. The findings indicated that, the effect of ATM services as regards to their known ease of use, transaction cost and service security.

Loaba (2021) determined the outcome of mobile banking services on savings pattern in West Africa in 2017. The study utilized the Multi nominal logit method. The findings showed that using mobile banking services enhances of the opportunity of formal and informal savings by 2.4% and 0.83% respectively.

Olubukola, et al (2023) looked at digital financial services and the Nigerian economy from 2009 to 2017. The work made use of ex post facto research design and data were collected from the CBN. The work made use of volume of V(ATM) exchange, volume of VPOS exchange, volume of point of sales exchange and volume of web exchange as the explanatory variables while GDP was used as the explained variable. The secondary data were analyzed using univariate and multivariate analysis. The OLS results showed that volume of mobile banking, volume of point of sales, and volume of automated teller machine favorably and critically impacted GDP.

3 Research Methodology:

The work used an ex-post facto research design. The methodology is chosen because the study was quantitative and were introduced study the effect on the of digital financial innovation services on the financial performance of commercial banks in Nigeria. Emphasis is on the four most popularly used digital exchange window: Volume of Automated Teller Machine (VATM), Volume of Point of Sale (VPOS), Volume of Mobile Banking and Volume of Web-Based Banking which are taken as the explanatory variables to explain the effect on Return on Asset (ROA) as a proxy for the Deposit Money Banks performance in Nigeria.

3.2 Nature and Sources of Data

Data used were annual time series data of the variables which include Return on Assets, Volume Mobile Banking, Volume Automated Teller Machine and Point of Sale, Volume web-based banking which were sourced from CBN - Statistical Bulletin (various issues) over a time period of 2012 - 2024.

3.3 Model Specification

Model was formulated using Bank Performance (proxies by Return on Assets), as the dependent variable, digital financial services (proxies by Volume Mobile banking, Volume Automated Teller Machine and Volume of Point of Sale), Volume of Web -based banking served as the independent variable. The model is specified as follows;

Model 3.1

Y = α_i + ∑^p_i=1 δY_t-i + ∑^q_i=1 β₁X_t-1 + ∑^q_i=1 β₂X_t-1 + ∑^q_i=1 β₃X_t-1 + β₄X_t-1 e_t --------- 3.1

∑^p_i=1 = speed of adjustment parameter

Where;
Y = Explained variable
X₁, X₂, X₃--------------X_n = the explanatory or independent variables
β₁, β₂, β₃ and δ---------------β_n = is the slope
e = Error
t = Time

Relating the above to the study;

ROA = β₀ + ∑^q_i=1 β_1i ROA + ∑^q_i=1 β_2i POS + ∑^q_i=1 β_3i MOB_t-1 + ∑^q_i=1 β_4i ATM_t-1 + WEB_t-1 ECM_t-1 n + ε -------- 3.2

And in econometric form and the variables log linearized, it will appear thus;

LnROA = β₀ + ∑^q_i=1 β_1i LnROA + ∑^q_i=1 β_2i LnVMOB_t-1 + ∑^q_i=1 β_3i LnVPOS_t-1 + ∑^q_i=1 β_4i LnVATM_t-1 + LnVWEB_t-1 ECM_t-1 n + ε -------- 3.3

Where;
LnVROA = Return on Assets
LnVMOB = Mobile banking
LnVATM = Automated teller machine
LnVPOS = Point of Sales
LnVWEB = Web-based Banking
β₁, β₂, β₃ ----- β_n
t = Time

4 Results and Findings

4.1 Descriptive Statistics

Table 1 below, provides the summary of the descriptive statistics of the data covering the period of 38 observations.

Table 1: Descriptive Statistics

Source: Output from E-Views 12

The descriptive statistics of the test variables is provided in Table 1 above. It can be observed that the years for which the time series was collected ranges between 2006 -2024 constituted an observations period of 38. The Return on Asset (LROA) has a Mean value of 4.394 with Standard deviation 0.378. The automated teller machine (LVATM) has a Mean value of 3.098 with Standard deviation 0.550. The point of sale (LVPOS) has a Mean value of 1.929 with Standard deviation 0.768. The mobile banking (LVMOB) of the years has a Mean value of 1.799 with Standard deviation 0.979. The web banking (LVWEB) has a Mean value of 1.438 with Standard deviation 0.3775. It can be said that volume of automated teller machine (LVATM) is more consistent compared to other variables.

The skewness statistics indicated that all the four dimensions of digital financial services innovation are negatively skewed which implies that the variables has a short right tail while the measure of bank performance (ROA) is positively skewed which implies that the variable has a long right tail, it showed that four out of five variables return on asset (ROA), volume of automated teller machine (LVATM), volume of point of sale (VPOS) and volume of mobile banking (MOB) have leptokurtic values, which suggest that the variables are higher than the kurtosis value of (3) that is clearly mesokurtic while web banking (VWEB) produce a platykurtic value because its value of 2.474 is less than the kurtosis value of (3).

Table 2: Unit Root Result (Phillips-Perron Test)

Source: Output from E-Views 12

The Phillips-Perron (P-P) unit root result showed that Return on Asset (ROA), automated teller machine (VATM), point of sale (VPOS), mobile banking (VMOB) and web banking (VWEB) at first difference I (1) and none of the variables is integrated at order I(0) and I(2).

4.2 Test of Hypotheses

The hypotheses of this study as stated in chapter one was tested in line with the procedure below;

• Step 1: Re-statement of the hypotheses in null form (Ho)
• Step 2: Statement of decision criteria
• Step 3: Presentation of test result
• Step 4: Decision

These steps were adopted for each hypothesis of this study. For all the hypothesis, a regression analysis was conducted between the independent and dependent variables given in the model. Based on the output generated from the regression conducted, decision was taken.

Table 3: OLS Estimation Results

Source: E-Views 9 Output, 2023

4.3 Discussion of Findings

These findings were made in line with the test of hypotheses and discussed according to these objectives.

Objective one: Determine the effect of Volume of Point of Sales on Return on Assets of DMBs performance in Nigeria.

The results of our estimation indicates that volume of point of sales (VPOS) has favourable and critical effect on the ROA on DMBs performance in Nigeria...

5 Conclusion

The findings arising from this study are summarized as follows;

• Volume of Automated teller machine favorably and critically impacted ROA of DMBs in Nigeria. This finding was explained by the positive coefficient value (1.184604) of volume of Automated teller machine (VATM) and its corresponding p- value (0.0129), which is less than 0.05 significant levels.
• Volume of Point of sales had a favourable and critical impact ROA of DMBs in Nigeria, this finding was backed up by the positive coefficient value (2.623100) of Point of Sales and its corresponding p- value (0.0165), which is less than 0.05 significant levels.
• Volume of Mobile banking had a favourable and critical impact ROA of DMBs in Nigeria, This finding was explained by the positive coefficient value (6.243698) of volume of Mobile banking and its corresponding p- value (0.0042), which is less than 0.05 significant levels.
• Volume of Web-based banking favorably and critically impacted ROA of DMBs in Nigeria. This finding was supported by the positive coefficient value (0.890456) of web-based banking and its corresponding probability value (0.00002), which is less than 0.05 significant levels.

5.2 Conclusions

This work concluded that digital financial services innovation contributes to enhancing Deposit Money Banks performance in the country.

5.3 Recommendations

Based on the empirical findings, the study recommends the following.

• Stakeholders are advised to strengthen improvement on digital financial services innovation in term of point of sales and web banking by citizens would enhance the return on asset of DMBs in Nigeria.
• Federal and State government should plan for long term investment in digital financial services because it will enhance the growth of return on Asset of DMBs in Nigeria.
• The central bank of Nigeria (CBN) should monitor the operations of automated teller machine and mobile banking so as to encourage people to use them more often.
• The stakeholder should ensure that policies aimed at promoting and enhancing the availability and penetration of digital financial services should be implemented and made effective as this will also increase return on asset of deposit money banks in Nigeria.

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