Financial technology and the performance of deposit money banks in Nigeria

This research aimed to explore how the adoption of financial technology has influenced the performance of Nigerian Deposit Money Banks. Quarterly time series data from 2014 to 2023 were analysed using the Autoregressive Distributed Lag model. The FinTech channels assessed included Point of Sale terminals, Automated Teller Machines, mobile banking, and internet banking. The long-run results revealed that mobile banking (coefficient = 9.5212, p = 0.0314) and internet banking (coefficient = 11.8512, p = 0.0365) significantly enhanced the Net Interest Margin, indicating that the adoption of these digital platforms improved banks’ ability to generate interest income from lending activities. In contrast, Point of Sale transactions (coefficient = −37.0647, p = 0.0114) and Automated Teller Machines transactions (coefficient = −30.1525, p = 0.1153) negatively impacted the Net Interest Margin, suggesting that reliance on traditional payment infrastructure reduced banks’ interest-based profitability. Inflation (coefficient = 1.7993, p = 0.0154) had a significant positive effect on the Net Interest Margin, implying that higher inflation raised lending rates, thereby benefiting banks’ interest margins. For Return on Equity FinTech channels exhibited weak and statistically insignificant effects, suggesting that factors such as capital structure, shareholder equity, and non-interest income played a more dominant role in determining profitability than digital banking technologies. The short-run analysis showed that Automated Teller Machine transactions had a marginally negative effect on the Net Interest Margin (coefficient = −12.2540, p = 0.0579), while mobile banking, Point of Sale, and inflation did not show significant effects on either Return on Equity or Net Interest Margin in the short term. The study recommended that banks increase investment in mobile and internet banking platforms, while reassessing the cost-effectiveness of Point of Sale and Automated Teller Machines infrastructure. This research offered valuable insights for banks and policymakers, underscoring the need to prioritise digital banking innovations to enhance profitability and overall financial performance in Nigeria