DIGITAL PAYMENT SYSTEMS AND PROFITABILITY OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The contemporary banking industry in Nigeria is increasingly defined by the adoption and integration of Information and Communication Technology in operational processes, fundamentally transforming traditional banking practices. This study investigates the impact of Information Technology (IT) adoption on the performance of deposit money banks in Nigeria, focusing on Automated Teller Machines (ATMs), Point of Sale (POS) systems, Mobile Payment (MP) platforms, and NIBSS Instant Payment (NIP) systems. Utilizing secondary data from 13 Nigerian banks spanning 2014 to 2023 and employing panel regression analysis, the study finds that ATM, POS, and Mobile Payment transactions positively and significantly enhance bank performance, measured by Return on Assets (ROA), while NIP transactions exhibit a negative effect. Specifically, ATM transactions (0.008, p = 0.013), POS transactions (0.046, p = 0.004), and mobile payment transactions (0.003, p = 0.026) exert positive and statistically significant effects on ROA at the 5% level, whereas NIP transactions show a negative and significant relationship with bank performance (β = −0.001, p = 0.010). The study concludes that electronic payment channels, particularly ATMs, POS, and mobile payment platforms, play a critical role in enhancing the profitability and operational efficiency of Nigerian deposit money banks, while the negative impact of NIP transactions highlights potential operational and settlement challenges associated with instant payment systems. The study recommends that banks should continue to strengthen investments in ATM, POS, and mobile payment infrastructure, while regulators and bank management should implement robust risk management and monitoring frameworks for NIP transactions to mitigate associated risks and improve their contribution to bank performance.