Digital Banking and Operational Efficiency of Deposit Money Banks in Nigeria

Abstract

The study examined the effect of Digital Banking on the operational efficiency of deposit money banks (DMBs) in Nigeria over the period 2018 to 2024. Seven deposit money banks were purposively selected, and data obtained from their annual financial statements were analyzed using a Fixed Effects Panel Regression model with robust standard errors. The Hausman specification test confirmed the appropriateness of the Fixed Effects model (p < 0.05). Automated Teller Machines (ATM), Mobile Banking, Point of Sale (POS), and Unstructured Supplementary Service Data (USSD) were used as proxies for Digital Banking, while the Cost-to-Income Ratio (CIR) served as the proxy for operational efficiency. The empirical findings revealed that POS transactions have a negative and highly significant effect on CIR (p < 0.01), suggesting that POS infrastructure enhances operational efficiency by reducing relative operating costs. Conversely, ATM usage exhibited a positive and marginally significant effect on CIR (p < 0.10), indicating that ATM operations tend to increase operating costs and reduce efficiency. Mobile banking and USSD channels showed statistically insignificant effects on operational efficiency, which may reflect overlapping effects and shared variance among digital banking channels within the model. Consequently, the study recommends that Nigerian banks expand POS networks, optimize ATM infrastructure to reduce operational overheads, and strengthen the integration of mobile and USSD platforms to improve cost efficiency and achieve scale benefits.