Effect of Electronic Payment Systems on Deposit Money Bank Profitability in Nigeria

Abstract

This study examined the effect of electronic payment systems on the profitability of deposit money banks in Nigeria, focusing on three widely adopted channels: Automated Teller Machine (ATM), Point of Sale (POS), and Mobile Application Payment (MAP) transactions over the period 2010–2024. Bank profitability was proxied by Return on Assets (ROA). Quarterly secondary data were obtained from the Central Bank of Nigeria, Nigeria Inter-Bank Settlement System, and Nigeria Deposit Insurance Corporation. The analysis used the Autoregressive Distributed Lag (ARDL) model to estimate both short-run dynamics and long run relationships among the variables, then diagnostic tests for stationarity and co-integration. The findings indicated that ATM transactions had a positive, statistically significant effect on ROA, suggesting that increased ATM usage enhances bank profitability. POS transactions demonstrated a positive relationship with profitability, though statistically insignificant, implying a limited contribution to earnings despite rising adoption. Conversely, MAP demonstrated a negative, statistically significant impact on ROA, indicating that high operating costs, infrastructure requirements, and competitive pricing pressures may be reducing its profitability despite rapid growth. The study recommends sustained investment in efficient ATM infrastructure to improve service reliability and cost efficiency. It also emphasizes the need to strengthen telecommunications infrastructure to enhance POS transaction performance and promote wider merchant adoption. Furthermore, banks are encouraged to pursue strategic partnerships with fintech firms, implement cost optimization measures and mitigate electronic fraud risks, to improve the profitability of mobile payment systems.