Impact of Financial Technology on the Performance of Commercial Banks in Nigeria

Abstract

The growth and penetration of financial technology (FinTech) are instrumental to achieving universal financial inclusion and integrating the unbanked population into the financial system. However, this development has intensified competition between traditional and agency banks, thereby posing a threat to commercial banks' performance. This context has motivated several studies examining the impact of FinTech on commercial banks' performance, although notable econometric shortcomings persist in the literature. Against this backdrop, this study employs robust analytical techniques underutilized in prior research. An ex-post facto research design was adopted, using annual time series data spanning from 2012 to 2025. The variables considered include Return on Assets (ROA) as the regressand, while Automated Teller Machines (ATM), Point of Sale (POS), and Mobile Banking (MB) serve as regressors. To determine the appropriate estimation technique, a unit root test was conducted, revealing a mixed order of integration at I(0) and I(1), while the F-bound test confirmed the existence of a cointegrating relationship in the model. Given this mixed order of integration, the Auto Regressive Distributed Lag (ARDL) model was employed, but the established cointegrating relationship suggests a more suitable technique (the Error Correction Mechanism [ECM]) to address disequilibrium in the model. The ECM results indicate that ATM and MB have a significant positive impact on commercial banks' performance in the short run, while POS has a positive but statistically insignificant impact during the period under review. In the long run, however, only MB maintains a significant positive impact, whereas ATM and POS exhibit a negative but insignificant impact on commercial banks’ performance in Nigeria. These findings suggest that although FinTech contributes positively to commercial banks' performance in the short run, the increasing convenience and operational flexibility of agency banking may drive greater adoption among Nigerians in the long run, potentially crowding out traditional banking channels. This backdrop is reflected in the negative performance of ATMs and POS in the long-run. In light of these findings, this study recommends that commercial banks develop innovations that will facilitate the adoption of APIs or open banking to enable service and data sharing through Application Programming Interface, thereby stimulating third-party collaborations and improving performance of commercial bank in Nigeria.