Dynamic Linkage(s) between Financial Innovation and Efficiency of Deposit Money Banks in Nigeria

Abstract

The emergence of new technologies, changing customer expectations, and regulatory imperatives, among others, have driven the financial industry into an era where "digital innovations" thrive, culminating in the emergence and growth of innovative products such as agency banking, mobile/internet banking, mobile money, unstructured supplementary service data (USSD), just to name a few. There is increased customers' reliance on e-channels. This has further established the need for banks to engage in financial innovation for relevance, competitiveness, efficiency and growth. This study, therefore, examines the dynamic linkage(s) between financial innovation and the efficiency of deposit money banks (DMBs) in Nigeria. The population of the study comprises the 13 listed DMBs in Nigeria as of 31 December 2021, and these serve as the sample size. The period covered is 48 months -2016 and 2019. Data were collected from the bank's annual reports and Apex bank's statistical bulletin. Descriptive statistics, correlation and autoregressive distributed lag (ARDL) cointegration techniques were used for data analyses. The efficiency of DMBs was estimated using data envelopment analysis (DEA). Findings reveal that financial innovation has forward and backwards dynamic linkages with the efficiency of DMBs in Nigeria.