Effects of Mobile Money and Virtual Banking on the Financial Performance of Deposit Money Banks in Nigeria
Abstract
Nigeria’s banking sector has undergone rapid digital transformation driven by mobile money services and virtual banking channels. This study examines the effects of mobile money transactions (MMT), internet banking transactions (IBT), and USSD transactions on the cost-to- income ratio (CIR) of deposit money banks (DMBs) using bi-annual time-series data from 2013 to 2025. Employing the autoregressive distributed lag (ARDL) bounds testing approach, the analysis reveals channel-specific and time-variant impacts. In the short run, mobile money transactions significantly reduce CIR, indicating improved operational efficiency. However, in the long run, MMT exerts a positive and significant effect on CIR, suggesting increased cost pressures from competition and integration expenses. Internet banking and USSD transactions show largely insignificant effects on CIR in both short and long runs. The error correction term confirms a stable long-run relationship with a 37.4 per cent adjustment speed per bi-annual period. These findings highlight the nuanced implications of digital financial innovations for bank efficiency in an emerging market context. The study contributes to literature on fintech disruption and offers strategic insights for banks and policymakers.