Electronic Payment Systems and Financial Stability of Deposit Money Banks in Nigeria: A Channel-Specific Analysis
Abstract
This study examined the effect of electronic payment systems (EPS) on the stability of deposit money banks (DMBs) in Nigeria from 2014 to 2025 using bi-annual data. Bank stability was proxied by the Z-score, and the independent variables were transaction values for four major EPS channels: point-of-sale (POS) terminals, mobile banking, web/internet banking, and NIBSS instant payments (NIP). The study employed the autoregressive distributed lag (ARDL) model. The Bounds test confirmed the existence of a stable long-run equilibrium relationship between the EPS channels and bank stability. The error correction term was negative and significant (-0.2514, p = 0.0000), indicating a moderate adjustment speed of 25.14% per biannual period. The findings revealed channel-specific effects. NIP exerted a positive and statistically significant long-run impact on bank stability, supporting its role as an efficient real-time payment platform. In contrast, POS terminal payments showed a consistent negative effect on stability in both the short and long run. Web banking showed a mixed short-run pattern (negative contemporaneous but positive lagged effects) with a neutral long-run impact, whereas mobile banking had a positive but statistically insignificant effect. The study concludes that electronic payment systems do not uniformly enhance bank stability in Nigeria. While NIP contributes positively, POS tends to undermine stability, and the effects of web and mobile banking are more nuanced. These results highlight the importance of differentiated strategies in deploying digital payments. The findings offer valuable implications for deposit money banks to optimize EPS channels and for the Central Bank of Nigeria and other regulators to refine policies such as the Risk-Based Cybersecurity Framework and the Payments System Vision 2028. The study recommends prioritizing the secure scaling of NIP, strengthening risk controls for POS, and enhancing cybersecurity for web banking to ensure that digital innovation supports, rather than compromises, the banking sector's resilience.