Project – Effect of Financial Technology Adoption on the Financial Performance of Commercial Banks. A Study of Selected Commercial Banks in Lagos State

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The financial services industry has undergone substantial transformation as technological innovation has become increasingly integrated into banking operations. Financial technology (FinTech) refers broadly to the application of technology to the provision, delivery and improvement of financial services, including electronic payments, mobile banking, internet banking, automated teller machines (ATMs), point-of-sale (POS) services, digital transfers and other technology-enabled financial services. The adoption of these technologies has changed the traditional relationship between banks and their customers by allowing transactions to be conducted beyond conventional banking halls and business hours. For commercial banks, the increasing use of financial technology creates opportunities to reduce transaction costs, improve service delivery, increase transaction volumes and reach customers more efficiently. In Nigeria, the development of electronic payment infrastructure has become particularly important as banking customers increasingly rely on digital channels for payments and other financial transactions (Central Bank of Nigeria [CBN], 2024; Ashiru et al., 2023).

The Nigerian banking industry has experienced a rapid expansion of technology-enabled financial services over the past two decades. Commercial banks have progressively moved from branch-centred operations toward multi-channel banking in which customers can access services through ATMs, POS terminals, mobile applications, internet banking platforms and electronic transfer systems. The growth of these channels has been supported by improvements in payment infrastructure and changing customer preferences for faster and more convenient financial services. CBN payment-system statistics indicate the continuing importance of electronic transactions in Nigeria, while the decline in the number of active ATMs alongside increasing digital activity illustrates the broader movement toward online and mobile financial services (CBN, 2024). The transition has therefore made financial technology adoption an important strategic issue for banks seeking to remain competitive and financially sustainable.

Financial performance represents the extent to which a bank is able to efficiently utilize its financial and operational resources to achieve desirable economic outcomes. It is commonly assessed through indicators such as return on assets (ROA), return on equity (ROE), profitability, income growth, cost efficiency and other measures of financial health. For commercial banks, strong financial performance is important because profitability enables banks to strengthen their capital base, meet obligations, expand lending, invest in technology and withstand financial shocks. Financial technology can potentially influence these outcomes by reducing transaction costs, increasing the speed of service delivery, expanding customer reach and creating additional transaction-based revenue opportunities. Ashiru, Balogun and Paseda (2023), using evidence from Nigerian deposit money banks, found that financial innovation involving mobile banking, internet banking, ATMs and other electronic channels generally had favourable effects on bank financial performance.

One important mechanism through which financial technology may affect bank performance is operational efficiency. Traditional banking operations often involve substantial expenditure on physical branches, paper-based processes, cash handling, staff time and other administrative activities. Digital channels can automate several routine banking activities and enable customers to perform transactions without visiting physical branches. This can potentially reduce the cost associated with processing individual transactions while allowing banks to serve a larger customer base. Demaki, Eromafuru and Imasuen (2021), in their study of electronic banking and bank performance in Nigeria, found significant relationships involving mobile banking, ATMs and POS services, suggesting that technological banking channels can contribute to financial performance. More recent Nigerian evidence similarly indicates that FinTech adoption can improve operational efficiency by facilitating process automation and cost management (Rebecca & Isibor, 2026).

Financial technology can also influence the profitability and revenue-generating capacity of commercial banks. Digital banking platforms facilitate a high volume of transactions, including transfers, payments, withdrawals, deposits and other services that can generate fees and commissions for banks. In addition, digital channels can increase customer engagement and make banking services available to customers who may not frequently visit branches. Ashiru et al. (2023) reported that POS services had a particularly strong relationship with deposit money bank performance in Nigeria, while mobile and electronic banking services also contributed positively to financial performance. Similarly, Ulokoaga and Evbayiro-Osagie (2023) found that internet banking transactions had a positive and statistically significant effect on the performance of listed deposit money banks in Nigeria when performance was measured using return on capital employed. These findings suggest that the financial benefits of technology adoption may arise not only from cost reduction but also from increased transaction activity and revenue opportunities.

Despite these potential benefits, financial technology adoption also imposes significant costs and risks on commercial banks. Investment in digital banking infrastructure requires expenditure on software, hardware, cybersecurity, network infrastructure, maintenance, system upgrades and skilled personnel. Banks also face risks associated with cyberattacks, electronic fraud, system failures, data breaches and service interruptions. Consequently, the relationship between technology adoption and financial performance cannot simply be assumed to be automatically positive. The costs of maintaining sophisticated digital infrastructure may reduce short-term profitability, particularly where transaction volumes are insufficient to compensate for investment costs. Recent Nigerian evidence similarly notes that the positive profitability effects of FinTech may be moderated by high implementation costs and competitive pressure from non-bank FinTech firms (Rebecca & Isibor, 2026).

Empirical findings on the relationship between financial technology and bank performance are therefore not completely uniform. While several studies report positive effects, some studies have found that particular technological channels may have insignificant or mixed effects depending on the performance measure and period examined. For example, Okeke and Ezeala (2023) found that POS transactions significantly affected certain performance measures of Nigerian deposit money banks, whereas ATM and mobile banking showed insignificant effects for some of the models examined. Ulokoaga and Evbayiro-Osagie (2023) also reported that ATM transactions had a negative but statistically insignificant effect on return on capital employed, while internet banking had a positive and significant effect. These differences suggest that the effect of FinTech adoption may depend on the specific technology adopted, the extent of utilization, the performance indicator employed and the operational environment of the bank.

The Nigerian banking environment provides a particularly important setting for examining this issue because commercial banks are operating within a rapidly changing digital financial ecosystem. Banks are increasingly competing not only with one another but also with FinTech companies and other technology-enabled financial service providers. The emergence of mobile payments, digital wallets, agency banking, payment platforms and other technology-based services has changed customer expectations regarding speed, accessibility and convenience. At the same time, commercial banks must maintain profitability, operational efficiency, liquidity and customer loyalty while financing continuous technological investment. Recent Nigerian research indicates that FinTech adoption is associated with improved bank performance, but the magnitude and direction of the relationship can vary across different digital channels and performance indicators (Ashiru et al., 2023; Ofor, 2025; Ezeani, 2026).

The situation is particularly relevant to commercial banks operating in Lagos State, which represents one of Nigeria’s major financial and commercial centres. Lagos accommodates a large concentration of businesses, financial institutions, technology companies and digitally active banking customers. Commercial banks operating in the state are therefore exposed to strong competition and high customer expectations for convenient digital financial services. The adoption of FinTech may enable banks to process transactions more efficiently, expand their service reach and improve their revenue-generating capacity, but banks must also manage the associated costs, technological risks and competitive pressures. Recent Nigerian studies have increasingly examined FinTech adoption and bank performance, but much of the evidence is based on national datasets covering several banks and broad periods rather than examining the experiences of selected commercial banks within Lagos State. This creates a basis for a localized investigation into how financial technology adoption affects the financial performance of selected commercial banks in the state.

1.2 Statement of the Problem

The rapid adoption of financial technology by commercial banks has created an expectation that digital banking will automatically translate into improved financial performance. Banks continue to invest heavily in ATMs, mobile banking applications, internet banking platforms, POS infrastructure, electronic payment systems and other digital technologies. However, the financial returns from these investments are not always certain because technology adoption involves substantial acquisition, maintenance, cybersecurity and human-resource costs. Where the additional revenue generated by digital services does not adequately compensate for these costs, the expected improvement in profitability may not materialize. Consequently, the extent to which FinTech adoption actually improves the financial performance of commercial banks remains an important empirical issue (Ashiru et al., 2023; Rebecca & Isibor, 2026).

A second problem concerns the differing effects of individual FinTech channels on bank performance. Although mobile banking, internet banking, ATMs and POS services are commonly grouped under financial technology, they do not necessarily produce identical financial outcomes. Evidence from Nigeria shows that some digital channels have significant positive effects on particular performance indicators, while others have insignificant or even negative relationships depending on the model and period examined. For instance, Ulokoaga and Evbayiro-Osagie (2023) found internet banking to have a significant positive relationship with performance, whereas ATM transactions were negative and insignificant when performance was measured by return on capital employed. Such mixed findings make it difficult for bank managers to determine which aspects of financial technology adoption generate the greatest financial benefits.

Another problem is that the expansion of digital banking has introduced additional operational and financial risks. Cybersecurity threats, electronic fraud, system downtime, network failures and customer complaints can increase operational costs and undermine customer confidence. At the same time, commercial banks are required to continuously upgrade their digital infrastructure to remain competitive. This creates a strategic challenge because excessive expenditure on technology may place pressure on profitability, while insufficient investment may lead to poor service delivery and loss of customers to competitors. Recent evidence on Nigerian commercial banks indicates that FinTech can improve operational efficiency and profitability, but that the gains can be moderated by high implementation costs and competitive pressures from non-bank FinTech providers (Rebecca & Isibor, 2026).

Furthermore, although previous Nigerian studies have examined electronic banking, financial innovation and FinTech adoption, there is still a need for more focused evidence concerning selected commercial banks in Lagos State. Studies such as Ashiru et al. (2023) examined deposit money banks at the national level, while other recent studies have employed broad panel datasets covering commercial banks across Nigeria. Findings from these national studies may not completely reflect the competitive, technological and customer environment within Lagos State. The present study therefore seeks to address this contextual gap by examining the effect of financial technology adoption on the financial performance of selected commercial banks in Lagos State.

1.3 Purpose of the Study

The main purpose of this study is to examine the effect of financial technology adoption on the financial performance of selected commercial banks in Lagos State.

Specifically, the study seeks to:

1. examine the effect of Automated Teller Machine (ATM) adoption on the financial performance of selected commercial banks in Lagos State;
2. determine the effect of mobile banking adoption on the financial performance of selected commercial banks in Lagos State;
3. assess the effect of internet banking adoption on the financial performance of selected commercial banks in Lagos State; and
4. examine the effect of Point-of-Sale (POS) banking adoption on the financial performance of selected commercial banks in Lagos State.

1.4 Research Questions

The following research questions will guide the study:

1. What is the effect of Automated Teller Machine (ATM) adoption on the financial performance of selected commercial banks in Lagos State?
2. What is the effect of mobile banking adoption on the financial performance of selected commercial banks in Lagos State?
3. What is the effect of internet banking adoption on the financial performance of selected commercial banks in Lagos State?
4. What is the effect of Point-of-Sale (POS) banking adoption on the financial performance of selected commercial banks in Lagos State?

1.5 Research Hypothesis

The following null hypothesis will be tested at the 0.05 level of significance:

H₀: Financial technology adoption has no significant effect on the financial performance of selected commercial banks in Lagos State.

1.6 Significance of the Study

The study will be significant to commercial bank management because it will provide empirical evidence concerning the relationship between financial technology adoption and financial performance. The findings may assist bank managers in determining whether investments in ATM services, mobile banking, internet banking and POS facilities are contributing meaningfully to profitability and overall financial performance. This can support more informed decisions concerning technology investment and digital banking strategies.

The study will also be beneficial to bank customers because effective financial technology can improve the speed, accessibility and convenience of banking services. Understanding the relationship between technology adoption and bank performance may encourage banks to improve the reliability and availability of their digital channels while maintaining efficient service delivery.

Regulatory institutions, particularly the Central Bank of Nigeria and other financial-sector stakeholders, may benefit from the findings. Evidence from the study can provide additional information for policies relating to digital banking, electronic payments, cybersecurity, financial innovation and competition within the banking industry. The increasing volume of electronic transactions makes effective regulation and infrastructure development important to the sustainability of Nigeria’s digital financial system (CBN, 2024).

The study will also be useful to investors and shareholders of commercial banks. Financial technology represents a significant component of contemporary banking strategy and requires substantial capital investment. Evidence concerning its relationship with financial performance may help investors understand whether technology-driven banking strategies are associated with improved financial outcomes.

Finally, the study will contribute to academic literature on FinTech and banking performance in Nigeria. It will provide additional empirical evidence from Lagos State and may serve as a reference for students and researchers in accounting, banking and finance, economics, business administration and related disciplines. It may also provide a basis for future studies examining specific digital banking technologies and their long-term effects on bank profitability and operational efficiency.

1.7 Scope of the Study

The study focuses on the effect of financial technology adoption on the financial performance of selected commercial banks in Lagos State.

The independent variable is financial technology adoption, operationalized through:

• Automated Teller Machine (ATM) adoption;
• mobile banking adoption;
• internet banking adoption; and
• Point-of-Sale (POS) banking adoption.

The dependent variable is financial performance, which may be assessed through relevant indicators such as profitability, return on assets, return on equity and operational efficiency, depending on the availability and suitability of data from the selected banks.

Geographically, the study is restricted to selected commercial banks operating in Lagos State, Nigeria. The study does not cover all financial institutions such as microfinance banks, insurance companies, pension funds or non-bank FinTech companies.

1.8 Operational Definition of Terms

Financial Technology (FinTech): The application of technology to the provision, delivery and management of financial services.

Financial Technology Adoption: The extent to which a commercial bank implements and utilizes technology-based financial services and platforms in its banking operations.

Automated Teller Machine (ATM): An electronic banking facility that enables customers to perform transactions such as cash withdrawals, balance enquiries, transfers and other approved services without direct assistance from bank personnel.

Mobile Banking: The delivery of banking services through mobile phones and related applications, enabling customers to perform financial transactions remotely.

Internet Banking: The provision of banking services through internet-enabled platforms that allow customers to access accounts, make transfers, pay bills and perform other banking activities electronically.

Point-of-Sale (POS): An electronic payment facility that allows customers to make payments or conduct other approved banking transactions through electronic terminals.

Financial Performance: The extent to which a commercial bank achieves desirable financial outcomes through the effective utilization of its resources.

Profitability: The ability of a commercial bank to generate income in excess of the costs incurred in providing its services.

Return on Assets (ROA): A financial performance measure that indicates the ability of a bank to generate earnings from the assets under its control.

Return on Equity (ROE): A financial performance measure indicating the return generated by a bank in relation to shareholders’ equity.

Commercial Bank: A deposit-taking financial institution licensed to provide banking services such as accepting deposits, granting loans, facilitating payments and providing other approved financial services.

Project – Effect of Financial Technology Adoption on the Financial Performance of Commercial Banks. A Study of Selected Commercial Banks in Lagos State