Title: Digital Penetration And The Banking Sector In Nigeria
Authors: UKEDJERE Stephen and EHIEDU, Victor C Ph.D
Volume: 9
Issue: 5
Pages: 231-249
Publication Date: 2025/05/28
Abstract:
This study investigates the impact of digital penetration on the cost efficiency of Deposit Money Banks (DMBs) in Nigeria, with digital penetration proxied by Mobile Phone Penetration (MP), Digital Payment Usage (DPU), and Internet Penetration Rate (IPR), and cost efficiency measured by the Cost-to-Income Ratio (CIR). Employing a quantitative approach and an ex-post facto research design, the study utilized Ordinary Least Squares (OLS) regression analysis on secondary data spanning 1999-2023, sourced from the Central Bank of Nigeria (CBN), Nigerian Communication Commission (NCC), World Bank, and DMBs' annual reports. Diagnostic tests such as unit root, cointegration, multicollinearity, heteroskedasticity, and autocorrelation were conducted to ensure robustness. The regression results reveal that MP, DPU, and IPR each exert a statistically significant and negative influence on CIR, implying that greater digital penetration enhances cost efficiency in Nigerian banks. Inflation, used as a control variable, was found to be statistically insignificant. These findings are supported by the Technology Acceptance Model and the Diffusion of Innovation Theory, reinforcing the role of technological adoption in banking efficiency. The study concludes that digital transformation significantly reduces operating costs relative to income in the Nigerian banking sector, and provides strategic recommendations to sustain and deepen digital adoption.