Technology Driven Financial Innovation in Nigerian Financial Services

TECHNOLOGY DRIVEN FINANCIAL INNOVATION IN NIGERIAN FINANCIAL SERVICES 33 TECHNOLOGY DRIVEN FINANCIAL INNOVATION IN NIGERIAN FINANCIAL SERVICES Technology Driven Financial Innovation in Nigerian Financial Services Author’s Note: Declaration Acknowledgement Abstract Chapter 1: Introduction 7 1.1 Background of the Study 7 1.1 Problem of the Study 13 1.3 Objectives and Hypothesis of the Study 13 1.4 Research Questions 15 1.5 Structure of the thesis 15 Chapter 2: Literature Review 17 2.1 Introduction 17 2.2 Review 17 2.2.1 Diffusion of the Innovation Theory 17 2

Running head: TECHNOLOGY DRIVEN FINANCIAL INNOVATION IN NIGERIAN
FINANCIAL SERVICES
Technology Driven Financial Innovation in Nigerian Financial Services
Name of the Student:
Name of the University:
Author’s Note:

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Declaration

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Acknowledgement

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Abstract

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Table of Contents
Chapter 1: Introduction....................................................................................................................7
1.1 Background of the Study.......................................................................................................7
1.1 Problem of the Study...........................................................................................................13
1.3 Objectives and Hypothesis of the Study..............................................................................13
1.4 Research Questions..............................................................................................................15
1.5 Structure of the thesis..........................................................................................................15
Chapter 2: Literature Review.........................................................................................................17
2.1 Introduction..........................................................................................................................17
2.2 Theoretical Review..............................................................................................................17
2.2.1 Diffusion of the Innovation Theory..............................................................................17
2.2.2 Disruptive Innovation Theory.......................................................................................19
2.2.3 Schumpeterian Theory of Creative Destruction...........................................................19
2.2.4 Nigerian Banking Industry...........................................................................................20
2.2.5 Developing Business Models.......................................................................................20
2.2.6 Sophistication of the customers....................................................................................20
2.2.7 Technology...................................................................................................................21
2.2.8 Regulation and Supervision..........................................................................................21
2.3 Electronic Banking Revolution in Nigeria......................................................................22
2.4 Impact of IT in Nigeria’s Banking Industry........................................................................23

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2.4.1 GSM Banking:..............................................................................................................24
2.4.2 ATMS...........................................................................................................................24
2.4.3 Telephonic Banking......................................................................................................25
2.4.4 Personal Computer Banking.........................................................................................25
2.4.5 Internet Banking...........................................................................................................26
2.4.6 Branch Networking.......................................................................................................26
2.4.7 Electronic Funds Transfer at the Point of Sale.............................................................27
2.4.8 Banker’s Automated Clearing Services........................................................................27
2.4.9 Banc Assurance............................................................................................................28
2.5 Technology Driven initiatives that boosts the Financial Inclusion.....................................29
2.6 Interest Rates.......................................................................................................................32
2.7 Empirical Studies.................................................................................................................33
2.8 Summary of the Literature Review..................................................................................39
Reference List................................................................................................................................40

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Chapter 1: Introduction
1.1 Background of the Study
Innovation has been discovered to be an intrinsic aspect of the economic operations for
many millennia. The Nigerian financial sector has gone through incredible transformations in the
last few years. There have been various reforms that have been undertaken in the sector that
leads to the creation of the financial activities, products and organizational forms that have
enhanced and increased the effectiveness of the financial system. The technological advancement
and the transforming economic scenario have generated push for this transformation. All these
enhancements coupled with the transformations in the environment of international finance and
the rising incorporation of international and domestic financial markets have led to the swift
financial innovation. The increasing significance of the financial sector in the modern economics
and swift rate of innovation in this sector has created interest in the research related to
innovation.
There have been various authors who have done researches on mobile and electronic
banking in Nigeria and other neighbouring countries and Bello (2014) has examined the effect of
technology and mobile banking on the transactions costs of microfinance organizations where it
was discovered that innovation has decreased transaction cost in a considerable manner even
though they were not directly impacted by the banks due to the small customer base. The present
research is different from Berg and Fuchs (2013) as the rate of innovation and the total numbers
of banks who have incorporated the innovation have increased.
Mehrota and Yetman (2015) undertook an examination on the relationship among
financial performance and electronic banking of the commercial banks in Nigeria where attention

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was given microfinance firms in the country. It was discovered that that there was an existence
of a string and positive relationship among the performance of the bank and the electronic
banking process in association to the return on assets. Conversely, McGrath (2016) looked at the
wider aspect of electronic banking whereas this study focused on the process of innovation and
not electronic banking.
Agwu and Carter (2014) examined the implementation of electronic banking as a
strategic answer in order to challenge the external environment. The concept of mobile banking
as a strategic answer was reviewed where its impact on the competitive edges was not regarded.
Laeven, Ratnovski and Tong (2014) conclude that the banks that have been innovative
have been much larger and profitable and even increased competitive edge decreased
management expenses and were more effective in comparison to the non-innovative banks.
Internet banking has resulted to customers who have been satisfied and enhanced long term
effective strategies and thereby raised the competitive edge.
The commercial banks are profit making financial firms that have a vital role in the
financial process. The commercial banks offer extensive range of corporate financial services
that explains the distinct demand in the financial markets. The commercial banks in Nigeria have
a number of roles in order to generate financial stability and the cash flow of the private sector of
the country. They process the mode of payment with the help of numerous means that is
inclusive of telegraphic transfers, electronic funds and internet banking. They even issue drafts
and cheques and even accept money on the term deposits. They even perform as the money
lenders with the benefits of overdrafts and instalment loans. The options of loan are inclusive of
the secured, unsecured and mortgage loans. The commercial banks in Nigeria provide various
numbers of import trading and financial documents like the banks that have been dominated by

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the financial assets and the liabilities and therefore give rise to the importance on the net margin.
The environment on the interest rate is one of the key influences on the decisions with respect to
liabilities and assets of the commercial banks.
There have been past researches that have discovered mixed outcome with respect to the
impact on the performance of the banks and on the other hand, Gbandi and Amissah (2014) has
specified that the financial innovation had a key contribution to the performance of the bank. It is
at the core of the mixed outcomes that have necessitated and generated the demand to undertake
a research in the context of Nigeria in order to generate the impact of bank innovations on the
performance of the commercial banks. The effect of the financial performance of the banks in
Nigeria has still remained relatively unexamined.
The commercial banks in Nigeria have sustained to make use of large investments in the
innovations that are technology based and even providing training to the employees in order to
tackle the new technologies. Even though researches have been undertaken on the contribution of
the financial innovation to the efficiency of the monetary plans and policies and there have been
few researches that look to associate the financial innovation to the financial performance of the
Nigerian commercial banks. Akhisar, Tunay and Tunay (2015) has concentrated on the impacts
of the banking innovation on the financial performance of the commercial banks in Nigeria. The
research has concentrated on the impacts of banking innovation on the return on assets, the
income of the banks, deposit of the customers and the profitability of the banks. Furthermore, the
research have concentrated on the banking through mobile phones, ATM banking and various
other kinds of online banking but have failed to monitor the agency banking and the banc
assurance, which has been a vital aspect of the banking innovations in the current time period.

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Financial innovation is a significant aspect of study that is associated with effective
banking products and services on the information technology ICT platform and in this manner
improving the financial penetration, financial insight and economic development. The main
obligation of the Central bank of Nigeria has been the development of the financial system of
Nigeria along with controlling, regulating and licensing the banks that operate in the Nigerian
economy. The country is therefore interested in the financial inclusion, financial deepening and
efforts for financial penetration of the banks with the help of the innovative services and
products that act as financial intermediaries. The financial inclusion is specifically explained as
defining the access to formal financial services at a reasonable cost in a transparent and fair mean
(Ilo, Wilson and Nnanyelugo 2014). The financial inclusion simply explains the access to the
financial services and resources for the economic representatives significantly the ones that are
on the lower section of the income ladder at a reasonable cost. The strategies that are associated
with the financial inclusion look to raise the number of individuals with the accounts that are in
the bank and in any other formal financial organizations in their current and savings account. It
even pursues the development of the utilisation of the payment media that are formal in nature
that are inclusive of the payment of the interest, payment through mobile, ATM etc. The strategy
of financial inclusion explains that financial inclusion is attained when the Nigerians have simple
access to the wide range of the formal financial services that satisfy their need at a reasonable
cost.
One of the key focuses of the monetary policy is to manage the cost and the money and
credit availability in the economy. The efficiency of the monetary policy may be overlooked if a
larger section of the population lacks entry to the formal financial framework. The wider the size
of the formal sector the more efficient is the monetary policy will become. The central banks

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transform the rate of interest with a viewpoint to have an impact on the section of the population
that is banked and thereby usage and implementation of the financial innovation so that the rate
of interest becomes a vital tool to lure the customers to make use, incorporate and patronise the
products and services in association to the financial innovation (Efobi, Beecroft and Osabuohien
2014).
The banks have made use of numerous processes to encourage and package the
patronage, usage and incorporation of the financial innovation that is prominent among which
are the promotion of the product and the advertisement campaign and the incentives like the rate
of interest.
The government with the instrumentality of the Central Bank of Nigeria has constructed
distinct targets with actionable plans to better the financial inclusion in the nation. The list of
benefits of the financial inclusion and the innovation in the economy are exhaustive in nature.
Conversely, this research takes a specific look at the effect of financial innovation
implementation in Nigeria. The financial inclusion strategy document foresees that the financial
inclusion will aid Central Bank of Nigeria to attain their core decree of making sure that the
monetary and price stability in the economy by raising the extent of savings, consumptions and
investment decisions that are made within the effective financial sector (Dandago and Rufai
2014). It is even thought that the enlargement of the financial inclusion will decrease the cash
management cost and defend the power of the domestic currency while highlighting an effective
financial system in the economy through the implementation and availability of the financial
innovation. Therefore, the objective of the research has been to assess the influence of rate of
interest on the financial innovation and financial inclusion in Nigeria. The connection among the
rate of interest and financial innovation will be explored in an explicit manner. The aim of the

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paper is to create an attention of the stakeholders to the sensitivity and the relevance if financial
innovation and inclusion to the movement of the interest rate.
Conventionally, the financial services have been discovered to be focused in the urban
areas leaving the rural citizens to depend specifically on the informal arrangements that are
inclusive of the relatives and families for their requirements for financial services. The
advantages that have been accruable to an effectivefunctioni9ng financial sector especially in the
aspect of emphasising on development and growth and cannot be over-emphasised (Ngumi
2014). This has justified the requirement to raise the financial penetration to all the sections of
the population. There have been efforts that have been made for many years by numerous
agencies and organizations like the World Bank, but these actions have been concentrated on
enhancing a financial sector that is formal in nature in order to marshal savings and transform
them to investments. The key challenges to the realization of the extension of the banking
services to the rural regions are inclusive of (i) increased cost of incorporation (ii) lower level of
demand and (iii) the capability and the willingness of the rural citizens to undertake payment for
the services.
Conversely, the advances in the ICT have led to the enhancement of the cost cutting
strategies of constructing innovative business frameworks that can speed up the expansion and
the penetration of the financial services in the rural regions by making use of the ICT and
expectable interest rate for the financial inclusion and deepening as an outcome, the payment
structure and the services have enhanced substantially and thereby providing extensive
opportunities for the financial providers to construct customised financial products and services
for the rural and urban sections of the society (Scott and Ovuefeyen 2014). The technological
products as the payment through mobile and internet Global System for Mobile Communication

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(GSM) have enhanced the delivery of the financial services vitally in the most developed
nations.
1.1 Problem of the Study
With respect to the statistics, 30% of the adult population of Nigeria has at least one bank
account and a large number of the adults have been unbanked. There have been more than
twenty banks in Nigeria currently that have been providing banking services in the financial
technology innovation platform with an idea to enhance the commercial operations with the help
of financial inclusion and deepening. The concern currently is at a lower level of the patronage
and how to develop them. While financial innovation services are various in numbers, there has
not been adequate evidence about the acceptance of the customers and their viewpoint towards
the incorporation of the services. The access to the financial services in Nigeria has been pretty
low. There have been a small amount of people who have been served by the formal financial
services in comparison to the other developed countries in Africa like South Africa and Kenya.
There have been very less development with the advent of time even though there is significant
level of chances of improvement in the financial sector in Nigeria. This has created a suggestion
that majority of the consumers who have been financially excluded are not precisely literate and
hail from the rural area. This explains that most of the population of Nigeria has still been
unbanked and therefore most of the transactions have been through cash and therefore the level
of financial innovation in the economy of Nigeria has been pretty low. Therefore, in such
scenario the economic developments will be loop-sided and commercial operations cannot be
most favourable.

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1.3 Objectives and Hypothesis of the Study
The specific of this paper has been to assess the function of the financial incentive in the
financial innovation implementation in Nigeria. This paper specifically ascertains how financial
incentives have an effect on the implementation of the financial innovation services and products
and how the customers react to the movement of the rate of interest in the banks in Nigeria. The
objectives are as follows:
 To examine the impact of mobile banking on the financial performance of the
commercial banks in Nigeria
 To examine the impact of internet banking on the financial performance of the
commercial banks in Nigeria
 To examine the impact of banc assurance on the financial performance of the
commercial banks in Nigeria
In order to explain the above said objectives, these hypotheses will be examined.
H0: Mobile banking has no vital influence on the financial performance of the commercial banks
in Nigeria
H1: Mobile banking has vital influence on the financial performance of the commercial banks in
Nigeria
H0: Internet banking has no vital influence on the financial performance of the commercial banks
in Nigeria
H1: Internet banking has vital influence on the financial performance of the commercial banks in
Nigeria

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H0: Banc assurance has no vital influence on the financial performance of the commercial banks
in Nigeria
H1: Banc assurance has vital influence on the financial performance of the commercial banks in
Nigeria
1.4 Research Questions
The research questions that have been constructed is in relation to the topic that has been
taken into consideration. The research questions have been the main issue and therefore this
paper would focus and assess the questions that have been taken into consideration. The research
questions are as follows:
Q1. How does financial innovation with the help of technological innovation improve the
financial sector of Nigeria?
Q2. Does rates of interest transform due to the implementation of the technological innovation?
Q3. What changes have been observed in the Nigerian financial sector with the inclusion of
financial innovation with respect to the traditional strategies?
1.5 Structure of the thesis
The framework of the thesis is the model that would be used by the researcher in order to
complete the paper in a precise manner. The first section of the paper consists of the introduction
section where the background of the paper would be highlighted in order to make the readers
aware of the current scenario. The research objectives and the hypothesis that has been framed is
in accordance to the discovery of the impact of financial innovation in the financial sector in
Nigeria. The hypothesis would look to find out which one of the hypothesis holds true for this
paper. The research question is the questions that the researcher would look to answer the paper.

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The next section of the paper consists of the literature review where the assessment of the
financial innovation in various economies would be compared and evaluated so that a precise
idea can be attained with the help of which the author can proceed with the current topic. The
next section that comprises of the research methodology looks to find out the process of
gathering the data that would be ideal for the researcher in order to complete the paper in an
effective manner. The direction and the course that would be applied by the researcher in order
to collect the data and the path the research paper would be using would be explained in this
section. The data analysis section explains and assesses the data that have been collected so that
the actual result can be obtained and the research questions and the objectives would be
answered. The last section of the paper that is the conclusion provides the results that has been
obtained from this research and the suggestions that have been discovered that can improve the
financial innovation in the financial sector in Nigeria.

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Chapter 2: Literature Review
2.1 Introduction
This section of the paper assesses the literature that is precise to this paper. The theories
are authentic to the area of the study that has been reviewed. Furthermore, this section of the
paper initiates by reviewing the theories that explains the discussion on the technological
innovation. It then deals on the empirical studies that explain the connection between the
performance of the commercial banks and the technological innovation.
2.2 Theoretical Review
This section of the paper discovers the numerous theories and the frameworks that can
highlight and define the impact of the technological innovation on the financial performance of
the commercial banks. There have been numerous theories that have been advanced and these
are inclusive of the Diffusion of the Innovation Theory, Schumpeterian Theory of Creative
Destruction and the Disruptive Innovation Theory.
2.2.1 Diffusion of the Innovation Theory
DOI (Diffusion of Innovation) is a theory that is a renowned framework utilised in the
information research systems in order to define the user adoption of the new technologies. Flood,
Jagadish and Raschid (2016) cited that diffusion has been explained as the method with the help
of which an innovation is transmitted with the help of numerous channels over the time along

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within the members of the social community. An innovation is a concept or an object that is
looked upon as new.
With respect to DOI, the diffusion rate is impacted by the relative benefit of innovation,
compatibility, discoverability and complexity. Chesbrough and Brunswicker (2014) explains the
relative advantage as the extent to which the innovation is looked upon as a superior to its
predecessor. Complexity is comparable to the perceived ease to the ease of construct that has
been regarded as the level up to which the innovation is looked by the probable adopter as being
specifically difficult to implement and understand (Gennaioli, Shleifer and Vishny 2014).
Compatibility on the other hand, refers to the extent to which the innovation is seen to be
compatible with the values that are existent, experiences and the needs and the beliefs of the
adopters. The discoverability is the level to which the outcome of the innovation can be visible.
The diffusion theory is authentic as it defines the reason why the banks implement
technical innovations. This is one of the factors why the banks are at relevant advantage. This
explains that the bank that incorporates technical innovations have specifically enhanced
financial benefit than those who do not undertake the same.

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Figure: Diffusion of Innovation Model
2.2.2 Disruptive Innovation Theory
This theory has been found to be one of the most suitable and significant innovation
theories of the past few years. The core ideas that have been behind the circulation in the past
years and a year after the publication of the theory, individuals were making use of the term
without making reference to the specific ideas. The ideas assessed extensively the disk drive
industry due to the fact that is represented the most vibrant, technologically discontinuous and
the complex firms that could be discovered in the economy (Lin and Tomaskovic-Devey 2013).
This theory has been relevant with respect to the fact that it defines the kind of technology the
banks look to implement. The banking technology is disruptive due to the fact that it eliminates
the process associated with the conventional banking.

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2.2.3 Schumpeterian Theory of Creative Destruction
Aghion et al. (2013) discovered the innovations as the continuous tempest of creative
destruction that was significant forces that compel the rate of growth in a capitalist process. The
thinking of Schumpeter transformed over the period to the level that certain scholars have
differentiated their previous thinking where innovation is largely reliant on the exceptional
consumers who are willing to take extraordinary hazards. This lead to the emphasis on the
performance of the oligopolies in innovation which was later viewed falsely as the main
contribution of the work. It is seen that Schumpeter could not explain clearly actual source of
innovation. The only thing that was highlighted was the importance and the role in timing the
economic cycles bit was unable to address their source. This on the other hand permitted the
Keynesian economies to debate that degree of investment were the reason of innovation until the
time the economists would again start to look for the source of innovation (Blochand Metcalfe
2017). The significance of innovation was explained by the researchers who were able to
validate how the classic economics was able to define. It is seen that the Schumpeterian Theory
is precise due to the fact that new technology substitutes the conventional technology which is
effective as the new technology is effective and brings in value to the adopter.
2.2.4 Nigerian Banking Industry
The structure of the Nigerian banking related administrations industry changed definitely
amid the period under audit, realizing noteworthy changes in the market. Inside the setting of
current improvements and with expanded broadness and profundity of rivalry, the undertaking of
recognizing the remarkable attributes that will empower any bank beat its associates is winding
up additional testing (Shaikh and Karjaluoto 2015). The business is currently described by the
accompanying intriguing dynamics:

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2.2.5 Developing Business Models
Nigerian banks are quickly internationalizing; a drift most unmistakably showed by the
quantity of Nigerian banks opening branches crosswise over West Africa while new players,
particularly outside banks may soon develop (Bloomfield et al. 2014). Many banks have come
back to the capital market to shore up their investors' subsidizes past the required least level, to
empower them play all the more effectively in the universal field.
2.2.6 Sophistication of the customers
The steady emergence of the Nigerian middle class has offered ascend to a class of
proficient and fiscally wise clients. Their benchmarks for service quality have likewise risen,
helped by the exceptional rivalry among budgetary specialist organizations to pull in new clients
(Asongu 2014). It is never again recently adequate to give items, however to adjust these
intimately with particular client portions and their distinguished desires.
2.2.7 Technology
In the response of the desires for fast, productive and solid administrations, industry
players are progressively sending innovation as methods for creating bits of knowledge into
clients' behavioural patterns and inclinations (Shahbaz, Tiwari and Nasir 2013). All around
created outsourcing support capacities (innovation and operations) are progressively being
utilized to give administrations and oversee costs (e.g. Automated Teller Machine systems,
Cards processing, Bill presentment and Payments, Software Development, Call centre operations
and Network management).
2.2.8 Regulation and Supervision
Regulators are also moving towards global best practices, as they gain a visibly improved
appreciation of Basle II plus Compliance. The larger and more complex the bank, the greater the

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range of risks it faces, which is why at United Bank for Africa (UBA) for instance, have adopted
self-regulatory methods by addressing risks through a rigorous enterprise-wide risk management
framework (Ahokpossi 2013). However, the scope and dimension of financial services in the
foreseeable future will be different from the present, in terms of the character of players,
dynamism of business models, competitiveness, customer’s expectations, the degree of
internationalization, adjustment to technological trends and innovations, as well as the standards
of the underlying infrastructure. UBA have positioned themselves in line with these emerging
trends (Francis 2013). Specifically, the bank is looking beyond Ghana (the most popular
destination for most Nigerian banks right now), and consider other virgin territories in sub-
Saharan Africa which hold great potential, in view of the expected inflow of donor
reconstruction funds, oil exploration funds and increased regional trade. For some time now, the
bank’s management has been re-inventing the institution as a dynamic, people driven, customer-
focused institution and above all, as a place where customers are not just happy to bank, but
employees (including out-sourced staff ) are happy to work with adequate provision and
implementation of the current information technology support systems.
2.3 Electronic Banking Revolution in Nigeria
Electronic banking can be explained as the task of carrying out the transaction of the
business of a bank using electronic tools. Instances of electronic devices that are exploited
include Computer System; Global System for Mobile Communication (GSM) phones,
Automated Teller machine (ATM), Optical Character Recognition (OCR), Internet facilities,
Smart Cards, etc. E-banking is regarding making use of the infrastructure of the digital age to
establish opportunities, both global and local (Menyah, Nazlioglu and Wolde-Rufael 2014). E-
banking aids the spectacular reduction of transaction costs, and the generation of new kinds of

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banking opportunities that explains the time and distance barriers. Banking opportunities are
global, local and instant in e-banking. The development of e-banking goes back to 1986 when
the banking sector in Nigeria was deregulated. The deregulation outcome brought extensive
changes through digitalization and enhanced bank service delivery (Hesse and Poghosyan 2016).
The rivalry with the new commodities became eager within the system while customer
sophistication posed a threat for them, hence the reengineering of dispensation techniques of
business activities persuade the automation of financial services especially among new
generation of commercial and merchant banks.
In effect, the development of a crop of new generation banks after the liberalisation of the
licensing of the banks have inspired the introduction of increased technology in the banking
system of Nigeria. In certain circumstances, it has been regarded as “arm chair” mortar and brick
approach to the banking of the banks that are of the old generations as they have no
consideration for the consumers and hence the recognised weakness they can make use of.
These banks have revealed that the technology that has been evolving at the global extent
could be applied to highest benefit in the financial landscape of Nigeria. This has mainly paid off
for some of them, as the consumers who generally would have discovered it almost impossible to
leave the banks and they have been familiar with a new one that is yet to establish themselves
and there was discovery of the difference in the services and products delivery system that are
available comprising of two kinds of banks namely the new and the old one (Asongu 2014). The
consumers without any reluctance have opted out to pay for the additional fees that would satisfy
the extra-personalised services and products and the personalized marketing provided by the
banks.

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Therefore this has demonstrated their preparedness to shift from one bank to the other,
the old connections not withstanding; as they have been able to recognise the gaps in the delivery
of the service of their original banks. The e-banking utilises certain recognition features before
granting permission by the banks and the users. A widely used recognition feature in the current
period has been the utilisation of the personal identification number (PIN). These are generally a
series of codes which is only known to the clients who has the account or any other person who
wishes to access his account (Hanafizadeh, Keating and Khedmatgozar 2014). The permission to
undertake the financial transactions is granted immediately by the banks after the PIN is quoted.
2.4 Impact of IT in Nigeria’s Banking Industry
According to Chesbrough and Brunswicker (2014), when technology is applied in the
banking environment in the current period there are three distinct categories namely: customer
independent (a technology that is associated with customer undertaking and completing a
transaction with a bank completely independent of any human contact with the bank; customer
assisted (a bank employee will make use of the customer aided technologies as a resource to
complete any transaction and customer transparent technologies that represents the actual core of
the operations of the bank and the customer never expect to observe it.
2.4.1 GSM Banking:
This process of e-banking utilises the Global System for Mobile communication phones
as the key electronic device. The GSM has enhanced the operational effectiveness of many banks
in the country. The services of mobile banking generally permit the customers to function their
accounts with the functioning banks from the mobile phones to a larger extent as long as their
network and phones have the support of SMS (Ahlborg and Hammar 2014). The user can be able
to examine the account balance up to their last two transactions.

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2.4.2 ATMS
ATMS were established initially to operate as a cash dispensing machines. Conversely,
due to development in technologies globally, ATMS are now able to give out extensive range of
services like making deposits, transfer of funds among two accounts and payment of bills. The
banks look to make use of the electronic banking mechanism in order to maintain their
competitive edge(Allen, Carletti and Valenzuela 2013). The ATMS even save the time of the
consumers in delivery of service as a substitute to queuing in the banks and the consumers can
invest the time saved in various other productive works. ATMS are looked upon as the cost
effective process of gaining increased productivity as they accomplish increased productivity per
time period than the human tellers. Additionally, as the ATMS endure when the human tellers
stop there is a sustainable productivity for the banks even after the working hours.
2.4.3 Telephonic Banking
Telephone banking is a service given by the financial organizations which permits their
customers to perform through telephone and is known as phone banking. In most cases the
telephonic banking makes use of an automated phone answering mechanism with phone keypad
response and voice identification capability (Dumay, Guthrie and Puntillo 2015). In order to
guarantee the security, the consumers must primarily authenticate through a numeric or verbal
password and with the help of security questions that has been asked by a live agent situated in a
call centre or a branch even though this feature is not certified to be offered twenty hours.
According to Reynoldset al.(2013), telephonic banking has several advantages for the
bank and the customers. As far as the consumers are concerned, it gives out high level of
convenience, prolonged access and key level of time saving. Conversely, from the point of view
of the banks, the costs of providing telephone based services are considerably lower than the

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services that are branch based. It has almost all the effects of productivity of ATMS rather than it
lacks the productivity that is established from the cash dispensing done by the ATMS. For a
delivery channel that gives out services related to retail banking even after the banking hours and
it accrues sustainable productivity for the bank(Ouma 2014). It gives out retail banking services
to the clients at their homes and offices as a substitute of going to the ATM and branches of the
banks. This saves the time of the consumers and provides more expediency for increased level of
productivity.
2.4.4 Personal Computer Banking
This is a kind of service which permits the customers of the banks to gain access to the
data regarding their accounts with the help of proprietary network generally with the assistance
of the proprietary software that is installed in their personal computer. As the access is attained,
the client can perform various kinds of functions associated with the retail banking. The rise in
awareness towards computer literacy has led to the increased use of the personal computers. This
significantly assists the development of personal computer banking which practically generates a
branch in the home and offices of the customers and thereby gives out 24 hours of services in
seven days a week (Baptista and Oliveira 2015). It even has the advantages of ATMS and
telephonic banking.
2.4.5 Internet Banking
The concept of internet banking according to Gheeraert (2014), is to provides access to
the customers in their bank accounts with the help of website and to enable them to perform
various transactions within their account provided the compliance with the rigorous security
checks. Wanke, Barros and Emrouznejad (2016) has even explained internet banking as the
provision of the conventional banking services over the internet. The internet banking by their

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nature provides more flexibility and convenience to the clients coupled with a practically
absolute control over their process of banking. The delivery of service is by nature informational
(as it informs the customers on the products and services of the banks and transactional services.
2.4.6 Branch Networking
The networking related to the branches is the technological innovation like
computerization and inter-linking in the form of a Wide Area Network (WAN) and Enterprise
Network (EN) in order to establish and sharing of the combined information and records of the
customers. This even provides rapid rate of transactions that are in nature inter branch as a result
of elimination of time and distance. Therefore, there is an existence of more productivity per
time period (Ford et al. 2015). Furthermore, with the numerous networked branches that serves
the consumer populace as an individual process where there is simulated labour division among
the branches of the banks with its related positive effect on the productivity among the branches.
Additionally, as it restrains the travel distance of the consumers to the branches of the banks and
it offers more time to productive activities of the customers.
2.4.7 Electronic Funds Transfer at the Point of Sale
Electronic Funds Transfer during the Point of Sale is an on-line mechanism that permits
the consumers to transfer the funds in an instant manner from the bank accounts to the merchant
account when undertaking purchases. The Point of Sale makes use of a debit card to initiate an
Electronic Fund Transfer Process. Rising level of banking productivity has led to the utilisation
of Electronic Fund Transfer Process at the Point of sale in order to provide services to the
consumers with respect to the shopping payment requirements instead of clerical responsibilities
in managing the cheques and withdrawal of cash for the intention of shopping. In addition, the
system is operational even after the working hours, therefore continual productivity for the bank

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even after the banking hours (Adu, Marbuah and Mensah 2013). It even saves the time of the
customers and energy in getting in to the branches of the banks and the ATMS for the purpose of
withdrawal of cash which can be hitched in to the other productive operations. As the
significance of innovation in developing nations rises, the requirement for the research on the
topic increases as well.
2.4.8 Banker’s Automated Clearing Services
This process includes the use of the Magnetic Ink Character Reader (MICR) for the
processing of the cheque. It has the ability of reading, sorting and encoding the cheques. There
are even facilities of requesting of cheque books or buying of drafts that can be made and may be
permitted via electronic tools that web-based.
In a sense, the effect of information technology in the banking companies in Nigeria may not be
over-emphasized. It has given convenient and flexible services to the consumers. The present e-
banking tools utilise the internet which permits the customers to gain current account balances at
any point of time (Gutman, Sy and Chattopadhyay 2015). The customers do not require to bother
themselves once the money have been withdrawn or deposited from their accounts as most of the
banks in Nigeria makes use of the short message services (SMS) in order to bosom the customers
of their balances immediately after the transactions have been performed.
2.4.9 Banc Assurance
Erol et al. (2014) undertook a paper that was in accordance to Banc assurance. In this
research the researcher looked to recognise the significant drivers of Banc assurance as a
distribution process for the insurers. A worldwide assessment and comparison of the Banc
assurance was undertaken with the help of various business frameworks and a descriptive design
was enhanced with the help of assessment of the past researches. Thereafter, a quantitative nation

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based evaluation was undertaken. The researcher exploited the precise factors that were inclusive
of the concentration of the market, usage of internet and size of the insurance market, degree of
deregulation and the density of the branches of the banks in order to evaluate their impact on the
segmental size of the banc assurance. The empirical outcomes have highlighted that all of the
five variables have impacted the banc assurance even though the size of the market was a non-
life sample.
Lozano-Vivas and Pasiouras (2014) undertook a study on the determinants of
implementation of banc assurance by the commercial banks in Nigeria. The target sector was
attained from the overall banks in Nigeria that has banking license. The result of the research
indicated that incorporation of banc assurance by the commercial banks was influenced by the
requirement for a new profit stream, economies of scope and diversification. There was a vital
optimistic relationship among the requirement for new stream of revenue, diversification of the
business, incorporation of banc assurance and economies of scale by the commercial banks.
Ahmed, Bahamman and Ibrahim (2015) undertook a study on the management aspect of
banc assurance as the risk mitigation strategy at the banks. The intention of the research was to
establish if the banks and the insurance organizations can reduce some of the management issues
like the increased loan default that leads to increased credit risks, switching of the consumers due
to their level of dissatisfaction, reduction in profits, struggle to purchase new insurance products
and therefore minimum level of development.
2.5 Technology Driven initiatives that boosts the Financial Inclusion
The opportunities in the financial sector are hugely untapped with a small segment of the
population binding them. With the advent of ever enhancing cutting edge technology, the

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unbanked are attracted towards the financial landscape to gain the benefit that is inherent in the
array of the products that have been introduced by the banks.
On the forcing targets of the Federal Government and the Central Bank of Nigeria in the
previous two years has been to increase the numbers of the financial inclusions in the country.
To this aspect the apex bank of Nigeria along with the other regulators in the financial service
sectors inclusive of the National Pension Commission that has energetically pursued the financial
inclusion agenda through several initiatives with a precise intention to add in millions of
Nigerians especially those in the informal sector and the areas that are unbanked, within the
banking population (Ayadi et al. 2015). This determination that is not limited to the banking
alone cuts across the full range of the financial services that ranges from the bank accounts,
subscription of the insurance , retirement savings account and fund investments that is among the
others.
Therefore the spine and the key enabler of current developments has seen the financial
services sector in the fields like the experience of the customers, quality of service, speed to the
market financial services and products and rapid turnaround processing time with respect to the
financial transactions that is primarily from the advancements in the modern communication and
information technology, investment in its implementation and integration (Valickova, Havranek
and Horvath 2015). The renowned providers of financial services in the nation, especially the
Deposit Money Banks (DMBs) have all incorporated the innovations that are made available and
possible by sustainably developing technology with a bid to remain precise, expansion in the
share in the market, enhance their footprints, undertake profitability of the business, stay ahead
of the competition and deliver additional value to their consumers and the other key
stakeholders.

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The key setback that have been faced by many researchers have faced and therefore have
explained as the annoyance of the financial inclusion in Nigeria is the key ostensible distrust for
the financial services organizations and decreased level of literacy among the Nigerians. The
credit requires to be given to the Federal Ministry of Finance and the Nigerian Central bank for
the regulations and policies they have incorporated in order to increase the bar on the financial
literacy in the nation as a solution to bring in the financial inclusion, even though a lot of work is
needed if the low level of trust and confidence in the financial service sector is to gain any
enhancement (Abdulsaleh and Worthington 2013).
The question that remains is that what measures can be taken in order to efficiently
remove the restriction and the disincentive to the financial inclusion in Nigeria. One aspect that
comes readily that comes in to mind is technology and innovation. Therefore, this must be reason
why several commercial banks have been restructuring their operational plans to de-empathise
concentration on raising the footprint with the help of branch network expansion and sustainably
striving towards digitisation and the mobile solutions (Johnes, Izzeldin and Pappas 2014). The
original tools like the HP, Dell, Samsung and other manufacturers of computer equipment had
anticipated many years ago that the future of constructing is mobile and therefore the
unparalleled revolution in the device that is handheld and the mobile phone industry.
The chief executive of Stanbic IBTC Bank Plc, Dr.Demola Sogunle has attested that the
continuous digital transition and revolution, which the financial service sector was presently
experiencing, had just begun initially. The bank chief made this proclamation during the official
commissioning of the first self-service fully digital branch that is under the Maryland Mall in
Lagos, in the month of December in the previous year. Almost precisely a year before, the month
of November 2015, Stanbic IBTC in the persistence of the existing digitisation drive that is

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focused at serving their customers effectively through innovative and excellent services and
products that launched the first personal teller machine of Africa, a collaborative automated teller
machine that helps their customers to perform the full banking operations (Asongu 2015).
The personal teller machine is a tool that offers their customers the advantages of both
self-services banking through video collaboration and distant transaction processing technology
of baking that is within the machine to provide the customers the selection of the self-service or
linking with a remote teller in an increasingly personalised and two way video and audio
communication. The interactive nature of the machine assists in closing the gap of intimacy that
is presently not available on the traditional automated teller machine (Uzkurt et al. 2013).
Therefore if the aim of the bank is to implement the PTM in order to enrich the banking
experience of the customers by permitting them to perform the operations of banking like the
opening of the account, withdrawal and deposit of cash, deposit of cheque and other general
enquiries like the balance in the account, enquiries of loan and card associated activities among
other roles without having to make use of the debit cards then this intention can be accomplished
ultimately.
2.6 Interest Rates
According to Alao and Sorinola (2015), the key concentration of all the financial system
has been the financial intermediary. The mobilisation of the financial resources from the excess
sector and provide lend to the outlets that have been deficit in order to undertake business
transactions and development of the business reliant on the fiscal and monetary policy of the
country. The attraction towards attaining the deposits from the excess sectors is the payment of
interest, which must be a acceptable and reasonable to the money owners. However, the
attraction for gaining the credit facility by the banks is the payment of interest for the utilisation

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SERVICES
of the credit by the borrowers with respect to the parting with the liquidity by the money lenders.
Hence, the interest rates have power over the extent of deposit and the level of credit being
offered by the banks.
The technologies in relation to the advanced retail payment transactions will encourage
innovation and development in the retail banking sector. This will even establish more values
related with the retail payment services of the banks. On the other hand, if further transactions
associated with retail payment have been done through Point of Scale and ATMs instead of
offices of the retail payments (Uchenna, Evans and Stephen 2015). The banks can be more cost
effective and gain more income. The innovations in the retail payment services have a wider
effect on the performance of the banks in the nations that are relatively higher incorporation of
the retail payment transaction technologies. Therefore, the requirement to retain, entice and
attract more customers and secure their trust and loyalty. This is the spirit of the requirement for
numerous sorts of incentives to influence and motivate loyalty, stimulate and entice the interest
of the customers with the help of improved and steady incorporation by the customers.
A rise in the circulation of the currency volume describes the fall in the overall deposits
and the loans that are available. This is a key parameter of the financial innovation. The currency
that is outside the banking sector act as a proportion of the circulatory currency that is in the
hands of the public for the purpose of undertaking transactions. It is even a parameter of the
extent of sophistication of the payment model in an economy (Guttmann 2016). The currency
that is with the bank acts an effective indicator of the financial inclusion as it gains knowledge
about the volume of money that is present in the vault of the banks. An increased amount of
money in the banks explains that there is a possibility of higher loanable funds in the banking

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SERVICES
sector. One of the key tools or the techniques that could be utilised for the purpose of financial
innovation is the manipulation in the rate of interest that is paid by the banks to their customers.
2.7 Empirical Studies
Bryden et al.(2013) explained on the application of the information technology in the
Nigerian Banks and has shown that information technology is gaining to be the spine of the
service regeneration of the Nigerian banks. It was even cited that Diamond Integrated Banking
Services (DIBS) of Diamond bank Limited and the Electronic Smart Card Account (ESCA) of
All States Bank Limited as exertions given towards establishing innovation in the banking sector.
Tanimura et al.(2014) has discovered that banking in Nigeria has been reliant on the
implementation of the information technology and that the IT budget for banking is by far more
than any other industry functioning in Nigeria. It was contended that online system has
simplified the internet banking in Nigeria as seen that few of them establishing websites. It has
been discovered that the banks now even offers flexibility of functioning an account to the
customers in any branch regardless of the bank account that is domiciled. The cashless
transactions were possible in the current community.
In a research that was undertaken by Gelb, Meyer and Ramachandran (2014) in Nigeria,
there has been a list of certain banking services that have been developed through the utilisation
of ICT that is inclusive of the opening an account, mandate the customer account and recording
and processing of the transactions. On the contrary to the above mentioned studies, Kodongo,
Natto and Biekpe (2015) concentrates on the demand aspect of online and electronic payment of
bill empirically assessing the demographic features of the users. By, looking at the other things,
it has been discovered that users who pay through electronic billing are mostly, female, higher
income, females and house owners. Khalique et al.(2015) examined that effect of automation of

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SERVICES
the computer on the banking services in Lagos and found out that electronic banking has
improved tremendously with respect to the services of certain banks to their clients in Lagos. The
research however has been limited to the commercial centre of Nigeria and focused on only six
banks. A comparative assessment among the new and old generation banks was undertaken and
discovered a variation in the rate of incorporation of the automated equipment.
The initial line of the research associated to the online banking has been focused at
gaining knowledge about the determinants of the adoption of the banks and how the technology
had an impact on the performance of the banks. The survival of a firm in the era of knowledge
based economy is reliant on how to enhance their organizational innovation ability. The
innovation in relation to technology is the significant variable and process of differentiation
among the logistic services providers. The commercial banks can raise their level of performance
by deploying new technologies. They should even implement new informational technologies to
increase their capability of service in the era of e-commerce. In accordance to the online
implementation, Anyanwu (2013) has discovered that the national banks of U.S were more
inclined to offer transactional websites in case they were younger, larger allied with any holding
company that is situated in an urban area and had increasing fixed expenditure with non-interest
income.
The ICT products that are used by the banking industry in several developed and
developing nations are inclusive of smart cards, ATMS, telephonic banking, MICR, Electronic
Office and Home Banking and EFT. According to Uddin et al.(2014), incorporation of
information technology and communication networking has attained revolution in the operations
of the banks and the financial organizations. It has been debated that dramatic structural
transformations are in store for the financial service industry as an outcome of the internet

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SERVICES
revolution while others observe as a continuation of the patterns that is already in the process.
Information and communication technology has given self-services facilities from where
potential customers can conclude their opening of the account and the related documents direct
online. It aids the consumers to validate their account numbers and gain instruction on how and
when to receive their cheque books, debit and credit cards.
According to Joshi et al.(2013), the implementation of the communication and
information concepts of technology, policies, techniques and incorporation of the strategies to
the services of banking that has become a topic of fundamental significance and concerns to all
the banks and in a manner a prerequisite for the global and local rivalry. The ICT directly
impacts on how the managers decide and how they plan and what services and products are
offered in the industry of banking. It has sustained to transform the process the banks and their
corporate relationships are structured globally and the diversity of innovative tools available in
order to boost the quality and speed of the delivery of the services.
Conversely, most of the researches regarding innovation has been concentrating on the
manufacturing industries even though a high extent of attention has been given to the
development in the service industries in the current time period. Osabuohien and Efobi (2013) in
their research have focused on the significance of customer relationship management. The goal
of the banks has been to retain the current customers and gain the prospective customers. In
order to bring in value to the offered services, the banking industry has to effectively and
efficiently exploit the technology with a focus on the cost of the services and products that has
been offered. In order to win the customers, the new banking process should integrate
technologically and implement the marketing strategies that would enhance the banks to optimise
their profits with the help of customer satisfaction. The market has tough competition in giving

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SERVICES
the customers the value which is the only way to accomplish complete continued satisfaction for
the customers.
By looking at the performance of the online banks, Abedifar et al.(2015) explained that
adoption of the internet has enhanced the profitability in the U.S community bank, primarily
through the deposit associated charges. In a current research Miller et al.(2015) discovered that
due time, online banking has been related with reduced costs and increased level of profitability
for a sample of the Spanish banks. Each of the researches claims that the internet channels are a
complement to rather than an alternative for the physical branches of the banks.
The empirical literature examining the SBCs has concentrated on the factors of bank
implementation and diffusion of this technology and as to how SBCS has impacted the
availability of the credits. The two researches have investigated statistically the aspects of
probability and timing of the adoption of SBCS in the large banks. Asongu (2014) has
discovered the significant role for the organizational framework in the incorporation of the
decision: banking sector with fewer bank charters and the more bank branches are more likely to
implement and may incorporate as soon as possible. This advises that the large banks with a
more centralised framework were more likely to incorporate SBCs. The utilisation of the SBCs
technology still looks to be mostly restricted to larger banking firms. Conversely, a recent
research has suggested that the small banks now often utilise the credit score of the consumers of
the actual owner of the firm.
The dramatic rise in the use of the internet of an individual during the 90s has generated
the possibility of a new organizational form in the sector of banking, which is known as the
internet only bank. According to Brida, Cortes-Jimenez and Pulina (2016), in the middle of
2000s, there were only 35 internet only banks that were functioning in Europe and around 20 in

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USA. Conversely, in Europe most of these banks were affiliated with the prevailing firms, while
in USA they looked to be de novo operations. This indicates why most of the US internet only
banks have vanished or have created a physical presence to supplement their base of the internet.
Page and Söderbom (2015) has discovered that in comparison to the traditional de novo
banks, the internet de novo banks are not as profitable due to decreased volume of business and
increased level of labour expenses. Conversely, the researcher also explains that the gaps related
to the financial performance narrows quickly over time due to the effect of scales. Hahn and
Kühnen (2013) in a similar manner discover that European internet banks reveal technology
based scale of economies.
Zoogah, Peng and Woldu (2015) undertook a research on the influence of banking
innovation on the income of the commercial banks in Nigeria and explained that bank
innovations have a less amount of influence on the income of the commercial banks in Nigeria.
As technological innovation is continuously and aggressively implemented in Nigeria, the
government should sustain to provide more remunerations and incentives for research and
development to the researchers to maintain their investing with respect to their skills and time in
discovering more innovations in bank. The researchers suggest that the government should
follow a strategy to give out remunerations for transfer of technology from more developed
economies in order to enhance the incorporation of world class innovations. More revenue from
the banks due to the implementation of the innovation translates to more jobs and enhancement
of the gross domestic product of the nation and hence contributing to the overall macroeconomic
objectives of the government. Kankeu et al.(2013) have generated mixed outcomes with respect
to the effect of innovations on the performance of the banks and on the other hand, Ncube,

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SERVICES
Anyanwu and Hausken (2014) have claimed that financial innovation had a key contribution to
the performance of the banks.
Brinkel et al.(2014) imitated research on whether innovations in the banks have an
impact on the profitability of the commercial banks in Nigeria and concluded that innovations in
bank had a statistically key influence on the profitability of the banks. This explains that the
mixed impact of the bank innovations in this research is a statistically important in defining the
profits of the commercial banks that functions in Nigeria. The banks in Nigeria have
accomplished more than a decade of increasing their capability of earning and managing the
costs through the implementation of the innovations like the internet banking, mobile banking
and agency banking.
2.8 Summary of the Literature Review
Shahbaz et al. (2013) examined the relationship between electronic banking and financial
performance of the commercial banks that operates in Nigeria and made a conclusion that there
is a positive relationship among e-banking and the performance of the banks. On the other hand,
the research discovered a research gap as it was unable to differentiate between the three
categories of the technological innovation that is inclusive of customer independent, customer
supported and the customer transparent technology. Makri, Tsagkanos and Bellas (2014)
undertook a research on the determinants that hinders the incorporation of the technological
innovation in the commercial banks in Nigeria and undertook a research based on the
commercial banks of Nigeria. The researcher in this research came to a conclusion that resistance
to transform; intrinsic politics and the fear of cannibalizing the current products have restrained
the implementation. However, the research was unable to examine the impact of technological
innovation on the financial performance of the commercial banks. The research question is hence

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related to the impact of the technological innovations on the financial performance of the
commercial banks that operates in Nigeria.
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