Impact of electronic banking on the operational cost of deposit money banks in Nigeria

This study examines the short-run and long-run effects of key electronic banking channels on the operational costs (OPC) of deposit money banks in Nigeria using the Autoregressive Distributed Lag (ARDL) approach. The study employed monthly time-series data and applied the ARDL technique which is appropriate, when variables are integrated at different orders. Short-run dynamics were modeled using an Error Correction Model (ECM), and the significantly negative error-correction term of –0.68, with a prob. of 0.001, confirms a stable long-run relationship indicating that about 68 percent speed of deviations from equilibrium are corrected each period. The short-run coefficients indicate that electronic banking channels exert mixed influences. ATM usage (DlnATM = –0.15, p=0.076) has a negative but weakly significant on OPC, implying that ATM transactions help lower immediate operational costs, although the effect remains marginal. POS transactions (DlnPOS) produced a coefficient of –0.21, with a prob. of 0.050 exhibiting a stronger and statistically significant short-run reduction in operational costs, reflecting improved efficiency. Mobile banking (DlnMOB) with a coefficient of 0.08, and a prob. of 0.268, shows an insignificant positive effect, suggesting that increasing mobile transactions may initially raise administrative or infrastructure-related costs. Long-run results show that ATM (–0.124, p=0.004) and mobile banking (–0.091, p=0.045) significantly reduce operational costs over time, affirming their cost-efficiency as digital adoption deepens. POS (–0.09, p=0.214) remains negative but insignificant, while web-based banking (0.312, p=0.000) significantly raise costs, likely driven by expenses related to maintenance, security, and platform-upgrade. The study recommends that banks should intensify investments in ATM and mobile banking infrastructure, as both channels exhibits strong long-run cost-reducing potential. Secondly, web-based banking platforms should be strategically redesigned to minimize operational overheads, by enhancing cybersecurity automation, improving system integration, and adopting energy-efficient technologies.