Asian Journal of Economics, Business and Accounting

This study evaluates the relationship between financial innovation and bank efficiency as well as the impact of financial innovation on efficiency ratio of deposit money banks in Nigeria from 2006 to 2014. The secondary data covering the period of the study were sourced from the Central Bank of Nigeria statistical bulletin. The unit root test was performed to ensure that the variables were free from stationarity defect linked with almost all time series data due to the nature they were generated. A multiple regression model was developed and estimated to evaluate the relationship among the variables concerned. The finding reveals that the value of transaction on Automated Teller Machine (ATM) and Point of Sale (POS) are negatively related with efficiency ratio while web/internet and mobile banking are positively related but only that of web/internet was significantly related. The granger impact assessment depicts that financial innovation products reflected by value of transaction on ATMs, web/internet, POS and mobile banking has no significant impact on efficiency ratio of deposit money banks in Nigeria. However, we found evidence that banks efficiency ratio exerted statistically significant impact on value of transactions on ATMs. In view of the findings, banks should invest more in ATMs and POS platforms as it reduces the operating expenses to net income ratio while ensuring effective utilization of existing web/internet and mobile banking infrastructure rather than acquiring new ones that will gulp a large fraction of their net operating income. Web/internet and mobile banking should be redesigned in such a way that customization will enable customers access all the banking services which would indeed reduce its transaction costs. This calls for dialogue and negotiation with mobile service providers operating in Nigeria.