Analysis of Financial Innovation Development in Nigerian Banking Sector

International Journal of Research and Innovation in Social Science (IJRISS) | Volume III, Issue XI, November 2019 | ISSN 2454–6186

Analysis of Financial Innovation Development in Nigerian Banking Sector

I.G.Okafor, Ph.D

Department of Banking and Finance, Caritas University, Enugu, Nigeria

Abstract: This paper analysed financial innovation development in Nigerian banking sector between 2009 and 2018. Using trend analyses and descriptive statistics, we examined four major channels of financial innovation namely; Automated Teller Machine (ATM), Point of Sale terminals (POS), Web/Internet payment (WEBP) and Mobile pay (MBP) channels. The findings revealed that the four innovation channels jointly grew at an average rate of 296.47% in value terms and 112.63% in volume terms between 2009 and 2018. In contrast, activities on value and volume of cheque transactions plummeted during the period with the trend indicating 82.89% and 69.08% decline, respectively. Annual average decline in value and volume of cheque transactions was -13.73% and -7.13%, respectively. The paper compared pre (2000-2008) and post (2009-2018) financial innovation in respect of fraud and forgery cases. We found that on the average, number of fraud and forgery cases increased by 674.63% from 1,127.67 (pre-innovation) to 8,735.22 (post-innovation). Similarly, total amount involved and total expected loss in fraud increased by 53.43% and 34.20%, respectively from pre to post financial innovation. We conclude that financial innovation is a dominant channel of financial transaction in the Nigerian banking sector with potential of crowding out traditional transaction media in the foreseeable future. However, financial innovation is associated with rising incidence of fraud compared to the pre-innovation era and, therefore, calls for drastic measure towards protecting the unsuspecting users of these channels. Effective regulations, guidelines, citizens’ education and adequate monitoring are important in ensuring security and healthy competitiveness in the financial innovation era.

Keywords: Financial Innovation, Fintech, Information Technology, Artificial Intelligence, Innovation Diffusion.

I. INTRODUCTION

The Nigerian banking sector, as other banking sectors in various jurisdictions was characterized with primordial products and services. These products under payment systems included: coins and notes, cheques, bank cheques and bank drafts. Payments with coins had limitation as to amount. Notes, depending on the denomination, could be cumbersome, as the highest denomination at a time was twenty naira, then fifty before the country got to the present higher denominations.

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