Dynamic Research Journals (DRJ)

Journal of Economics and Finance (DRJ-JEF)

Volume 2 ~ Issue 1 (January, 2017) pp: 01-06
www.dynamicresearchjournals.org

Alternative Banking Channels and Economic Growth in Nigeria:

Further Empirical Evidence.
1Dr. Oleka, Chioma & 2Agu, Nkechi C.
1Lecturer, Department of Banking and Finance, Enugu State University of Science and Technology (ESUT), Enugu-State.
2Assistant Chief Accountant, Court of Appeal, Enugu, Enugu-State.

Received 30 October, 2016; Accepted 01 November, 2016; Published 31 January, 2017 The author(s)
2016. Published with open access at www.dynamicresearchjournals.org

Abstract:- The clamour for Nigerians to fully embrace the cashless policy necessitated this study. The study
broadly examined the relationship between alternative banking channels and Nigerias economic growth.
Specifically, the study investigated the effect of Automated Teller Machine (ATM) banking channel, Point of Sale
(POS) banking channel and Web (internet) banking channel on gross domestic product in Nigeria. Data were
collected from the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 2002 to 2015 and the study
employed the Ordinary Least Squares (OLS) multiple regression technique as the analytical tool. Findings revealed
that Automated Teller Machine (ATM) and Point of Sale (POS) banking channels have positive and significant effect
on economic growth in Nigeria. Nevertheless, the study revealed that Web (internet) banking channel has a negative
and significant effect on economic growth in Nigeria. The study recommends, among others, that banks in Nigeria
should device more innovative packages that would increase the attractiveness and usage of alternative banking
channels in order to grow Nigerias economy more.
Keywords: Alternative banking channels, Automated teller machine (ATM), Point of sale (POS), Web (internet)
and Economic growth

I. Introduction
In keeping faith with financial inclusion policy of the Central Bank of Nigeria, the need for branchless banking
services have continued to resonate. To this extent, Alternative Banking Channels (ABC) has been identified as key.
Alternative Banking Channels (ABC) refers to other banks platforms that enable bank customers to transact their
businesses without necessarily visiting bank halls or carrying cash. Hence, ABC includes electronic payment
platforms such as Automated Teller Machine (ATM), Point of Sale (POS), Mobile banking, Web (internet) banking
amongst others (Abu, 2016). With these platforms one can pay for goods and services and also get paid for goods
and services. In view of this, one can transact a business involving exchange of cash from the comfort of his
bedroom by simply pushing/punching a button on his laptop or phone. Interestingly, Alternative Banking Channels
have the potentials of taking banking services to those who would not have ordinarily (formally) been covered by
the banking sector (Obodo, 2012). Hence, the role of alternative banking channels as a gateway for the branchless
and cashless policies, and financial inclusion policy cannot be overemphasized.
In 2012, the Central Bank of Nigeria (CBN) came up with the cashless policy aimed at curbing excessive
handling of cash in Nigeria. Within the framework of the cashless policy, a 3% handling charges is incurred by
individuals who exceed a cash withdrawal of N 500,000 daily and a 5% handling charges for corporate bodies
withdrawal exceeding N 3,000,000 (Babalola, 2008). All the penalties are aimed at reducing the volume of physical
cash in circulation. To ensure that businesses are still carried out unhindered, the Alternative Banking Channels
came to the fray in order to fill the cash transaction needs of bank customers who may want to make transactions
exceeding the stipulated amounts. Both the CBN and supporters of cashless policy have asserted that the policy
would reduce crime rates, minimize risks associated with carrying huge sums of monies, minimize transaction costs
and above all enhance economic growth. Wouldnt these expected benefits remain a mirage if the alternative
banking channels are not developed?
Nevertheless, it is important to point out that prior to the full implementation of the cashless policy by the CBN
in 2012; alternative banking channels have been in existence although at a less developed stage. Available data
shows that in 2009 the value of transactions involving the use of ATM stood at N 548.6 billion; POS transaction
value stood at N 11.03 billion; internet transaction stood at N 84.15 billion while mobile phone transaction stood at

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 Alternative Banking Channels and Economic Growth in Nigeria: Further Empirical Evidence.

N 1.27 billion (CBN, 2014). Beyond these statistics, one might not be wrong in re-emphasizing that the alternative
banking channels (ABC) was the fulcrum upon which the cashless and inclusion policy of the Nigerian government
rests. Thus, it becomes imperative to investigate the extent to which this beautiful bride Alternative Banking
Channels affects economic growth in Nigeria.

1.1 Statement of the Problem

Electronic fraud remains the greatest problem confronting alternative banking channels in particular and
Nigerias cashless policy in general. A situation where the activities of fraudsters have made Nigerians wary of
using various alternative banking channels (electronic payment methods) reduces the growth-benefit of these
channels to the Nigerian economy (Babalola, 2008).

1.3 Objectives of the Problem

The broad objective of the study is to examine the nexus between alternative banking channels (ABC) and
economic growth in Nigeria. Specifically, the study sought to investigate the following:
(i) To investigate the effect of Automated Teller Machine (ATM) banking channel on gross domestic
product in Nigeria.
(ii) To determine the effect of Point of Sale (POS) banking channel on gross domestic product in Nigeria.
(iii) To investigate the effect of Web (internet) banking channel on gross domestic product in Nigeria.

1.4 Research Questions

To achieve the specific objectives, the following questions were asked:
(i) To what extent does Automated Teller Machine (ATM) banking channel affect gross domestic product
in Nigeria?
(ii) To what extent does Point of Sale (POS) banking channel affect gross domestic product in Nigeria?
(iii) To what extent does Web (internet) banking channel affect gross domestic product in Nigeria?

1.5 Research Hypotheses

Three hypotheses were tested in the study and they include the following:
(i) H0: Automated Teller Machine (ATM) banking channel affects gross domestic product in Nigeria.
(ii) H0: Point of Sale (POS) banking channel affects gross domestic product in Nigeria.
(iii) H0: Web (internet) banking channel affects gross domestic product in Nigeria.

II. Empirical Review

Several studies had been done on the relationship between electronic banking, its determinants, and its
effects on financial performance of the banking sector. However, very little have been done on establishing the
effect of these alternative banking channels on economic growth both in the developed and developing nations. For
instance, Gikandi and Bloor (2010) investigated the difference between pre-adoption era and adoption era of
electronic banking in Kenya. The study adopted a time-series methodology and findings showed that there was a
huge gap between in banking experience between the pre-adoption and adoption periods in banking in Kenya. The
study argued that banking experience became more worthwhile, efficient, cost effective and transparent after the
adoption of electronic banking than before the adoption era. Olatokun and Igbinedion (2009) investigated the factors
that constrained the adoption of ATM in Nigeria. The study anchored on Diffusion of Innovation Theory (DOI) and
found that relative advantage, complexity, observeability, and compatibility were the factors that have positive
relationship with attitude to use ATM cards in Nigeria. Hence, the study concludes that for ATM usage in Nigeria to
have more penetration these factors must be addressed. Hogarth, Kolodinsky and Gabor (2008) investigated the
factors that influence consumer payment choices namely Paper, Plastics or Electrons. The study also relied on the
Diffusion of Innovation (DOI) theory and findings revealed that education and income have direct (positive) effect
on adoption of electronic banking regardless of technological advancement.
Tijani and Ilugbemi (2015) investigated the relationship between electronic payment channels (EPC) and
national development. The study targeted current and savings accounts customers of Deposit Money Banks (DMBs)
in Nigeria. The study employed descriptive statistics involving questionnaires administered in six (6) banks in Ado-
Ekiti. Findings revealed that electronic payment channels have positive impact on economic growth in Nigeria and
to a large extent on Nigerias economic development. Adewoye (2013) analyzed the impact of mobile banking on
service delivery and economic growth in Nigeria. The study employed descriptive inferential statistics and adopted
qualitative variables such as lack of awareness, lack of skilled manpower, lack of collaboration amongst the banks,
and inadequate and poorly maintained public network systems as factors that militate against mobile banking in

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 Alternative Banking Channels and Economic Growth in Nigeria: Further Empirical Evidence.

Nigeria. The study revealed that these factors undermine mobile banking but despite these challenges, mobile
banking has a significant effect on service delivery and by extension economic growth in Nigeria. RTC (2013)
forecasted the relationship between electronic payments and economic growth in Nigeria from 2012 to 2017. The
study made use of several economic impact factors such as direct cost of cash for financial sector, indirect cost to
value chain, total cost to cash management, cost of cash savings for financial sector, total savings from cost of cash,
savings from Agric E-wallet scheme, and corruption and crime. Findings revealed that all the economic impact
factors increased mostly after the adoption of electronic payment channels in Nigeria. Overall, findings revealed that
economic impact/GDP ratio of electronic payment from 2012 to 2017 were 3.5%, 3.1%, 3.5%, 3.7%, 3.8% and
3.9%. The study concludes that electronic payment shall have a significant effect on GDP in the next six (6) years.
Siyanbola (2013) investigated the effect of cashless banking on Nigerian economy. The study found that
cashless policy has a significant positive effect on the economic growth of Nigeria. The study argued that cashless
banking has the best means of usage and acceptability amongst Nigerians and this have accounted for its significant
effect on Nigerias GDP. Omotunde, Tunmibi and Dewole (2012) examined the impact of cashless policy on
Nigerias economic growth. The study employed a descriptive survey research design using questionnaire and
findings revealed that cashless policy will increase employment, reduce cash related robbery, reduce risk of carrying
cash, reduce corruption and above all attract foreign investment. Based on the foregoing, the study concluded that
cashless policy has a significant effect on economic growth in Nigeria.

2.1 Theoretical Framework

Two key theories of electronic banking were reviewed in the literature and they are namely: Technology
Acceptance Model (TAM) and Diffusion of Innovation (DOI) theory.

2.1.1 Technology Acceptance Model

This theory was postulated by Fred Davis in 1989 and it is anchored on the premise that individuals come
to accept and use a technology which will increase economic growth based on two key factors: perceived usefulness
(PU) and perceived ease-of-use (PEOU). In the context of this theory, perceived usefulness is defined as the degree
to which an individual believes that a particular technology would enhance his job performance. However, perceived
ease-of-use explains the degree to which an individual believes that the use of a particular technology would be
effortless. Basically, these two factors have strongly determined the degree to which electronic banking channels
have been accepted in the society.

2.1.2 Diffusion of Innovation (DOI) Theory

DOI theory was developed by Gabriel Trade and Rogers in 1962 and seeks to explain how, why and at
what rate new ideas and technology spread through cultures. In this theory, culture is at the centre of how the
individuals living in a community, state or a nation accepts or rejects any technological innovations. Given the
introduction of electronic banking, the Diffusion of Innovation theory helps to explain why some countries or
segment of the society embraced electronic payment methods whereas some others are yet to key into this
phenomenon. More so, it goes without saying that the extent to which a society embraces innovations determines to
a large extent its level of economic growth.

III. Methodology
The study adopted the ex-post facto research design which is associated with foisting a link between the
dependent and independent variables. The beauty of using the ex-post facto research design is that the researcher
relies on already existing data devoid of manipulation by the researcher (Osuala, 2010). In line with Siyanbola
(2013) with modifications, the model for the study is specified as:
GDP = (ATM, POS, WEB) .. (1)
Where;
GDP = Gross Domestic Product (proxy for economic growth)
ATM = Automated Teller Machine
POS = Point of Sale
WEB = Web (internet)
Transforming equation (1) into its linear econometric form, we obtain
GDPt = 0 + 1ATMt + 2POSt + 3WEBt + t .. (2)
Where;
0 = Constant term
1, 2, 3 = Intercept (slope) coefficients of the explanatory variables

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 Alternative Banking Channels and Economic Growth in Nigeria: Further Empirical Evidence.

= Stochastic error term

t = time series notation

IV. Data Analysis

Table 1: Ordinary Least Squares (OLS) result for the model
Dependent Variable: LNRGDP
Method: Least Squares
Date: 10/24/16 Time: 19:16
Sample: 2002 2015
Included observations: 14

Variable Coefficient Std. Error t-Statistic Prob.

C 10.78522 0.174841 61.68600 0.0000

LNATM 0.120006 0.032562 3.685463 0.0368
LNPOS 0.074937 0.020284 3.694477 0.0344
LNWEB -0.046874 0.021116 -2.219822 0.0431

R-squared 0.979167 Mean dependent var 10.99955

Adjusted R-squared 0.958335 S.D. dependent var 0.115433
S.E. of regression 0.023562 Akaike info criterion -4.362778
Sum squared resid 0.001666 Schwarz criterion -4.393687
Log likelihood 19.26972 Hannan-Quinn criter. -4.744801
F-statistic 47.00184 Durbin-Watson stat 1.709236
Prob(F-statistic) 0.005073

Critical values:
(a) t-statistic, t0.05 = 1.771
(b) F-statistic, F0.05 (3, 10) = 3.71
Source: Authors computation using E-views 8.0 software

The Ordinary Least Squares (OLS) result above was analyzed based on economic, statistical and
econometric criteria. First, the result reveals that automated teller machine (ATM) banking channel has a positive
and insignificant relationship with gross domestic product (proxy for economic growth) in Nigeria. This result
conforms to economic a priori expectation because as the usage of ATM increases, the ease with which financial
transactions are carried out increases, transaction time is reduced and economic growth is enhanced. From the result,
one percent increase in ATM banking channel leads to 0.12 percent increase in Gross Domestic Product in Nigeria.
The computed t-statistic (3.69) is greater than the tabulated (critical) t-statistic (1.77) at five percent level of
significance. As a confirmation, the probability value of ATM banking channel (0.0368) is less than the significant
test level (i.e. P < 0.05). Hence, we conclude that ATM alternative banking channel has a significant impact on
economic growth in Nigeria. This finding corroborates Siyanbola (2013) which argued in favour of a positive and
significant relationship between instruments of cashless policy and economic growth in Nigeria. Perhaps, this
finding may be attributed to the huge penetration of ATM usage among Nigerians. With the increased usage of
ATM banking channel, many businesses are enhanced through reduced cost of transactions, increased speed of
transactions and increased ease of doing business. All these lead to an increase in productivity of firms and overall
increase in economic growth in Nigeria.
Second, the result reveals that Point of Sale (POS) banking channel has a positive and significant
relationship with gross domestic product (proxy for economic growth) in Nigeria. From the result, one percent
increase in the use of POS banking channel leads to 0.07 percent increase in GDP. The computed t-statistic for POS

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 Alternative Banking Channels and Economic Growth in Nigeria: Further Empirical Evidence.

banking channel (3.69) exceeds the tabulated (critical) t-statistic (1.77) at five percent level of significance. As a
confirmation, the probability value of POS banking channel (0.0344) is less than the test significant level (i.e. P <
0.05). Hence, we conclude that POS alternative banking channel has a significant effect on economic growth in
Nigeria. This finding is similar to that of Tijani and Ilugbemi (2015) which argued that electronic payment methods
such as Point of Sale (POS) banking channel effectively increase bank performance. With an increased bank
performance the national economy is positively affected. This finding is not surprising going by the fact that most
businesses and institutions in Nigeria today have the POS machine and equally encourage their clients to make use
of them. With an increased acceptability of the POS banking channel speed and ease has been brought into business
transactions in Nigeria thereby increasing the output of individuals and the nation at large. Olufayo and Fagile
(2014) which argued that inflation rate has a negative relationship with both oil and non-oil exports of Nigeria.
Thirdly, the result reveals that there is a negative and significant relationship between Web (internet)
banking channel and gross domestic product (proxy for economic growth) in Nigeria. From the result in table, one
percent decrease in Web (internet) banking channel leads to 0.05 percent decrease in gross domestic product in
Nigeria. The computed t-statistic for Web (internet) banking channel (2.22) in absolute terms is greater than the
tabulated (critical) t-statistic (1.77) at five percent level of significance. As a confirmation, the probability value of
Web (internet) banking channel (0.0431) is less than the test significant level (i.e. P < 0.05). Hence, we conclude
that Web (internet) banking channel has a significant effect on economic growth in Nigeria. This finding may be
attributed to the inherent fraud associated with internet banking in Nigeria and the resultant phobia which had made
people to avoid any transaction involving internet banking. Obviously, the manipulations of individuals transactions
by the fraudsters have negated the benefits which Nigerians would have gotten from internet banking thereby
reducing its contribution to national growth.
The coefficient of determination (adjusted R-squared) shows that 96 percent of the variations in economic
growth (proxied by GDP) in Nigeria are caused by variations in Automated Teller Machine (ATM) banking channel,
Point of Sale (POS) banking channel and Internet (WEB) banking channel. Thus, the remaining 4 percent of the
variations in economic growth are due to other factors not included in the model. The computed F-statistic (4.00) is
greater than the critical F-statistic (3.71) and this indicates that the model is significant as well as reliable.
Finally, the Durbin-Watson statistic lies within the acceptable region and indicates that there is no presence
of autocorrelation being that 2DW <4 and this shows that the regression result is not spurious.

V. Conclusion
The study investigated the nexus between alternative banking channels and Nigerias economic growth.
The study adopted three key alternative banking channels (otherwise referred to as electronic payment channels)
including automated teller machine (ATM), Point of Sale (POS) and Web (internet) banking channel. All the
alternative banking channels served as the independent variable while gross domestic product (proxy for economic
growth) served as the dependent variable. From previous arguments and empirical findings, the study revealed that
automated teller machine (ATM) banking channel and Point of Sale (POS) banking channel have positive and
significant effect on economic growth (proxied by GDP) in Nigeria. On the other hand, the study revealed that Web
(internet) banking channel has a negative but significant relationship with economic growth in Nigeria. Overall, the
study concluded that alternative banking channels have significant effect on economic growth in Nigeria going by
the value of the computed F-statistic which exceeds the tabulated F-statistic.

5.1 Recommendations
In line with the findings of the study, the following recommendations are made:
(i) Banks in Nigeria should device more innovative packages that would generally make alternative
banking channels attractive thereby increase their usage. With increased usage of the alternative
banking channels, economic growth in Nigeria would increase.
(ii) Nigerian government should device means of fighting internet financial frauds in order to encourage
the usage of web (internet) banking channel. When this is achieved, Nigerias economy would
experience more growth.

References
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Accountancy, 4(2):81-88
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Review on Management and Business Research, 2(2):333-344

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