Financial Technology and the Financial Stability of the Traditional Banking System in Nigeria: An Empirical Analysis

Abstract

This study looked at how financial technology affected the financial stability of Nigeria's traditional banking system. Several studies have been conducted on Fintech to determine how it affects the financial performance of the banking sector as well as customers’ satisfaction in Nigeria. However, to the best of the researcher's knowledge, based on an online search, there is no study on financial technology as it affects the financial stability of the traditional banking system, so this study was done. In specific term, the study ascertained the effect of value of transactions in automated teller machines, mobile banking, internet banking, and point of sale terminals on z-score, a proxy for financial stability of traditional banking system in Nigeria. The study employed an ex post facto research design using secondary data sourced from Central Bank of Nigeria (CBN) and The Global Economy from 2006 to 2024. The Auto-Regressive Distributive Lag (ARDL) technique was utilized in analyzing the data. The study identified that financial technology variables of value of transactions in automated teller machines, mobile banking, and point of sale terminals have significant effect on z-score. With regard to the nature of relationship in the short-run, there is an insignificant negative relationship between value of transactions in automated teller machines, mobile banking, and financial stability oftraditional banking system in Nigeria. On the contrary, value of transactions in internet banking and point of sale terminals were found to have insignificantly and positively associated with financial stability of traditional banking system in Nigeria. The study advises the Central Bank of Nigeria (CBN) and banks to expand automated teller machines, point of sale terminals and mobile banking access and literacy, since digital inclusion tends to raise Z‑score, while calibrating transaction limits, capital and liquidity buffers to offset short run instability from rapid digital growth. Banks should integrate digital channels into a risk appetite framework, ensuring adequate capital adequacy and governance so that the long‑run U‑shaped benefits of FinTech for stability are realized without persistent Z‑score deterioration.