THE EFFECT OF FINANCIAL TECHNOLOGY ON FINANCIAL INCLUSION IN NIGERIA

ABSTRACT

The concept of financial inclusion has been gradually accepted in the global world since it is known as one of the key driver of economic growth and development. The Central Bank of Nigeria’s cashless policy introduced in Nigeria in the year 2011 has in its objective, the financial inclusion. In view of this, the researcher seeks to assess the impact of electronic banking on financial inclusion in Nigeria. The study utilized the total number of automated teller machines, point of sale devices and internet banking operation in Nigeria to represent electronic banking for the period under review. The study used Statistical Package for Social Study with the aid of linear regression analysis. The finding revealed that both internet banking and automated teller machines have insignificant impact on financial inclusion while the point of sale devices significantly impact financial inclusion in Nigeria. Based on the findings as revealed by the study, it is recommended that all the deposit money banks in Nigeria should work on the challenges that hinder the successful operation of automated teller machines and internet banking and strive to meet international best practice. Moreover, the number of point of sales should be increase and made available with easy accessibility to the users.

KEYWORDS Financial Inclusion, Electronic Banking, Automated Teller Machine, Point of Sale and Internet Banking.

 

CHAPTER I

INTRODUCTION

1.1 Background to the Study

Poverty with its debilitating effects have always had important implication on global development. However, with COVID-19 taking its toll on the world, causing deaths, illnesses and economic despair resulting to estimates that suggests that 49 million people will be pushed into extreme poverty in 2020 (World bank, 2020), its relevance in global discourse has become apparently prominent.  To reduce the vulnerability to poverty, the global community has overtime deployed several mechanisms with a marked inclination towards the pursuit of inclusiveness.  The thrust of this predilection being that poverty does not exist because of insufficient money in any economy, but rather exists because of inequality in the distribution of national income. With this reasoning, measures of inclusiveness such as financial inclusion have continued to generate a lot of research and policy attention.

Financial inclusion is defined the availability of finance and financial services for all in fair, transparent and equitable manner at an affordable cost. It also refers to the situation whereby basic banking services are delivered at an affordable cost to all section of the society. These definitions summarily portray financial inclusion as the incorporation of all citizens of a nation in formal banking transactions. The involvement of the citizens in financial mainstream is expected to fuel investment, create jobs and stimulate growth.

In Nigeria, the government through the Central Bank of Nigeria has tried to achieve a financial inclusion as an integral part for promoting sustainable and inclusive growth by formulating policies that are expected to encourage country wide access to financial services at affordable cost particularly to the less privilege and vulnerable group Olatunji, (2015). The intent of these policies and mechanisms is to reduce the number of persons excluded from organized financial system by getting more people involved in the organized financial system. These consistent attempts to sustain and deepen financial inclusion have included the deployment of technological innovations in the financial sector.

Technological innovation in financial services is broadly referred to as financial technology. Financial technology involves any new technology or innovation that disrupts traditional ways of conducting financial transactions. Even more specifically, financial technology includes all software and other modern technologies used by businesses that provide automated and improved financial service delivery. Such technology in financial service delivery is expected to eliminate barriers to access to banking services, encourage the use of bank services and ultimately contribute to national economic growth (Asian Development Bank, 2016). Furthermore, ADB stated that such innovations essentially serve as adequate means of providing opportunities to promote financial inclusion through reduction of costs of providing these services.

Undoubtedly, the introduction of digital technology has greatly transformed the Nigerian financial sector nevertheless; the extent to which it has increased participation and accessibility of the financial services activities remains debatable. Therefore, this study attempts to determine the impact of digitalization of financial services on financial inclusion.

 

1.2 Statement of the Problem

Financial technology, as observed by Villasenor, Darrell and Lewis (2015), has significantly influenced the delivery of financial services. Villasenor, Darrell and Lewis further expounded that such technologies have improved security and comfort in cash handling. However, the study posited that though technology may have had a positive effect on quality of financial services, its effect on financial inclusion remains to be adequately established.

The recent global focus is motivated by the increased recognition of the relevance of financial inclusion as an important element of economic development consequently creating the need for concerted efforts to eliminate or at least reduce obstacles and barriers to access to formal banking services. The extent to which financial technology has facilitated financial inclusion especially in developing economies has therefore continued to attract the attention of researchers.

 

According to the study by Radcliffe and Voorhies (2012), financial technology created an expansion of digital payment platforms that have offered the opportunity to link poor people with providers of savings, credit, and insurance products. In the same vein, Nyamongo and Ndirangu (2013), McKee, Kaffenberger and Zimmerman (2015) posited that financial technology has facilitated access for lower-salary individuals with deficient financial related services choices. Fanta and Makina (2019) also reported that technology fostered both access to and usage of financial services thereby improving financial inclusion. The study specifically identified the positive effect of internet access and Automated teller machines.

 

Contrariwise, Arenaza (2019) argued that the provision of technology in finance services involves the participation and interactions of different players and the conditions of the regulatory environment which pose complexities to all participants and thus negate their role in financial inclusion. Buckley and Malady (2015) also argued that the constraints on the uptake and use of financial technology in developing markets limit the effect of financial technology on financial inclusion. Further probing the effectiveness of financial technology in improving financial inclusion in developing economies, World Bank (2020) reported that technology interference mechanisms required a foundation of dependable and productive bases that ensure that such services are user-friendly, secure and cost-effective manner. Such required dependable and productive bases are typically deficient in many developing economies and could potentially diminish the participation of citizens.

 

Invariably, financial technology has the potential to activate the scope for better achievement of inclusion and integration; however its effect in developing economies still remains to be sufficiently validated. Furthermore, technology is a versatile and ever-changing phenomenon and hence requires continuous reevaluation to ensure relevance of empirical evidence. Therefore, this study examined the effect of financial technology on financial inclusion in Nigeria, a developing economy, using current data.

 

1.3 Objective of the Study

The overall objective of the study is to determine the effect of financial technology on financial inclusion in Nigeria. The specific objectives include the following:

1. To ascertain the effect of internet banking on financial inclusion in Nigeria.
2. To examine the effect of Automated Teller Machines on financial inclusion in Nigeria.

• To assess the impact of Point of Sales on financial inclusion in Nigeria.

 

1.4 Research Questions

From the aforementioned objectives, the following research questions are formulated.

1. What is the effect of internet banking on financial inclusion in Nigeria?
2. What is the effect of Automated Teller Machines on financial inclusion in Nigeria? iii. What the impact of Point of Sales on financial inclusion in Nigeria?

 

1.5 Research Hypothesis:

The study tested the following the following hypotheses:

H_O1_: Internet banking has no significant effect on financial inclusion in Nigeria.

H_O2_: Automated Teller Machines has no significant effect on financial inclusion in Nigeria.

H_O3_: Point of Sales has no significant effect on financial inclusion in Nigeria.

 

1.6 Scope of the Study

The focus of this study is on effect of financial technology on financial inclusion in Nigeria. The study is a time series study covering the period from 2010 to 2018. This includes the most current data available on the variables understudied. Furthermore, the range of the years ensures the provision of sufficient data for the tool of analysis chosen.

In this work, financial technology is proxies using internet banking, Automated Teller Machines and Point of Sales while financial inclusion is estimated using the number of banked people.

 

1.7 Significance of the Study:

The study will provide current empirical evidence on the relationship between financial technology and financial inclusion in Nigeria, thereby contributing significantly to the body of knowledge. The research will also be helpful as a reference material for other researchers who chose to write on the subject matter.

Furthermore, the findings of this study will assist the government and its agencies particularly the

Central Bank of Nigeria in policy formulation and implementation on the unbanked population. The study will also provide a guide on moral suasion and directives to deposit money banks to enhance financial inclusion through financial technology.

THE EFFECT OF FINANCIAL TECHNOLOGY ON FINANCIAL INCLUSION IN NIGERIA

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