This study investigates whether digital transformation within Nigerian deposit money banks primarily improves banking performance through cost reduction mechanism or through revenue-enhancing financial intermediation channels. Using a balanced panel dataset of 12 listed Nigerian deposit money banks over the period 2000–2024, the study constructs a Digital Intensity Index (DII) capturing multidimensional digital banking adoption including ATM services, POS transactions, internet banking, mobile banking, USSD services, NIBSS instant payments, electronic banking income and digital infrastructure deployment. The study employs dynamic panel System-Generalized Method of Moments (System-GMM) estimation with year effects to address endogeneity, persistence and chronology-related identification concerns associated with digital transformation variables. Threshold regression analysis is further employed to investigate possible nonlinear digital maturity effects. The findings reveal that digital intensity significantly reduces total intermediation cost while simultaneously enhancing total revenue and net interest margin. However, elasticity-based comparative analysis shows that the revenue-enhancement effect of digital transformation is stronger than its cost-reduction effect, suggesting that digital banking in Nigeria increasingly operates as a strategic intermediation and transaction-expansion mechanism rather than merely an operational cost-minimization tool. The study further finds the existence of a significant digital maturity threshold beyond which the performance gains from digital transformation become substantially stronger. Robustness checks using alternative cost definitions, post-2012 subsamples and year-fixed effects confirm the stability of the core findings. The study contributes to banking digitalisation literature by decomposing the effects of digital transformation into cost-intermediation and revenue-intermediation channels within a dynamic emerging-market banking framework.
Moniaye Ayadi (Tue,) studied this question.