Digital Banking and Economic Growth: A Comparative Analysis of Nigeria and Kenya

Abstract

Every economy aims to achieve the important goal of enhancing economic growth. There has been a long-standing debate regarding the correlation between financial development and economic growth. The banking sub-sector plays a significant role in the financial sector as it connects the deficit and surplus areas of the economy. The banking systems in Kenya and Nigeria still have room for improvement, as there are noticeable issues in the daily operations of digital banking in both countries. These issues include delays in transaction processing and remittance time for failed transactions. Using quarterly time series data from 2011 to 2021, this study investigated the influence of digital banking on economic growth in Kenya and Nigeria. Digital banking was proxied by mobile banking, automated teller machines, and point-of-sales terminal, while economic growth was measured by gross domestic product. The study utilised the autoregressive distributed lag (ARDL) model to analyse data samples from Kenya and Nigeria. In addition, the panel ARDL model was employed to analyse the combined data sample. The findings show that mobile banking (combined, Nigerian and Kenyan), point of sale terminals (combined and Kenyan), and automated teller machines (combined and Kenyan) have an insignificant impact on economic growth in the long run. The automated teller machine (Nigeria) negatively affected economic growth in the long run. This study recommends that the central banks of Kenya and Nigeria implement public enlightenment and awareness programs on digital banking to enhance familiarity with the system. This approach will raise awareness and encourage those without banking access to join the banking system, ultimately enhancing financial inclusion in both nations.