Can Digital Payments Make African Banks More Resilient? Nigeria Offers a Cautious Yes

Africa's digital payments surge is widely seen as a success story of easier transactions, broader financial access and rapid fintech expansion, but as banks expand across borders and transactions move faster, a more structural question is emerging: can digital payment infrastructure also make banking systems more resilient when liquidity comes under pressure?

Published in Economies, the study "Digital Payment Infrastructure and Nigerian Cross-Border Banking Liquidity Resilience Across West Africa: Evidence from Nigeria" by Pascal Nkwodimmah, Ochei Ikpefan and Folasade Adegboye examines this question through Nigerian multinational banks operating across African jurisdictions. Using monthly data from 2011 to 2021, the researchers find that digital payment channels do not affect liquidity in the same way: electronic fund transfers emerge as the only channel with a statistically significant positive long-run relationship with liquidity resilience, while several other channels produce only short-lived or mixed effects.

Digitalisation may move money faster, but speed alone does not guarantee stability; what appears to matter is whether payment infrastructure improves settlement efficiency, cash-flow predictability and the ability of banks to redistribute liquidity across operations.

The Real Financial-Stability Story Is Behind the Payment Interface

Nigeria has become one of Africa's most important laboratories for digital finance, with payments increasingly moving through mobile channels, instant transfers, point-of-sale systems and electronic banking infrastructure. At the same time, Nigerian banks have expanded across West Africa, creating multinational networks that must coordinate liquidity across different currencies, regulatory regimes and financial markets.

The combination changes the significance of payment infrastructure. A domestic transaction may appear straightforward to a customer, but for a cross-border banking group it forms part of a wider chain involving settlement schedules, funding needs, regulatory requirements and movements between subsidiaries. Liquidity resilience therefore depends not simply on whether digital transactions are growing, but on whether the underlying architecture allows banks to meet obligations reliably during periods of stress.

The study addresses an important gap in existing fintech research. Much of the literature has concentrated on profitability, financial inclusion or liquidity within domestic banking systems, while relatively little attention has been paid to how specific payment channels affect multinational African banks operating across multiple jurisdictions.

Using liquidity ratios as a proxy for resilience, the authors apply an Autoregressive Distributed Lag model to separate short-term movements from persistent long-run relationships. The approach is particularly useful because it asks not only whether digital payments and liquidity move together, but whether different channels have effects that endure over time.

Electronic Fund Transfers Deliver What Other Channels Do Not

The most important finding is the performance of NIBSS Electronic Funds Transfer, or NEFT. Among the digital payment channels analysed, NEFT is the only one with a statistically significant positive long-run relationship with liquidity resilience, although the significance is at the 10% level and should therefore be interpreted cautiously.

The estimated long-run coefficient is approximately 0.0416, meaning a one-unit increase in NEFT transaction value is associated with roughly a 0.042-unit increase in the liquidity ratio used by the researchers. The study argues that electronic fund transfers can support resilience by accelerating settlement, reducing transaction delays, improving cash-flow predictability and facilitating the redistribution of liquidity across banking operations.

Other channels do not show the same persistence. ATM transactions, mobile payments, instant payments, POS and web payments fail to demonstrate statistically significant sustained long-run relationships with liquidity resilience during the study period. That result is important because it challenges any assumption that growth in digital payments should automatically be interpreted as stronger banking resilience.

Payment architecture matters more than digital volume alone. Retail-facing innovation may improve convenience and customer access, but banking stability depends heavily on the infrastructure behind those transactions: how quickly funds settle, how predictable payment flows are and how effectively liquidity can move between institutions and business units.

As African countries invest in real-time payment systems and cross-border platforms, policymakers may need to evaluate new infrastructure not only through transaction growth or financial-inclusion metrics, but also through its contribution to liquidity management and financial stability.

Short-Term Digital Gains Can Turn Into Liquidity Pressure

The short-run results add another layer of complexity. POS activity initially shows a positive and statistically significant relationship with liquidity resilience, which the study interprets as potentially reflecting faster circulation of funds through the banking system.

The benefit, however, is not permanent. At a later lag, POS transactions show a significant negative relationship with liquidity resilience, suggesting that settlement adjustments, processing costs or delayed funding outflows may eventually offset the initial improvement. Web-based payments also display a significant negative lagged effect, indicating that some digital channels can create short-term liquidity demands even when they increase transaction activity.

NEFT again stands apart because it demonstrates significance in both the short and long run. Its contemporaneous positive relationship suggests that structured electronic transfers may help banks manage liquidity immediately while also contributing to more stable liquidity conditions over time.

The study also identifies a moderate adjustment process after shocks. Its error-correction estimate suggests that roughly 30.15% of disequilibrium is corrected in the subsequent period, pointing to a stable long-run relationship but not an instantaneous return to equilibrium.

For bank managers, this means digital-payment expansion needs to be accompanied by more sophisticated liquidity forecasting. Transaction growth can alter the timing and scale of inflows and outflows, so banks need to understand how each payment channel behaves rather than treating the entire digital ecosystem as one uniform source of liquidity improvement.

West Africa's Next Digital-Finance Challenge Is Regulatory Integration

The policy significance becomes clearer when the findings are viewed against Africa's broader integration agenda. Nigerian banking groups operate across several jurisdictions, while regional trade and financial integration are increasing pressure for payments to move more smoothly across borders.

The authors argue that regulators should strengthen interoperable real-time settlement infrastructure and improve coordination across West African jurisdictions. They also point to the potential relevance of regional initiatives such as the Pan-African Payment and Settlement System, or PAPSS, for strengthening cross-border liquidity management.

This is not simply a technological challenge. Cross-border banking involves different supervisory regimes, settlement standards and regulatory rules, meaning digital infrastructure can become fragmented even when individual domestic systems work efficiently. Stronger interoperability therefore needs to be matched by greater regulatory harmonisation and cooperation among supervisors.

For banks, investment priorities may also need to shift from customer-facing innovation alone toward the infrastructure that governs settlement and liquidity. Real-time monitoring systems, stronger forecasting tools and integrated payment architecture can help institutions anticipate transaction-driven funding pressures instead of responding after they emerge.

The study nonetheless requires careful interpretation because its digital payment data come from Nigeria even though the banking institutions operate across several African jurisdictions, meaning the analysis cannot fully capture payment infrastructure or regulatory conditions in every host country. The research also uses liquidity ratios as a proxy for resilience, which captures one important dimension of stability but not the entire risk profile of multinational banks.

The evidence is also stronger for NEFT than for the broader proposition that digitalisation automatically improves liquidity resilience. The authors themselves conclude that the findings provide limited evidence of an overall digital-payment effect because most channels do not retain statistical significance over the long run.

Future research could compare banking groups across multiple African countries, incorporate host-country payment indicators and test whether different regulatory architectures alter the relationship between digital settlement and liquidity. Research could also examine whether the growing use of regional instant-payment infrastructure reduces dependence on external settlement networks or introduces new operational and concentration risks.