IMPACT OF DIGITAL BANKING ADOPTION ON BANK PROFITABILITY IN PAKISTAN

Abstract

This study investigates the impact of digital banking adoption on bank profitability in Pakistan by examining how transaction-based digitalization influences financial performance over the period 2013–2022. Digitalization has transformed banking operations globally, and Pakistan has experienced strong growth in digital payments through mobile and internet banking channels, supported by regulatory reforms and the expansion of digital infrastructure. For instance, SBP’s payment system reviews document sustained growth in internet and mobile banking users and increasing shares of digital transactions within the national payment ecosystem. [sbp.org.pk], [sbp.org.pk] Using annual time-series data (2013–2022), this study models profitability using three dependent variables: Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM). Digital banking adoption is proxied using Internet Banking (%), Log Mobile Transactions, and Digital Users (Million) derived from the study’s compiled dataset. The study employs Ordinary Least Squares (OLS) regression to estimate the relationship between digital adoption and profitability. This approach is aligned with the broader empirical literature on digitalization and financial performance in Pakistan, including work that emphasizes digital channels and bank performance linkages. Empirical findings indicate that mobile transaction intensity (log mobile transactions) demonstrates a positive and statistically significant association with profitability measures, implying that the depth of digital usage matters more than simple access or user counts. In contrast, internet banking penetration and digital user growth show positive but statistically weaker relationships, suggesting that profitability gains are driven primarily through transaction volume and frequency, rather than adoption breadth alone. These results are consistent with Pakistan-focused digitalization studies that emphasize channel effectiveness and usage depth. [pdfs.seman...cholar.org], [sbp.org.pk] The study concludes that Pakistani banks can improve profitability by strengthening mobile banking ecosystems, increasing customer engagement, enhancing service quality in digital channels, and promoting high-frequency digital transactions. The findings also provide policy implications aligned with SBP’s ongoing efforts to deepen digital payments and reduce reliance on cash-based transactions. [sbp.org.pk], [sbp.org.pk]