Assessing the Financial Performance of Digital Banks: A Comparative Analysis

The digital shift drives the banking sector to evolve by creating digital business models. The emergence of digital business models in banking prompts an examination of the financial performance of digital banks relative to traditional banks, considering the substantial investment required and the complexity of the transition process. This study aims to assess the financial performance of two categories of banks: those that have undergone complete digital transformation, or neo-banks, and those that continue to employ conventional business practices in Indonesia or traditional banks. The findings indicate that neo-banks excelled in generating interest income, while traditional banks had greater efficiency, liquidity, and profitability. These findings theoretically explain the productivity paradox theory and offer insights for bank management in formulating policies regarding digital business models.