Digital Banking Adoption and Financial Performance of Commercial Banks in Pakistan

The aim of this study is to investigate whether digital banking channels help to enhance financial performance of commercial banks in Pakistan. Balanced panel of 12 commercial banks was observed over these eight years (2017-2023) using a quantitative, explanatory design. Digital banking adoption was measured via mobile banking transactions, internet banking transactions, digital payment volume and number of active digital accounts, to form a composite Digital Adoption Index. Financial performance was assessed using return on assets (ROA), return on equity (ROE) and net profit margin (NPM). Descriptive statistics, fixed-effects panel regressions with bank-clustered standard errors and Pearson correlations were estimated. The relationship between digital adoption and ROA, ROE and NPM was positive and statistically significant, even after the incorporation of bank size, capitalization and credit risk. Mobile banking, digital payments and active digital accounts had the most pronounced individual impacts while internet banking had a less impactful relationship. The results highlight continued investment in a mobile-first digital infrastructure and provide concrete recommendations for bank management and regulators.