Impact of Digital Payments on the Financial Performance of Commercial Banks in Pakistan: An Empirical Investigation

Abstract

This study explores the effect of the adoption of electronic payment on the financial performance of top 10 commercial banks during 2014–2024 in Pakistan. The analysis is performed using a quantitative research approach and the panel data econometric techniques are used to compare three digital banking indicators (mobile banking registered users, internet banking registered users and Point-of-Sale (POS) terminals with two profitability measures Return on Assets (ROA) and Return on Equity (ROE). Fixed Effects (FE) and Random Effects (RE) are used to estimate contemporaneous and 1-year lagged models. The estimates made at the time suggest digital payments have no immediate statistically significant impact on bank profitability, as the initial costs of technology investment, regulatory compliance and customer uptake have yet to be factored in. The lagged models show a very strong positive relationship (p<0.01), which implies that the financial returns from the digitalization show up after the implementation time. The lagged FE model accounts for 11.38% of ROA variation and 12.87% of ROE variation with the most influential positive effect of POS terminal expansion. These results prove that long-term investments in digital payment systems are beneficial to the banks' performance and emphasize the need for long-term strategic planning and enabling regulatory frameworks.