The Effect of Digitalization on Financial Performance: In Case of Selected Commercial Banks in Addis Ababa, Ethiopia

Abstract

This study aimed to assess the effect of digitalization on the financial performance of selected commercial banks in Addis Ababa, Ethiopia. Specific objectives included examining the effects of mobile banking (MB), internet banking, point of sale (POS) systems, and automatic teller machines (ATMs) on the financial performance of these banks. An explanatory research design was utilized to investigate the causal relationship between digitalization and bank performance, allowing for a comprehensive analysis of how digital practices influence bank performance. The study population comprised operational commercial banks in Ethiopia, with a sample selection based on bank age and data availability. Questionnaires were distributed to employees in the digital banking and online banking departments using convenience sampling. Data was collected through questionnaires to analyze the impact of digital banking channels on financial performance. Results from the multiple regression model indicated a strong fit, highlighting the significant influence of digital banking channels on financial performance. The model explained 62.1% of the variance in the outcome, with Mobile Banking, ATM, and Internet Banking showing significant positive impacts. Point of Sale also had a positive effect, albeit with a slightly higher P-value. The study emphasized the importance of digitalization in enhancing the financial performance of commercial banks in Ethiopia, shedding light on the key role of digital technologies in the banking sector's evolution