IMPACT OF DIGITAL BANKING ON BANK EFFICIENCY

ABSTRACT:

This paper explores the behavior significance of digital banking for the effectiveness of banks in four essential dimensions—cost reduction, operational efficiency, service quality/customer satisfaction, and financial inclusion. The research measured efficiency parameters of the commercial banks for the period of 10 years with the aid of data envelope and panel analysis keeping in mind the quantitative requirements of their performance and the satisfaction of the customers. The results indicate there is significant improvement in all of the dimensions a digital banking dimension has reduced transaction handling cost by 98-99, cost-to-income ratio by 15-25 and operational efficiency scores by 26-42. There was also an increase in transaction processing capacity (300-500 percent), employee productivity (40-60 percent) which showed the basic operating transformation as opposed to incremental growth. While some groups of users are still struggling with security issues (45-60 per cent of users) and the need for human interaction is still present, especially in some, the score on customer satisfaction has improved by 21-26, and Net Promoter Scores were enhanced by 167-400. Digital banking contributed to a 18-25 percent worldwide growth in the number of financial accounts owned by adults (previously unbanked seahorse 1.2 billion) and it also provided cost-to-income ratios (CIRs) of 35-45 percent for inclusive financial institutions (IFIs). However, the research highlights these success factors: a 3-5 year time lag before the full realization of efficiency gains attributable to digital technologies; a need to balance digital automation with a limited number of human touchpoints and complementary investments in infrastructure and digital competences to scale up and surmount barriers to 3.7 billion fully dis-connected persons. The study demonstrates that "digital banking" is a paradigmatic shift—banking activity which combines commercial efficiency targets and social inclusion—or when a tactic involves patient capital and a systemic and comprehensive transformation of the entire organisation.