DIGITALISATION AND FINANCIAL PERFORMANCE OF BANKING SECTOR: AN EMPIRICAL INVESTIGATION IN EUROPEAN COUNTRIES
DIGITALISATION AND FINANCIAL PERFORMANCE OF BANKING SECTOR: AN EMPIRICAL INVESTIGATION IN EUROPEAN COUNTRIES

Author(s): Angela Roman, Valentina Diana Rusu, Elena Romanciuc
Subject(s): Social Sciences, Economy, Financial Markets
Published by: Editura Universităţii »Alexandru Ioan Cuza« din Iaşi
Keywords: digitalisation; internet banking; financial performance; banking sector; European Union
Summary/Abstract: In the last two decades, digital technologies have significantly transformed the economic environment, including the banking landscape. The emergence of a wide range of digital financial services has led to accelerating the digitalisation of the banking sector, which is thus experiencing profound structural changes. Digitalisation would allow banks to improve the quality of products and services, develop new products and financial services, reduce operational costs and increase the efficiency of their operations. In this context, our study aims to explore the link between digitalisation and the financial performance of the banking sector. Specifically, we strive to empirically investigate the effects of digitalisation on the financial performance of the banking sector, but also to examine how different forms of digitalisation would influence banking performance. Our empirical analysis is based on panel data, covering a time frame of 10 years (from 2012 to 2021) and 28 member states of the European Union, divided into two subgroups, namely euro zone states and non-eurozone states. In our empirical model, we include a representative indicator for measuring banking performance and a set of indicators measuring the digitalisation of the banking sector. In addition, we include several control variables, represented by both macroeconomic indicators and indicators specific to the banking sector. The results of the empirical analysis suggest that digitalisation significantly impacts the financial performance of the European banking sector. Our estimates indicate that the number of ATMs and the value of card transactions through points of sales are negatively and significantly associated with the financial performance of the banking sector in the analysed countries. On the other hand, we find that Internet banking has a positive effect on financial performance. Through its content, our research provides new insights into the implications of digitalisation in the banking sector.

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