Impact of Digital Payment Systems on the Profitability of Commercial Banks in Pakistan

Abstract

This Final Year Project examines the impact of digital payment systems and FinTech adoption on the profitability of commercial banks in Pakistan. With rapid growth in mobile banking, internet banking, card payments, and instant payment rails, banks are increasingly investing in digital channels to improve customer convenience, expand outreach, and enhance operational efficiency. The study focuses specifically on Allied Bank Limited (ABL) and Bank Alfalah Limited (BAFL) over the period 2019 to 2023, combining bank-level performance indicators with broader national digital payment developments reflected in State Bank of Pakistan (SBP) publications and payment-system trends. The research adopts a quantitative, secondary data approach and evaluates bank profitability through standard financial ratios primarily Return on Assets (ROA) and Return on Equity (ROE) while also considering stability and risk coverage through indicators such as the Capital Adequacy Ratio (CAR). The project links these profitability outcomes with digital growth proxies, including the expansion in digital banking usage and transaction volumes, reflecting how far each bank has progressed in shifting customers from traditional branch-based activity toward digital payment channels. Findings indicate that both banks experienced overall improvement in profitability across the study period alongside major digital expansion. For Allied Bank, net profit after tax increased from PKR 14.1 billion (2019) to PKR 40.7 billion (2023), while ROA improved from 1.0% to 1.78% and ROE rose from 16.0% to 29.4%. For Bank Alfalah, net income increased from PKR 12.7 billion (2019) to PKR 36.5 billion (2023), with ROA improving from 1.26% to 1.36% and ROE rising from 15.7% to 31.7%. Importantly, the results also show that profitability impacts were not perfectly linear: around 2020, profitability weakened due to COVID-19 related pressureseven as digital transaction volumes continued to rise sharply. Overall, the study concludes that digital payment expansion is associated with improved banking performance over time, mainly through scale, service efficiency, and the gradual development of digital revenue models. The report recommends that banks continue strengthening mobile and online platforms, promote adoption of electronic payments including SBP-supported initiatives such as Raast, invest in cybersecurity and customer trust, leverage analytics for product personalization, and collaborate with fintech partners to accelerate innovation and inclusion.