The Effect of Technological Innovation on Financial Performance of Commercial banks in Pakistan

Abstract

Significant changes, developments and evolution of information technology, business intelligence and customer requirements have transformed the banking industry tremendously over the last decade. The current market has revolutionized such that, better the operations with respect to customers, the better are the prospects of the bank for growth and financial gains. The ones who grab the opportunity of innovation in technology will have better probability of improved performance. This study discusses the influence of the advancement, ease and complexity of innovative technologies in the banking industry with respect to behavioural elements of customers as well as its effect on the financial performance of Commercial banks in Pakistan. Verification of the research hypotheses was made through secondary analysis of quantitative data from the period 2012–2016 gathered through the State Bank for Commercial banks of Pakistan. In Pakistan developments in information and communication technology are radically changing the way business is done. These developments in technology have resulted in new delivery channels for banking products and services such as Automated Teller Machines (ATMs), Telephone Banking, PC-Banking, and Electronic Funds Transfer at Point of Sale, Internet Banking, and Mobile Banking etc. This study will review the perceptions of banking customers regarding the effect of technological innovations on banking services as well as analyse the financial performance of a bank when as banking industry has increased its integration with technological innovations. The research evaluates the profitability of a bank through the Return on Assets originating from the balance sheet and test the hypothesis for the change (increase) in Electronic Point of Sale transactions, through Internet Banking and through Mobile Banking. The results from the study indicate that technological innovation demonstrates increase in the profitability of Commercial banks in Pakistan; and it will enabled the banks to meet their costs and earn profits. Mobile banking however did not show positive results on the increase in the financial performance of the banks however E-POS and Internet banking showed significant positive results on the profitability of the banks. It was also observed, although the transactions in the last five years did not increase significantly yet the volume of transaction in the last five years has increased drastically and in the case of mobile banking it has increased by fifteen times since 2012. With the fading borders due to globalization, banks investing in technologically innovative solutions and providing reliable services to their clients they will be able to attract more customers and increase profitability and ensure organizational survival in the long run.