Modeling the Impact of Digitalization on Banks' Financial Efficiency: A Data-Driven Analysis

Abstract

The digitalization of banking processes has significantly impacted financial performance and operational efficiency in banks. This study investigates the effects of digitalization on banks’ financial efficiency using a data-driven modeling approach. Financial data from 30 banks across different countries from 2012 to 2024 were collected and analyzed using dynamic panel models and Data Envelopment Analysis (DEA). The findings indicate that digitalization positively influences financial efficiency by enhancing data processing speed, reducing operational costs, and improving customer experience. Additionally, banks that leverage AI and machine learning in their financial processes exhibit superior performance compared to their counterparts. However, challenges such as high initial investment costs, cybersecurity risks, and organizational resistance to technological changes hinder full-scale adoption. This study provides strategic recommendations for policymakers and banking executives to optimize digitalization strategies.