Abstract:

With advancement of technology, digital transformation in the finance and banking sector has become increasingly widespread, affecting various areas including profitability, efficiency, and competition. The rapid expansion of mobile payments and online financial services through digital platforms plays a significant role in the financial performance of the banking sector. In this context, this study aims to examine the long-term relationship between digitalization in Turkish banking sector and total net profitability of banking (deposit banking and development/investment banking). Accordingly, one research models were constructed in the empirical study. Profitability indicator for deposit banking and development/investment banking sectors were used as dependent variables, while the payment amount made via mobile banking, the mobile banking transaction volume and the number of mobile banking active customers was considered as independent variables. Data from 49 quarterly periods from 2011:Q1 to 2023:Q1 were analyzed using Auto Regressive Distributed Lag (ARDL) tests. The findings reveal a significant long-term relationship between digitalization and the total net profitability of different banking activities, indicating that digitalization and profitability are closely intertwined. In other words, the development in digitalization in the banking sector affects positively the profitability of the bank.

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