The impact of digitalization on the profitability of the Italian banking sector

Abstract

The rapid advancement of digital technologies has transformed the banking industry by reshaping service delivery models and competitive dynamics. This study investigates the impact of digitalization on the profitability of the Italian banking sector, measured by return on equity (ROE). The study aims to determine whether digital transformation indicators are associated with improved financial performance. Five digitalization indicators were selected as independent variables: mobile banking usage, the number of debit card transactions at points of sale (POS), the share of digitally initiated remittances, transaction speed for remittances, and branch banking usage; ROE served as the dependent variable. Quarterly data for the period Q3 2017–Q4 2024 were analysed using correlation analysis, simple linear regression, and multiple regression. Pairwise regressions reveal statistically significant positive relationships between ROE and three indicators: mobile banking usage, POS debit card transactions, and digitally initiated remittances. These relationships were not sustained in multiple regression models, suggesting overlapping explanatory effects and potential multicollinearity among the digitalization proxies. Overall, the findings indicate that digitalization is positively associated with bank profitability when considered individually, while its aggregate impact appears more complex. The findings of the study contribute to the development of digitalization in the banking sector, suggesting the implementation of technologies that may improve financial performance and strengthen their competitive position.