Digital Financial Services and Financial Performance: Empirical Evidence from Private Commercial Banks in Ethiopia

This study examines the effect of digital financial services on the financial performance of private banks in Ethiopia from 2015 to 2024, analyzing internet banking, mobile banking, ATMs, POS terminals, bank size, and liquidity as independent variables. Using a quantitative explanatory design, secondary data were collected from six private banks via the National Bank of Ethiopia and bank websites, with financial performance measured by Return on Assets. Panel data analysis employing a random effects regression model in Stata 18 reveals that bank size and liquidity have a positive and significant impact on financial performance. However, internet banking shows a negative and significant effect, while mobile banking users and POS terminals exhibit negative but insignificant relationships, and ATM terminals demonstrate a positive but insignificant effect. These mixed findings indicate that although digital financial services are increasingly adopted, their contribution to bank profitability remains context-dependent. The study recommends that Ethiopian private banks strengthen liquidity management through high-quality liquid assets and pursue expansion via mergers, acquisitions, and geographic diversification into underserved areas. Policymakers, including the National Bank of Ethiopia and the Ministry of Finance, are encouraged to support strategic initiatives that foster innovation and sustainable growth within the banking sector.