Relationship between financial innovations and the performance of commercial banks

The objective of this research paper is to analyze the impact of financial innovations on the financial performance of commercial Banks in Pakistan. For this purpose, we used six years data from 2013 to 2019. The financial performance of banks was chosen as dependent variable, and it was measured through three profit indicators such as return on assets (ROA), return on equity (ROE) and earning per share (EPS), while number of ATMs, number of credit card users, number of debit card users and internet banking were taken as independent variables. Out of total 44 commercial banks, 12 banks were selected as a sample of study. Econometric techniques such as descriptive statistics, correlation Matrix, ADF test, ARDL model, Bound test and Error Correction Model were applied to analyze the data and draw the results. The findings of the study reveal that number of ATMs, number of credit card users, number of debit card users and internet banking have positive and significant relationship with banking profitability in Pakistan as the profitability of selected banks was improved substantially during the study period. The insight for the policy makers is that they should devise such policies which enhance maximum use of internet banking in order to reduce automation cost of banks, boost their efficiency and boost their profitability in future.