CHAPTER ONE

INTRODUCTION

1.1.Background to the  Study

Digitization is the transformation of physical objects, data, and information into a digital format that can be easily stored, shared, transmitted, and manipulated using digital technology. Rachinger et al. (2018) describe digitalization as transforming information, products, services, and processes from their physical to a digital form, creating new values, and improving business models, customer experiences, and customer loyalty. Digitalization has transformed many industries and sectors, including finance, healthcare, education, entertainment, and more, improving the efficiency, accuracy, and availability of information and services (Xia et al., 2023). Advances in digital technology are forcing companies to rethink how they organize. Some companies demonstrate exceptional skills in using digital technologies to outperform competitors in various sectors (Mubarak et al., 2019). In 2009, mobile banking services were launched in Pakistan, allowing customers to bank using their mobile phones. It represents a significant change in the country’s financial sector, providing greater access to financial services to people living in remote and underserved areas (Manzoor et al., 2021.

The introduction of mobile banking has paved the way for further digitalization of the financial sector in in the world. Most countries has been driving the digital transformation of its financial sector since 2008 with the introduction of digital financial services through industry-free regulation. It has led to the emergence of efficient distribution channels for traditional banking products such as telephone banking, online banking, ATMs, and credit and debit cards. Due to these measures, private sector investment in microfinance institutions has also increased. Digital transformation significantly impacts business performance, and digital technologies enable unprecedented convergence of people, businesses, and things (Kharlamov & Parry, 2021; Nwankpa & Roumani, 2016).

The willingness of customers to accept and use these services is one of the challenges, reflecting the idea that customers have a considerably greater influence on the adoption of e-banking than the products and services offered. Customers are value-driven (Cvijović, Kostić-Stanković, & Reljić, 2017), and they rarely move to e-banking unless it can satisfy their specific demands (Estrella-Ramón, 2017). Understanding their requirements and expectations means being aware of where the value is from their point of view. For banks operating in dynamic and competitive financial markets, providing the highest level of customer service to clients is still a critical strategic priority.

Digital transformation is currently one of the important agendas in the Indonesian banking industry (Dewi, 2021). Throughout this year the term ‘digital bank’ has become a hot topic of discussion. The impact of the industrial revolution 4.0′ is marked by the digital transformation of banking which includes changes in consumer expectations, new types of partnerships or collaborations with the digital economy ecosystem, to changes in business models and technology. (Fernando, 2021). Advanced technologies such as blockchain, Internet of Things (IoT), Artificial Intelligence (AI), and robotics also influence the banking and finance industry, both conventional and Islamic banking (Ali et al., 2019).

Referring to Inventure (2020) data quoted in the book (OJK, 2021) Blueprint for Digital Transformation of the Financial Services Authority Banking, one of the visible impacts is the change in banking transactions during the pandemic, namely transactions that were initially out at branch offices during the pandemic. This is done digitally or online through mobile banking, internet banking, or artificial intelligence-driven call centers. Along with that, there is a tendency for banks to continue to close their office network’ (Fernando, 2021).

According to the Director of Information Technology and Operations at Bank Mandiri, Rico Usthania Frans, around 50 percent of the current working positions of Micro finance employees will disappear within the next 10 years (Cahyani 2019). This statement can be justified because the reason that advances in digital and artificial intelligence are factors that cause the future of work in the banking sector to be considered obsolete. The main aim of this study therefore, is to examine the effect of digitalization on the financial performance of financial institutions in Bamenda..

1.2.Statement of problem

It takes a lot of work to run a bank. When these processes fail, bad things begin to happen. Poor workflow management can lead to a variety of issues, such as missed chances for organizational efficiency, operational disruptions and other issues that hinder the best possible performance of a corporation. As a result, new business models and processes are needed (Kithaka, 2014). As a result, Fiancial institutions must adjust their corporate strategies to better serve their clients, manage their middle and back offices, and plan for the future by putting an emphasis on better procedures, processes, and product development that are focused on positive actions that are healthy, economically advantageous, socially advantageous, and environmentally friendly (Rajnak,2020).

Although it is widely acknowledged that financial innovation significantly affects banking  performance, many studies have neglected to look at all aspects of digital banking. Mutua (2012) research on the impact of mobile banking, for example, on the financial health of Kenyan commercial banks, only took to account monthly volumes and implementation costs. A research by Ngumi (2013), which was particularly concerned with the influence of cellphone and internet. subscriptions on the economic results of Kenya commercial banks, he found out that these variables had a substantial influence. While examining the effect of digital payment on financial performance in Uganda’s commercial banks, Mbilo (2012), concentrated on the adoption and improvement of banking service through mobile banking.

Emphasis on the actions done by banks to adjust their resources to remain competitive in a changing environment (Teece, Pisano, & Shuen, 1997; Warner & Wäger, 2019). Although banks invest large sums, some authors claim it does not give a long-term advantage over competitors. This is referred to as the profitability paradox. Because digitization profoundly alters how businesses work, it is important to consider if and under what digitalization may improve bank performance.

The banking industry’s operating efficiency has greatly increased due to digitalization. Pakistan has implemented a variety of solutions to facilitate financial transfers. Electronic instructions can be sent to banks to move funds to another bank account directly. The Pakistani banking industry will continue to expand, as will digitalization. A developing economy needs, strong financial services, inevitably contributing to the banking industry’s favorable future.

To some extent, therefore, there is no known work in recent time focusing on digitalization and performance of Financial institutions. This work therefore, seeks to investigate effect of digitalization on the financial performance of financial institutions in bamenda.

1.3 Research Questions

1.3.1 Main Research Question

1. What is the effect of digitalization on the fiancial performance of financial institutions in Bamenda?

1.3.2 Specific Research Questions

1. What is the effect of speed of digitalization on the financial performance of financial institutions in Bamenda ?
2. What is the effect of scope of digitalization on the financial performance of financial institutions in Bamenda?
3. What is the effect of digital orientation on the financial performance of financial institutions in Bamenda?
   • Objectives of the study

1.4.1 Main research objective

To determine the effect of digitalization on the financial performance of financal institutions in Bamenda.

1.4.2.    Specific research objectives

1. To examine the effect of speed of digitalization on the financial performance of financial institutions in Bamenda.
2. To assess the effect of scope of digitalization on the financial performance of financial institutions in Bamenda.
3. To investigate the effect of digital orientation on the financial performance of financial institutions in Bamenda.