Impact of the digitization of financial services on bank profits in Mexico

Abstract

This article studies the influence of a set of metrics that measure the digitalization of banking services, as well as traditional variables, on the profits of banks in Mexico during the period from 2015 to 2022. Using econometric models for panel data, information from 16 banks in Mexico is analyzed, considering return on assets (ROA) as the dependent variable, explained by indicators that measure the digitization of banking services. The results show that of the variables that measure the digitalization of banks, internet users who pay for banking services online, as well as users who pay for household services and goods online, were the ones that increased bank profits the most, followed by the penetration of fixed telephone service and point-of-sale terminals. One limitation is that information on banks' digital media and operations in Mexico began to be published in 2015. The originality of this work lies in its quantitative estimation of the specific effect of different digital media on long-term bank profits in Mexico, thereby contributing to the empirical literature on the study of the effect of financial services digitalization on bank profits. It concludes that the larger the size of the banks, the more digital media they use, which drives profits; in contrast, ATMs marginally reduce them.