The impact of digital banking transformation (DBT) platforms on the profitability and efficiency of Islamic banking

Purpose Digital banking transformation (DBT) systems have emerged as a focal point for modern banking operations, particularly Islamic institutions. DBT systems developed promisingly and became the keystone of banking industry transformations, especially for Islamic banking. Unlike conventional banks, Islamic banks structure products in ways that suit Islamic prohibitions. The purpose of this study revolved around estimating the effect of the implemented DBT platforms on the profitability and efficiency of Islamic banking. Design/methodology/approach A panel analysis with fixed and random effect modeling was conducted with 10 Islamic banks from Gulf Cooperation Council, Malaysia and Indonesia. Secondary data of DBT, return on equity, return on assets, Customer Satisfaction Score and market competitiveness for five years, i.e. from 2019 to 2023, have been collected for panel regression analysis. These tests have been used to see the association of DBT adoption with profitability metrics, efficiency metrics, customer satisfaction and market competitiveness. Findings The study’s outcome manifested a favorable statistically significant relation between DBT tools and the four metrics, namely, bank profitability, efficiency, customer satisfaction and market competitiveness. The increased coefficient values showed that DBT has a significant positive impact on all four dependent variables and increased the profitability and efficiency of Islamic banks. The authors have discovered that digitalization has empowered Islamic banking to provide solutions that draw in a more diverse clientele and support the growth of financial inclusion. In addition, Islamic digital banking technology has assisted banks in delivering services to underbanked and unbanked segments. Research limitations/implications The only limitation of this study is that it uses the top 10 banks as a sample and is representative of the whole sector of Islamic banking. Social implications The research has made remarkable contributions by providing insight into DBT and its impacts on the performance of Islamic banks. Moreover, the findings provided information on future economic and financial prospects for policymakers, bank managers and the Islamic bank community. Originality/value This study has the authors’ contribution in fulfilling the literature gap between previous studies and this new dimension of checking the impact of DBT on Islamic banks’ profitability and efficiency with customer satisfaction and market competitive.