The Economic Impact of Digital Banking Adoption on Bank Performance and Financial Inclusion: Evidence from Bangladesh (2010–2025)

Financial inclusion remains a critical challenge in developing economies, with 1.4 billion adults worldwide unbanked. Digital banking has emerged as a potential solution, but rigorous causal evidence on its impacts is scarce. This study examines the causal impact of digital banking adoption on bank performance and financial inclusion in Bangladesh using bank-level data. We employ difference-in-differences analysis with bank and year fixed effects on panel data from all 43 private commercial banks in Bangladesh (2010–2025). We exploit staggered timing of digital adoption across banks to identify causal effects on profitability, operational efficiency, and financial inclusion. Digital banking adoption causally improves return on assets by 0.8–1.2 percentage points, reduces cost-to-income ratios by 4–6 percentage points, and increases deposit accounts per 1,000 adults by 15–22 percent. Effects emerge gradually over 2–3 years post-adoption and are robust to alternative specifications, placebo tests, and parallel trends validation. Efficiency improvements from digital banking enable banks to profitably serve previously underserved populations. Results challenge the view that digital banking primarily benefits already-included populations and support policies promoting digital transformation for financial inclusion. JEL Classification: G21, O16, O33, C23