The complementarities of Digitalization and Productivity: Redefining Boundaries for Financial Sector

Abstract

Digitalisation is portrayed as a transformative force, remodelling the way we live and businesses operate. In today's unprecedented business environment, the survival of organisations is in technological advancement and online presence. When masses rely on digital financial payments, there is a pressing need for the financial sector to offer innovative products and services to meet customers’ needs and achieve sustainable performance. This paper aims to investigate the impact of data analytics on the productivity of banks in Pakistan and employed two-step system generalised methods of moments for estimation. The findings suggest that 5.9% productivity is increased for banks that invested in data analytics on average. It was also found that productivity increase is associated with an investment in data analytics compared to a mere investment in any software. However, the moderating role of dynamic capabilities on the relationship between data analytics and banks’ productivity is insignificant, which raises a question on the relevance of research and development expense with human capital development. It is recommended that banks should invest in those analytics that have predictive, visualising and analytical capabilities. The use of these innovative technologies should be combined with training and human capital development to ensure sustainable firm performance.