Cashless Policy

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Impact of Cashless Policy on Bank's Proﬁtability: Evidence from a Developing

Economy
Article in International Journal of Financial Engineering · July 2020

DOI: 10.1142/S2424786320500346
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International Journal of Financial Engineering
Vol. 7, No. 3 (2020) 2050034 (15 pages)
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DOI: 10.1142/S2424786320500346
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Impact of cashless policy on bank’s profitability:

Evidence from a developing economy
Syed Moudud-Ul-Huq*
Department of Business Administration and Department of Accounting
Mawlana Bhashani Science and Technology University
Tangail 1902, Bangladesh
J. Finan. Eng. Downloaded from www.worldscientific.com
S. K. Alamgir Hossain
Department of Finance, Jagannath University
Dhaka, Bangladesh
Received: 20 July 2020; Accepted: 20 July 2020

Published: 18 September 2020
Abstract
This paper investigates the relationship between e-banking and commercial bank performance in
Bangladesh. A five-year aggregate quarterly commercial bank data as provided by Payment System
Department of Central Bank of Bangladesh was used in this study. A multiple regression procedure
was used to determine the significance of the relationship between the independent variables
(electronic banking indicators) and the profitability measures of return on assets (ROA) and return on
equity (ROE) as the dependent variables. The findings were that only IB was statistically significant
at 0.01% level under both ROA and ROE models with p-values of 0.0000 and 0.0000, respectively.
However, the predictive power of ROE was found to be higher than ROA using adjusted r-square and
d-statistic. Some of the other variables (POS, CHQ) were also statistically significant (p > 0:01) and
the rest of variables had mixed result. The results show that at an aggregate level, commercial banks
in Bangladesh widely use the traditional banking methods such as use of cheques. The results are
expected to inform bank managers on the need to discover the optimal supply of electronic banking
services such as MOB, EFT and ATM payment systems in order to improve bank profitability. This
study will further inform policy makers on the need to improve on Information and Communication
Technology (ICT) in order to cater for optimal use of electronic banking service in Bangladesh.
Keywords: Mobile banking; electronic fund transfer; Internet transactions; return on assets; return on
equity.
*Corresponding author.
Email addresses: moudud_cu7@mbstu.ac.bd, alamgir2783@yahoo.com

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S. Moudud-Ul-Huq
1. Introduction
Today’s world is called the world of globalization, innovation and technology. As
global technology has increased, it has opened a new frontier for the traditional
banking system to give more sophisticated service to its clients. A combination of
technology and banking service is a global buzzword now. By adapting technology
banks, global business and operating models of the banking sector are recon-
structed. Worldwide, noncash transactions reached 433 billion in 2015, a growth of
11.2% studied whether the long-term shift to credit and debit cards simulate the
economic growth of 56 countries worldwide. Additionally, the appropriation of
electronic exchanges is basic for straightforwardness, responsibility, and decrease
of money-related extortion, the crucial components of financial development
and advancement. One of the requirements for the improvement of the national
economy is to energize an installment framework that is secure, helpful, and
reasonable.
In such manner, created nations of the world, to an enormous degree are
moving from paper installment instruments towards electronic ones. The country
has to count more than Tk. 9,000 crore a year because of its dependence on cash.
The support cost of the printed cash is almost 0.50% of the nation’s GDP, as
indicated by the national bank report styled “Decreasing the Cash Transaction”.
Banks need to take protection inclusion for their vault just as the transportation
of money to verify the cash, adding an enormous add up to their working
expenses. They have to appoint skilled manpower to manage both their cash
counter. Armed guard and specialized vehicles have to be hired frequently when
banks transport their cash from one branch to another, he said. “Immense time is
squandered on account of the transportation of money. The shoppers and dis-
tributors of the corporate entities are also facing the same difficulties,” he added. In
the interim, the national bank’s consumption on printing and dissemination of
money has been on the ascent for quite a long time with the development of the
economy. In fiscal year 2016–17, the BB spent Tk. 450 crore for this end, up 22%
from four years sooner. This change was first started in the western part of the
world, but nowadays countries like Bangladesh, India, and Pakistan are also to-
wards this technology. As a result, the banking sector in Bangladesh is now using
ATM, POS, Internet banking, etc. at an increasing rate than the past. The using of
cashless transactions is the obvious solution to reduce transaction costs, save time,
easy and efficient integrated services, interactive marketing capabilities, and many
other benefits that help increasing customer size and leveraging profitability sig-
nificantly. There are a large number of digital payment systems developed in
Bangladesh and the market is growing significantly. Major Banks are investing in
their fin-Tech sector. According to one of the oldest and prominent newspapers
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Impact of cashless policy on bank’s profitability
The Daily Star, in 2016, 12% of total transactions went through digital means and
rest of the 88% by cash. The picture of the course changed in the last two years. In
the same report, we learned that in 2018 digital, 18% of total transactions went
through digital means, 50% increase in 2 years. According to the report from
Bangladesh Bank website, in 2015 $18,665 million were transacted through
mobile finance service and in 2018 that value went up to $44,823 million. In three
years, it increased by 250%. That is a clear sign that people are considering mobile
finance service convenient. In January 2015, average daily transaction through
MFS (mobile finance service) was $44 million that increased 300% in 2018 and
the daily transaction (average) amount is $122.4 million. More people are feeling
convenient to do their day-to-day transactions via credit/debit card. According to a
report released from Bangladesh Bank, in February 2019, there were a total of
146,60,431 debit cards, 11,36,473 credit cards, 2,32,971 prepaid cards issued by
various banks in Bangladesh. In the last couple of years, banks increased credit
card selling. Also, for traveling and online purchase purposes, people feel con-
venient to use prepaid cards.
People are now more interested in using the POS terminal to purchase items
from the store. From the same report, Tech Matra has revealed that in January 2018
there were a total of 3,55,265 no. of POS transactions. Banks and other financial
institutions are encouraging store owners to use the POS terminal for their store. In
almost all major cities, popular shopping malls have the POS terminal payment
facility. In this growing economy, the most important challenge is for the gov-
ernment is to ensure security and prevent fraud and abusing of the modern fi-
nancial systems. BKash is the most popular payment service provider in
Bangladesh which depends on mobile phones and mobile apps. BKash placed its
position in Fortune magazine “change the world” list in 2017. According to
Fortune magazine, 22% of adults (year of 2017) are now using BKash for their
daily financial transactions. Besides BKash, there are lots of mobile-based pay-
ment service providers like Nagad (by local Govt.), Rocket by DBBL Bank, T-
Cash and so many more. This number is increased because of the card-based
payment system, mobile finance service, app-based payment, and digital wallets.
Another study of Bangladesh Bank data shows that the average daily transactions
through mobile financial services (MFS) has jumped to Tk 1,005.51 crore in
September last, which is five times higher than the amount recorded in the same
month in 2014. And the move has gained momentum in recent times thanks to the
rapid growth of smartphone users and the fastest-growing MFS industry led by
BKash, the largest player in Bangladesh with in excess of 32 million supporters for
the most part who were unbanked poor.
Industry specialists state Bangladesh can use the benefits of a cashless society
with MFS advancement like China where without cell phones no one thinks to
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S. Moudud-Ul-Huq
purchase anything from any market, shopping malls, or store. A total of 18

commercial banks are involved in MFS service in Bangladesh, where BKash is
playing a revolutionary role in this landscape thanks to its service innovations that
meet customers’ expectations. More banks are now adopting this innovation to
survive in a highly competitive environment while some of them are making
collaboration with BKash and other operators to avoid high investment. This has
just animated the inflow of settlement as Bangladeshi specialists living abroad are
sending their well-deserved settlement to their family members through BKash by
means of Western unions. More service innovative providers like Pathao and
sellers of goods and services are using BKash payment. Besides, mobile wallets,
plastic cards offered by banks are also accelerating Bangladesh’s journey towards a
cashless society. Millions of young consumers are now using cards to buy food in
restaurants, grocery, and clothing items in shopping malls, which has pushed up
credit card transactions to Tk. 1,007.1 crore as of September’18, according to
Bangladesh Bank. As the interest for cards is expanding step-by-step, business
banks are introducing more stalls in each corner of the nation over to draw in
increasingly advanced clients. E-commerce business is also growing rapidly in
Bangladesh as more than 30% of banks have “Online Payment Gateway Service”
for e-commerce payment processing, while more than 928 online shop owners and
merchants are selling products using bank payment gateways. The volume of e-
commerce has exceeded Tk 3,000 crore in 2018 thanks to the “state of the art”
payment services offered by MFS operators like BKash, Rocket, U-Pay, i-Pay
under a conducive yet stringent regulatory environment. Nearly, 80% of online
users use the Internet for online purchase and 50% of them go online to purchase
products more than once, which pushed up fund transfer through the internet by
30.84% in September 2018 from the previous month. With the developing number
of installment advancements, more individuals in Bangladesh are turning out to be
computerized purchasers who are utilizing portable installment as a lifestyle and to
an ever-increasing extents common practice. The government is facilitating a
conducive environment to promote innovations in payments while the regulator is
providing appropriate regulations and strict supervision. At present, an incredible
level of the legislature to-business installments has been moved to the comput-
erized channels, while in excess of 50 million individuals utilize MFS advance-
ment in their everyday exchanges in the nation under a protected and business-
accommodating monetary condition. With the day-by-day increase of smartphone
penetration along with 4G networks and deployment of QR technology, the use of
mobile wallets has turned more convenient. This study will be of value to various
players in the banking industry such as commercial banks will obtain insights on
what impact cashless transactions has on the bank’s income and what they can do
to maximize on these revenue streams to achieve greater value. The Central bank
2050034-4
will be able to increase its efficiency in its regulatory role in cashless policy.
Finally, this study will help commercial as well as government banks by showing
the impact of cashless transactions on banks’ profitability.
The general objective of our research is to find out the effect of cashless system
on commercial as well as government banks profitability in Bangladesh. We also
find some relationship between ATM and bank profitability, POS and bank
profitability, EFT and bank profitability, Mobile Banking and bank profitability,
Internet Banking and bank profitability and Cheque clearance impact on bank
profitability.
We also determine how these cashless transaction impact on the profitability as
well as overall banking performance in the Govt. Bank as well as commercial bank
in Bangladesh. From the previous studies, it raises the following questions:
I. Does the adoption of the cashless policy in Bangladesh affect banks profit-
ability?
II. Does the use of ATM (card) affect banks profitability?
III. Does the mobile banking affect banks profitability?
IV. Does the use of internet banking affect banks profitability?
V. Does the use of EFT affect banks profitability?
VI. Does the use of POS affect banks profitability?
VII. Does the use of CHQ affect banks profitability?
The rest of the study is organized as follows. Section 2 describes and reviews
the previous literatures, in the next, it discusses the data and methodology, Sec. 4
focuses to examine the relationships through findings and analysis while Sec. 5
concludes the study.
2. Literature Review
2.1. Introduction
Before the modern banking system, banking operation was manually done which
was very inefficient and this led to the introduction of electronic banking
(Siyanbola and Finance, 2013). During the 1990s, when electronic banking got
mainstream cashless transaction become familiar in our day-by-day life transaction
(Sir and Research, 2017).
Productive installment framework is an essential for the advancement of the
national economy (Odior and Banuso, 2012). Some research works have shown
that if the payment system becomes efficient by more than 10 percent then the
GDP increases one percent (Odior and Banuso, 2012). Cashless transaction is that
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S. Moudud-Ul-Huq
kind of transaction where any kind of hard cash in not being used. All the
transactions are done by using ATM, Debit card, Credit card (Matthew and Mike,
2016). Payment for Buying goods and services is also done by electronics media
(Matthew and Mike, 2016). Cashless payment upgrades the payment system ef-
ficiency. It might also minimize financial risk like liquidity risk, credit risk, and
systematic risk (Akara and Asekome, 2018). Combined use of information tech-
nology and banking radically reduces cost, saves time and resource. One of the
basic reasons of these benefits is cashless banking provide 24/7 services to all
interested parties (Kamboh and Javaid Leghari, 2016). Cashless electronic pay-
ment system gives the advantages of transaction without physical presence of
parties at the same place. In this system, card devices are used to conduct the
Transaction. Self-efficiency is significantly important to enjoy the ease of use
(Ozturk, 2016).
Various researchers around the world have proved that cashless banking system
is the most effective and reliable banking system of the current world. Information
technology has positive impact on organization and this impact on banking sector
has overtaken manufacturing sector (Vijayalakshmi et al., 2019). In case of
Nigeria, cashless transaction facilitates the social economic sector and also facil-
itates in economic development.
2.2. ATM
ATM is an electronic device which is installed by a bank in several places of a
country to give the convenient cash withdrawal, check balance, send money, etc.
(Lee et al., 2018). It was the first well-known machine for the client to engage with
bank by electronic device and get the service outside the bank (Kadir et al., 2011).
Those banks who adopt ATM facilitate with increase in income (Dos Santos and
Peffers, 1995).
2.3. Mobile banking

Mobile banking is the use of cellphone to assess banking technology to obtain
banking service (Anderson, 2010). Mobile banking offers financial transaction. It
also helps in making payment, transfer balance, and let customer to manage their
bank account (Hassan and Wood, 2020). Mobile phone-based cashless banking
system helps to reach rural people and helps in operating cost and lending risk as
well as exorbitant charge on lending (Song and Vong, 2013).
2.4. Point of sale

A PoS deals with the selling process by a salesman open interface (Siyanbola and
Finance, 2013). Point of sale device is used in supermarket, filling station, etc. in
2050034-6
payment of good and service (Suda, 1996). In this process, the trader is paid the
fee for the process and the fee can be 75% maximum (Muotolu and Nwadialor,
2019).
2.5. Internet banking

Internet Banking is a payment system that helps a bank customer to act during a
financial transaction through the financial institution website via different electrical
devices. Internet Banking is very popular in Banking sector (Jayawardhena and
Foley, 2000). Providing banking service over the internet not only ensures sound
management but also maintains public confidence on individual bank as well as
whole banking system. There is an immediate connection between internet
banking service quality and consumer loyalty (Firdous et al., 2017).
2.6. Electronics fund transfer

Electronics fund transfer is the procedure of transferring fund from payer account
to payee account. In this procedure, the electronic instrument like payer electronic
signature, payer digital instruction, fund holding institution identity is being used
(Doggett et al., 1997). The services like Savings, current, FDR, PDS, and term
deposit scheme are provided in an electronic way in Bangladesh (Khan and
Hossain, 2015). Electronic and mobile banking total transaction was about 22
billion globally (Achor and Robert, 2013).
2.7. Cheque clearing

In cheque Clearing, Cash is moved to the bank where cheque is drawn from the
bank where it was deposited. In this process, inter-bank cheque clearing settlement
is completed by using cheque electronic record and cheque scanned copy
(Al Shibly and Sciences, 2011).
In short run, one payment types affect another payment types but in in long run,
cashless payment system has positive effect in economic growth. Banking analysts
of Bangladesh are anticipating that Bangladesh economy is going toward cashless
system as an ever increasing number of cashless transactions. In spite of the fact
that risk against security is huge, yet banks are bit-by-bit building up their security
framework (Alam et al., 2010). One of the most significant contributions is that it
minimizes the risk of carrying cash (Taiwo et al., 2016).
Benefits of cashless policies
(1) Quick transaction

(2) Better services
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S. Moudud-Ul-Huq
(3) Simplicity in cash collection

(4) Management efficiency
(5) Reduces processing fees (Ugwueze et al., 2016).
We can see that there have been many studies done in many country on cashless
banking performance but only a few studies have done on perspective of
Bangladesh. This study is different from other because it includes the effect on
profitability of all the cashless transaction authorized by Bangladesh bank.
3. Methodology
3.1. Introduction
Two types of secondary data are collected for this study. Cashless banking data is
collected from quarterly reports of Payment System Department of Central Bank
of Bangladesh. Return on Equity (ROE) as well as Return on Assets (ROA) is
proxy for profitability, calculated from Financial Analysis reports of Financial
Sector by Central Bank of Bangladesh Data is collected from the 1st quarter of
2014 to 4th quarter of 2018 totaling to 160 observations. In Bangladesh, no
complete data of all the cashless banking transactions are available before 2014.
Variables of the study comprise ROE, ROA, Volume of ATM Transactions
(ATMT), Volume of POSs Transactions (POST), Volume of Mobile Banking
Transactions (MOBT) and Volume of Internet Banking Transactions (IBT), Vol-
ume of Electronic Fund Transfer (EFT), Volume of Cheque Clearance (CHQ).
This study is different from the previous studies because Payment System De-
partment of Central Bank of Bangladesh provides the whole banking industry data
instead of bank specific data. On the one hand, previous studies use individual
bank data to make industry wide claims which are less reliable and on the other
hand, the results of this study are more reliable for banking sector of Bangladesh
then formerly done. Ordinary Least Square (OLS) multiple regression analysis
explores the relationship between cashless banking and bank profitability.
Descriptive statistics and correlation matrix are also performed to validate the
authenticity of results. SPSS 25 software is used for analysis.
3.2. Model specification

Two regression models are developed to measure the relationship and are math-
ematically expressed in the following equations:
ROEt ¼ 0 þ 1ATMst þ 2MOBt þ 3IBt
þ 4EFTt þ 5POSt þ 6CHQt "t, ð1Þ
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ROAt ¼ 0 þ 1ATMst þ 2MOBt þ 3IBt

þ 4EFTt þ 5POSt þ 6CHQt "t, ð2Þ
where
ROEt is the ROE at time t

ROAt is the Return on assets at time t
ATMst is the Volume/Value of ATM transactions at time t
MOBt is the Volume/Value of Mobile Banking Transactions at time t
IBt is the Volume/Value of Internet Transactions at time t
EFT is the Volume/Value of Electronic Fund Transfer Transaction at time t
POSt is the Volume/Value of POS Transactions in time t
CHQt is the Volume/Value of Cheque Clearance at time t

1, t are the coefficients
0 and "t are the constant and error terms, respectively
3.3. Measurement of variables used and their hypothesized relationship

The dependent variable is bank performance as measured by ROE and ROA at the
end of each quarterly period t. Table 1 summarizes the measurement of variables
and their expected signs.
Table 1. Variables used and their hypothesized relationship.
Type of variable Variable Measurement Expected

sign
Dependent ROE Net income/equity capital þ
ROA Net income/total assets
Independent ATM Volume/Value of ATM transactions þ
MOB Volume/Value of mobile banking Transactions þ
IB Volume/Value of Internet Transactions þ
EFT Volume/Value of electronic fund transfer þ
POS Volume/Value of POS Transactions þ
CHQ Volume/Value of cheque clearance þ
4. Data Analysis and Findings

4.1. Descriptive statistics
The descriptive analysis of the data is presented in Table 2.
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S. Moudud-Ul-Huq
Table 2. Descriptive statistics.
ROE ROA ATM MOB IB EFT POS CHQ

N 160 160 160 160 160 160 160 160

Minimum 18.86 1.1 57.98 0 0 19173.03 3066.36 587933.2
Maximum 38.32 2.36 9307.11 2116.45 16685.4 196858.5 10011.07 1219625
Sum 1768.63 142.01 990817.6 241621.9 2161827 11415333 1104673 1.31Eþ08
Mean 11.0539 0.8876 6192.61 1510.137 13511.42 71345.83 6904.205 820046.6
Std. Dev. 5.4854 0.48238 2876.713 374.5484 5295.905 22747.46 2065.021 145861.5
Skewness 0.462 0.1 1.598 2.44 2.02 3.971 0.052 0.105
Kurtosis 8.243 1.701 0.83 6.427 2.53 21.925 0.707 0.175
The profitability measures of ROE and ROA recorded means and standard
deviations of 11.0539 (0.8876) and 5.4854 (0.48238), respectively. Further, ROE
was rightly skewed whereas ROA was skewed to the left. This was evident in
positive and negative skewness values, respectively. The multivariate normal
distribution is actually characterized by skewness equal to 0 and kurtosis equal
to 3. Table 2, therefore, suggests that the data is non-normal. For example, volume
of cheques (CHQ) has a skewness, and kurtosis values of 0.105, and 0:175,
respectively, all of which dismisses the normality in the distribution of the series.
Similarly, the remaining five data series of ROE, ROA, ATMS, EFT and EFT POS
dismissed normality of the data.
4.2. Correlation
Correlation provides necessary insight in the relationship or association between
the variables.
The use of correlation matrix in most regression analysis is to check for mul-
ticollinearity and to explore the association between each explanatory variable
(ATMV, MOBV, IBV, EFTV, POSV and CHQV) and the dependent variable
(ROE) and (ROA). Table 3 focuses on the correlation between Return on Equity
measured as ROE and the independent variables (ATMV, POSV, MOBV, IBV,
EFTV and CHQV). The finding from the correlation matrix table shows that most
of our independent variables, (ATMV ¼ 0:155, EFTV ¼ 0:365 and
CHQV ¼ 0:124) were observed to be negatively and weakly associated with
ROE while (MOBV ¼ 0:288, IBV ¼ 0:369, POSV ¼ 0:322) were found to be
positively associated with ROE. In checking for multicollinearity, we notice
that some of our explanatory variables were perfectly correlated (EFTV,
ATMV ¼ 0:302; CHQ, ATMV ¼ 0:335; IBV, MOBV ¼ 0:690; POSV,
MOBV ¼ 0:330. This means that there is problem of multicollinearity between the
2050034-10
Table 3. Pearson correlation matrix correlation analysis.
Correlations
ROE ROA ATM MOB IB EFT POS CHQ

ROE 1
ROA 0.677** 1
ATM 0.155 0.254** 1
MOB 0.288** 0.320** 0.015 1
IB 0.369** 0.484** 0.397** 0.690** 1
EFT 0.365** 0.307** 0.302** 0.225** 0.326** 1
POS 0.322** 0.502** 0.466** 0.330** 0.518** 0.379** 1
CHQ 0.124 0.340** 0.335** 0.045 0.128 0.460** 0.775** 1
Note: **Correlation is significant at the 0.01 level (2-tailed).
explanatory variables. Multicollinearity usually results to wrong signs or im-

plausible magnitudes in the estimated model coefficients obtained. There will also
be bias in the standard errors of the coefficients. On the other hand, the table also
shows the correlation between ROA and the independent variables (ATMV, POSV,
MOBV, IBV, EFTV and CHQV) such as MOBV ¼ 0:320, IB ¼ 0:484, POS ¼
0:502 (see Table 3).
4.3. Main result

Diagnostic tests were performed on the regression model. The adjusted R-square
of 0.26 shows that 26% of the variation in the dependent variable (ROE) is
determined by the variation in the independent variables combined (Table 4). This
lower adjusted r-squared should be used with other diagnostic tests to arrive at a
concrete answer in terms of the goodness of fit. The model was thus checked
further for serial correlation using the Durbin Watson statistic. The Durbin-Watson
statistic is always between 0 and 4. A value of 2 means that there is no autocor-
relation in the data, and values approaching 0 indicate positive autocorrelation and
values toward 4 indicate negative autocorrelation. The results from the ROE model
show a Durbin Watson value of 1.871224. This outcome means that there is
positive autocorrelation in the residuals. Meanwhile, Field (2009) suggests that
values under 1 or more than 3 are a definite cause for concern. In this case, we are
not concerned about serial correlation because the Durbin-Watson value is above
1. Since the necessary diagnostic tests are satisfied, we proceed to interpret the
coefficients of the variables.
The variables IB and EFT have a positive coefficient and also have a p-value
less than 0.01 which is statistically significant. The variables POS and CHQ have a
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S. Moudud-Ul-Huq
Table 4. OLS regression result.
Estimation Dependent: ROE

Variable Coefficient
ATM 1.83E-19
(2.156)**
MOB 4.06E-19
(0.502)*
IB 3.05E-19
(4.862)***
EFT 6.50E-20
(5.891)***
POS 2.51E-18
(11.297)***
CHQ 3.14E-20
(10.869)***
Adjusted R-squared 0.263262
Durbin-Watson stat 1.871224
negative coefficient but have a p-value less than 0.01 which is statistically sig-
nificant. This means the contradictory result between coefficient and p-value. On
the other hand, ATM has a negative coefficient and the p-value is 0.03 which is less
than 0.05 (statistically significant). Also, MOB has a positive coefficient but the
p-value is 0.6163 which is statistically insignificant.
Table 5. OLS regression result.
Estimation Dependent: ROA
Variable Coefficient
ATM 1.86E-19
(1.648)*
MOB 1.96E-18
(1.819)*
IB 3.86E-19
(4.498)***
EFT 1.65E-20
(1.186)*
POS 2.88E-18
(9.947)***
CHQ 3.54E-20
(9.483)***
Adjusted R-squared 0.304498
Durbin-Watson stat 2.121989
2050034-12
This means IB and EFT use increasing bank performance as well as POS and
CHQ should use moderately but the uses of ATM and MOB have a negative effect.
It is noteworthy that the results in Table 4 are in principle analogous to ROE
model, albeit with higher adjusted r-squared value of 0.304498 and a Durbin
Watson statistic of 2.1219, respectively. In this regard, only IB has a positive
coefficient and p-value less than 0.01 which is statistically significant. The POS
and CHQ variable is statistically significant but negative coefficient. On the other
hand, ATM and MOB have a negative coefficient but statistically significant in
respect of 0.05 and 0.01. On the contrary, EFT has a positive coefficient but
statistically insignificant.
This means IB increases bank performance and POS, CHQ has the probability
to increase banks’ profitability. Uses of EFT have a negative effect. ATM, MOB
should consider carefully for increasing banks’ profitability.
5. Conclusions and Recommendations

The study aimed to determine the impact of cashless banking on the performance
of Govt. as well as commercial banks in Bangladesh. Specifically, the study sought
to find out if: (1) there is a relation between use of ATMs and commercial as well
as Govt. bank profitability, (2) MOB and IB has an effect on commercial bank
profitability (3) the use of POS and cheques have an effect on commercial bank
profitability and (4) Electronic Funds Transfer (EFT) has an influence on com-
mercial bank profitability. The Return of Equity (ROE) and Return of Assets
(ROA) were used as the two measures of commercial bank profitability.
The analysis indicated several significant differences in the banks that offer
electronic banking and banks that do not. The findings of study have indicated that
IB is the only variable which has significant and positive influence on both
methods of determining the profitability of bank. Some of the variable- EFT, CHQ,
and POS has a positive impact on basis of ROE determination. On contrary, POS,
CHQ also has positive impact on profitability in the perspective of ROA. ATM has
negative significant relationship between bank performances. However, in modern
digital global market and banking sector, it is recommended that banks should
encourage the consumers use of electronic ways of banking. In developed coun-
tries, the adoption of digital route such as internet banking reduces operating
expenses, increases noninterest income, and consequently increases banks’ prof-
itability. Therefore, there is a need to develop effective strategies for customers to
shift from traditional to electronic banking and discourage the use of cheques
which increase lot of paper work.
2050034-13
S. Moudud-Ul-Huq
This study has examined the impact of cashless policy on the profitability of the
State owned and private commercial bank of Bangladesh. In the future studies how
the cashless policy will favor over all banking sector is needed. Foreign com-
mercial banks, specialized banks, are not included in this study. This study is
conducted on the previous five years date and the date has shown that number of
transaction and amount is increasing every year so how this ongoing increasing
will affect in future is a matter of further research. Even how this cashless policy is
affecting in case of policy making on individual banking is also a matter of further
study. Though this study has conducted on the basis of 5 years dataset, further
research could be undertaken with extended dataset instead of 5 years.
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2050034-15
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Impact of Cashless Policy on Bank's Proﬁtability: Evidence from a Developing

Article in International Journal of Financial Engineering · July 2020

The user has requested enhancement of the downloaded file.

Impact of cashless policy on bank’s profitability:

Received: 20 July 2020; Accepted: 20 July 2020

Email addresses: moudud_cu7@mbstu.ac.bd, alamgir2783@yahoo.com

purchase anything from any market, shopping malls, or store. A total of 18

2.3. Mobile banking

2.4. Point of sale

2.5. Internet banking

banking service quality and consumer loyalty (Firdous et al., 2017).

2.6. Electronics fund transfer

2.7. Cheque clearing

(1) Quick transaction

(3) Simplicity in cash collection

3.2. Model specification

ROAt ¼ 0 þ 1ATMst þ 2MOBt þ 3IBt

ROEt is the ROE at time t

CHQt is the Volume/Value of Cheque Clearance at time t

3.3. Measurement of variables used and their hypothesized relationship

Table 1. Variables used and their hypothesized relationship.

Type of variable Variable Measurement Expected

4. Data Analysis and Findings

Table 2. Descriptive statistics.

ROE ROA ATM MOB IB EFT POS CHQ

N 160 160 160 160 160 160 160 160

Table 3. Pearson correlation matrix correlation analysis.

ROE ROA ATM MOB IB EFT POS CHQ

Note: **Correlation is significant at the 0.01 level (2-tailed).

explanatory variables. Multicollinearity usually results to wrong signs or im-

4.3. Main result

Table 4. OLS regression result.

Estimation Dependent: ROE

Table 5. OLS regression result.

Estimation Dependent: ROA

should consider carefully for increasing banks’ profitability.

5. Conclusions and Recommendations

Ozturk, AB (2016). Customer acceptance of cashless payment systems in the hospitality

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