A Comparative Analysis of Cost Efficiency and Profitability in Banking: A Study of Conventional and Digital Banks in Indonesia

Abstract

The banking sector's business model has changed due to digital transformation, which has also driven the emergence of digital banks as a more adaptive option for financial services. However, there are still differences of opinion regarding the success of digital banks' business models compared to large-scale traditional banks, especially in terms of profitability and operational efficiency. The purpose of this study is to compare the operational cost efficiency and profitability of digital banks and traditional banks in the KBMI 4 category listed on the Indonesia Stock Exchange for the years 2023–2025. Using secondary data from the annual financial reports of eight sample banks, this study employed a comparative quantitative methodology. Descriptive statistics, homogeneity tests, normality tests, and Independent Samples t-tests were used in the analysis. Return on Assets (ROA) showed no significant difference, while Operating Expenses to Operating Income (BOPO), Cost to Income Ratio (CIR), and Net Interest Margin (NIM) did show significant differences. Although digital banks generate higher interest margins, conventional banks have superior operational efficiency (KBMI 4). However, because technology investments are expensive, these benefits do not fully improve profitability. This study contributes to empirical data on the digital transformation of Indonesian banking and shows that the ability to manage resources and leverage economies of scale, in addition to digitalization, determines competitive advantage. To obtain a more complete picture, it is recommended that future studies use larger sample sizes, observation durations, and better analytical techniques.