Modelling the Impact of Digital Financial Services on Traditional Banking Business Models: A Dynamic Capabilities Theory Approach

The disruption of traditional banking business models by digital financial services requires a theoretical and empirical framework that goes beyond static competitive analysis to account for the dynamic capabilities through which incumbent banks adapt, reconfigure, and innovate in response to digital entrants. This study develops an original theoretical model of digital disruption impact on traditional banking business models using dynamic capabilities theory, platform economics, and the two-sided market framework, and empirically tests this model in the Nigerian banking industry. The theoretical framework identifies three classes of dynamic capabilities critical for traditional bank survival in digital disruption: sensing capabilities (detecting digital threats and opportunities), seizing capabilities (responding through product and business model innovation), and reconfiguring capabilities (restructuring assets and partnerships to align with digital market architecture). An original Digital Disruption Resilience Model is specified and empirically calibrated using a mixed-methods design combining a quantitative survey of 95 bank executives and a qualitative analysis of 15 bank digital transformation strategies. Dynamic capabilities were measured by a validated instrument adapted from Teece's dynamic capabilities survey tool. Business model adaptation outcomes were measured by digital revenue share, customer digital adoption rates, and legacy cost-to-income reduction. Structural equation modelling was employed. Results show that seizing capabilities (standardised coefficient = 0.52, p < 0.01) and reconfiguring capabilities (0.43, p < 0.01) are the strongest predictors of successful digital disruption adaptation. Sensing capabilities are necessary but not sufficient. The study makes original theoretical contributions to dynamic capabilities theory applied to financial services digital disruption in an emerging market context. Keywords: digital disruption, dynamic capabilities, banking business models, platform economics, Nigeria