Digital Dynamic Capabilities and Bank Adaptation to Technological Disruption

Abstract

Purpose: This systematic review examines the role of digital dynamic capabilities in enabling banks to navigate and thrive amid rapid technological disruptions. It defines these capabilities, assesses their influence on banks’ competitiveness, and explores how they facilitate the effective integration of innovations such as FinTech, artificial intelligence (AI), and blockchain. Methodology: Following PRISMA guidelines, the review screened 52 studies from an initial pool of 508 records. Findings: The findings reveal an interconnected process through which banks build and deploy digital dynamic capabilities. Sensing technological disruptions and opportunities emerges as foundational, requiring banks not only to detect changes but to interpret their implications meaningfully within their specific organizational contexts. This sensing phase flows naturally into seizing opportunities, where effective resource orchestration proves essential for mobilizing assets and aligning them with strategic goals. In turn, transforming organizational structures allows banks to embed these digital capabilities deeply, shifting toward agile methodologies and strengthening internal governance to support sustained adaptation. Unique Contribution to Theory, Practice and Policy: Technological innovations such as AI and blockchain then amplify these capabilities, delivering a competitive edge by simultaneously improving operational efficiency through faster processing, reduced costs, and fewer errors, while elevating customer engagement via personalized services, seamless digital experiences, and heightened trust and security. Regulatory frameworks play a dual role throughout this process: they foster innovation while necessitating careful balance among competition, data privacy, and consumer protection. By synthesizing the dynamic capabilities literature with empirical evidence from banking, this review makes a distinctive contribution. Theoretically, it advances the digital dynamic capabilities framework by clarifying its micro-foundations and application in a highly regulated, information-intensive sector. For policy, it underscores the need for regulatory approaches that promote innovation without compromising stability or inclusion. For practice, it offers bank leaders a coherent roadmap for cultivating sensing, seizing, and transforming routines that convert technological disruption into sustained advantage. Future research should extend this work by examining the intersection of digital dynamic capabilities and financial inclusion, particularly in emerging economies, and by evaluating their effectiveness across diverse regulatory contexts.