Digitalization in the banking sector is a revolutionary change that all banks must embrace or face a loss of power and position within the industry (Deshpande in Digitalization in banking sector, 2018 [15]). To be precise, the COVID-19 pandemic has accelerated digitalization in the banking sector since the launch of cashless transactions. This study explores the impact of digitalization on the banking sector in the selected GCC countries: the Kingdom of Bahrain, the Kingdom of Saudi Arabia, and the United Arab Emirates. Different independent variables are studied using pooled panel data of the countries’ banking sectors chosen to achieve this objective. This includes payment systems, real-time gross settlement systems, cheque clearings, and the number of ATMs. Return on equity (ROE) approximates the sector’s performance. Using different models and tests, the results show that the aggregated digital transactions are significant at 95%, and payment systems (PAY) are significant at 99%, indicating that it is the most digitalized and has a positive and significant impact on the banking sector’s performance. This research contributes to developing the theory of modern banking, where the obtained results are useful for researchers, banks, and public authorities. To increase the e-benefits of digitalization in the banking sector, governments should encourage different banks to enhance their social and financial supply capabilities with differentiated products, services, and refined management. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2024.