With the transformation of technology, the banking industry has also changed in terms of innovations in the digital era. This article has been aimed at analysis of implications of digital innovation for banking industry of Pakistan has been conducted. The objectives of this article included: a) analysis of literature regarding digital innovation in the banking sector, b) evaluating the extent to which banks in Pakistan have embraced electronic banking, c) analyzing the influence of digital innovation on performance of banks in Pakistan and d) proposing recommendations to banks for adopting successful digital innovation in Pakistan. This study has been conducted through primary data collected from 300 employees of 5 major banks in Islamabad. The survey has been personally administered that generated 94.33% response rate. This study found that Pakistan’s banking industry has also been going through digital transformation. It was found that from cost reduction to increase in customer base and profitability, digital innovations and internet do have impact on banks. This study found that banks do face challenges from multiple perspectives such as investment availability, availability of technology and customer acceptance. The technological adoption and innovations reduce cost of banking operations, increase banks’ profitability and enhance its customer base.