Digital transformation boosts productivity and hence raises revenues and consumption per capita. Over the last ten years there has been an extensive adoption of digitalization by banks in Kenya. This has resulted to slowed branch activities as the growth of digital banking solutions is embraced by customers. There have been notable gains in digitalization which are tied to economic recovery and revenue diversification which has resulted to increased efficiency in banking operations. The researcher also observed that there was an increase in wages and salaries which is contrary to the expectation that banks would accrue some savings on staff costs from a leaner workforce that is more efficient. This trend can be attributed to an increase in staff salaries as employees acquire additional technological skills leading to an improved bargaining power in terms of salaries. There was therefore a conceptual gap that warranted a study in order to understand whether banks were prepared to bear with the rising costs arising from the increased wage bill despite their heavy investment in digitalizing. The study was guided by the following objective; to determine the effect of digital transformation on the capital-labour ratio in the commercial banking sector in Nairobi, Kenya. The study focused on two theories, theory of diffusion of innovation and theory based on resources. Descriptive cross-sectional survey design was used in this study. The target population comprised all the 42 commercial banks in Nairobi, Kenya. Data was coded and verified with the use of a Microsoft Excel software to ensure correctness and completeness. Data analysis was carried out using SPSS, software version 23. The respondents’ profiles were summarized and analyzed using descriptive statistics including frequencies, means, standard deviations and percentages. The evaluated data was then presented through tables, graphs and discussion of the results. The effect of digital transformation on capital-work ratio of commercial banks in Nairobi, Kenya was tested by means of a regression analysis. The study found that cost of labour is affected inversely by the changes in digital transformation. There was sharp increase in digitalization between the year 2014 and 2015. Besides, in 2012 and 2013 there was sharp decrease of payroll costs which may be attributed to high job losses in the sector as a result of banks adopting digital technology during this period. The study concluded that access to digital banking technology inversely influenced the capital-labour ratio of commercial banks in Nairobi, Kenya. This could be attributed to the trends recorded in the variables whereby access to digital platforms by users, reduction in operating costs and improvements in turnaround time had an inverse and positive contribution to capital-labour ratio of commercial banks in Nairobi, Kenya. The study recommends that financial institutions should offer low transaction charges for customers using their digital platforms and provide secure digital environment that guarantee security of customers deposits and information at all times. This will attract more customers to take up digital banking services thus ensuring the future sustainability of the banking business. Furthermore, the use of digital banking technology may be a strategic and cheaper option for banks to render banking services to people living in the remote parts of Kenya that are still unbanked thus increasing financial inclusion in the country. Finally, the study recommends that commercial banks in Nairobi, Kenya should ensure that systems failures and down-times are kept at the bare minimum in order to enhance service delivery and thus reduce the operating costs of commercial banks in Nairobi, Kenya

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