Employing a stochastic cost frontier model based on Battese and Coelli (Empirical Economics 20:325–332, 1995), this study assesses cost efficiency and examines the impact of digital banking on Taiwan’s banking industry, utilizing data from 16 banks spanning 2018 to 2021. Digital banking, characterized by digital account openings and digital transaction volume, is scrutinized. Results indicate a positive correlation between digital accounts and enhanced cost efficiency. However, the influence of digital transaction volumes exhibits mixed effects, signaling a lag in financial innovation and digital service expansion among public sector banks compared to their private counterparts. Analysis of the technical gap ratio and metafrontier cost efficiency unveils a shift toward proactive digital transformation in private banks from 2020 to 2021, emphasizing the growing imperative for digital adaptation accentuated by the pandemic.