The purpose of this study was to examine the effect of financial innovations on thernfinancial performance of Commercial Banks in Ethiopia. An explanatory study wasrncarried out on commercial banks, to assess the impact of financial innovation on thernprofitability. The study has examined the effect of financial innovation on return on assetsrnas one of the most fundamental indexes of profitability. The study used secondary datarnemployed purposive sampling technique to select nine banks for the study commercialrnbanks operating in Ethiopia covering the periods from 2015 to 2017. Key explanatoryrnvariables were identified to disclose their relationship and influence on financialrnperformance of commercial banks. These independent and a control variables are numberrnof mobile banking users, number of automated teller machine terminals, number of newrnsaving accounts, number of point of sale terminal, debit cardholders and managerialrnefficiency. Data was analyzed using both descriptive and inferential statistics. Multiplernregression with the aid of E-view 9 software was used to examine the effect of independentrnvariables on return on asset (ROA). Result using fixed effect panel least square regressionrnexhibited that numbers of mobile banking users and number of new saving accounts havernpositive and significant effect on financial performance of commercial banks measured byrnreturn on asset. The study shows that increased number of mobile banking users andrnnumber of new saving accounts had a positive effect on the financial performance ofrncommercial banks by reducing transaction cost and mobilizing deposit. However,rnnumbers of ATM terminals have a negative and significant effect on financial performancernof commercial banks due to high initial investment as compared to income generated.rnNumber of point of sale terminals and number of debit cardholders are insignificant tornprofitability of Ethiopia. These are due to inaccessibility and lack of awareness on bankrnusers. In addition, management efficiency shows a negative relation were management arernnot cost effective in commercial banks of Ethiopia. Generally, financial innovation hasrnpositive effect on financial performance of commercial banks in Ethiopia. Therefore, thisrnstudy recommends for enhancing return on asset, commercial banks should exert more onrnawareness creation about financial innovation service and keep up on introducing andrnimplementing financial innovations across the country.