Did Financial Consumers Benefit from the Digital Transformation? An Empirical Investigation

Abstract

This study aimed to test, through empirical investigation, how the rapid advancement of digital transformation (DT) has impacted the price of financial services. To this end, we compiled a set of macro-level indicators on the aggregate outcomes of the financial services sector in Korea over the last three decades and conducted an analysis to gauge the effects of DT on the country using those indicators. Using the ARDL-ECM (autoregressive distributed lag error-correction model), we show that, over time, the unit cost of financial intermediation in Korea has tended to move in tandem with the growth in economic output, although the profit portion of the unit cost has not exhibited a long-term relationship with the GDP trend. The long-term effect of the DT trend is negative (i.e., cost-saving) for labor input, capital expenditure, and the total unit cost of financial intermediation, which are all shown to be statistically significant. Consequently, we conclude that DT contributed to enhancing consumer benefit, mainly by achieving the operational efficiency of labor and capital, from 1990 to 2019 in Korea. From a policy perspective, our finding implies that DT-driven innovation in the sector can benefit financial customers if excessive levels of profit are restrained through market competition.

The Chance of FinTech to be a New General-Purpose Technology

“…The multiple positive effects of FinTech are said to have welfare-enhancing effects (Vives, 2017;Ozili, 2018;Venet, 2019, Park, Kesuma, & Cho, 2021. In this context, it is assumed that FinTech will lead to efficiency improvements and improve financial intermediation (Philippon, 2017;Cho, 2020).…”

“…The latter results from reduced costs as well as risk, tailored products, narrowing the credit gap, improving financial inclusion, better price discrimination, etc., among others. (Frame, Wall & White 2018;Cho, 2020;OECD 2020;Park, Kesuma, & Cho, 2021;Treu 2022;Treu, 2022a). However, most of these statements lack an analytical framework to determine the aggregate welfare effects of FinTech.…”

“…The view is predominantly due to technological change resulting from advances in telecommunications, information technology, and financial practices. Consequently, these technological advances have led to financial innovations that have transformed many financial products, services, production processes, and organizational structures (Frame, Wall & White, 2018;Park, Kesuma & Cho, 2021). At the same time, macroeconomic positive effects occur as there is an endogenous and mutually reinforcing relationship between financial development and economic growth (King & Levine, 1993;Park, Kesuma & Cho, 2021).…”

“…This is followed by the second question: What is the impact of FinTech at the aggregate level and as a potential GPT on overall economic welfare? This point is seen as positive by various authors solely against the background of efficiency improvements (including Philippon, 2017;Vives, 2017;OECD 2020;Cho, 2020;Lehmann-Uschner & Menkhoff, 2020;Park, Kesuma & Cho, 2021). Macroeconomic considerations of the extent to which digital technologies or innovations in financial services change welfare in an aggregate model and how this may affect macroeconomic variables have not yet been explored, according to BIS (2019).…”

Research trends on digital transformation on financial market development

“…Several findings from previous studies examining the relationship between digital transformation and financial market development can play an important role in supporting the growth of economic strength (Indah et al, 2020). Rapid progress has been made in digital transformation (DT) through the delivery of various types of financial market services, often referred to as FinTech (or financial technology), covering areas such as P2P lending and crowdfunding (Park et al, 2021), to understand the meaning of the nature of digital transformation in the development of financial markets (Pasqualino et al, 2021). Keywords: market evolution, fintech impact, economic digitalization, financial innovation, global collaboration trends In this context, digital transformation mechanisms in financial market development, and analyzing digital transformation in financial market development.…”