Modeling the effect of electronic banking expansion on profitability using neural networks and system dynamics approach

Abstract

Purpose The purpose of this study is to investigate the effects of electronic banking (e-banking) on the profitability of banks is an important subject. Although there are many studies in this area, the effect of using different e-banking instruments, such as internet banking, telephone banking, ATM and POS, was not investigated comprehensively, using a system dynamics approach. To fill this gap, the present study tried to develop an analytical model with a systematic approach through identifying the effects of different areas of e-banking services in a financial institution. Design/methodology/approach The income and cost of each transaction via different e-banking services were identified and the incomes and costs, number of transactions and other model variables were predicted for the next period using a single-layer neural network (perceptron). The proposed model was designed based on the system dynamics approach. Then, rates and auxiliary variables were introduced to the model based on the prediction data. Finally, the model was validated and different scenarios were examined. Findings Results showed that increased investment on e-banking can increase online customers, thereby boosting the bank’s incomes through raising transaction fees and acquiring additional resources. On the other hand, the need for physical branches and associated costs reduces with increasing the tendency of traditional customers toward using e-banking services. Simulation results showed that although the expansion of e-banking carries a huge financial burden on the bank, the costs reduce and profitability significantly increases with time. Originality/value This study can be used by senior managers of the bank throughout e-banking planning. This is because it systematically addressed the effects of e-banking expansion on different (banking) areas. The present study may also encourage researchers to conduct more extensive studies.

The Impact of Financial Technology Payment on Bank Fee-Based Income

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“…Many banks adopted internet/online banking to reduce costs, increase revenue growth, and customer convenience. A bank that offers internet banking products to their customers has a higher performance because bank income increases through raising transaction fees (Ciciretti et al, 2009;Shahabi & Faezy Razi, 2019). In this phase, fee-based income has a considerable contribution to the bank's profit (Smith et al, 2003).…”

Impact of Electronic Banking on Operational Performance of Commercial Banks in Sri Lanka

“…Further, this study referred to each sampled bank website for more detail. (Maiyo, 2013) and (Shahabi & Faezy Razi, 2019) stated the data collected 5 years.…”

Issues of E-Banking in Pakistan: Managers’ Perceptions about E-Banking Issues

“…The technical perspectives from the point of neural networks and FinTech also a point of value for consideration (Jünger & Mietzner, 2019;Shahabi & Faezy Razi, 2019).…”

“…The existing research highlights that with the advancement of electronic distribution channels, there are spectacular modifications in the financial industry. Each financial institution is now trying to improve its services to survive in such a competitive environment (Palas et al, 2019;Raza & Hanif, 2011;Shahabi & Faezy Razi, 2019;Sharma, 2011). E-banking system provides an opportunity for everyone to access their banking activities round the clock.…”