The Anatomy of Banks’ IT Investments: Drivers and Implications

Abstract

Most recent version: here. We thank Gianluca Yong Gonzalez for outstanding research assistance and Constantine Yannelis (discussant), Ambrogio Cesa-Bianchi and seminar participants at IMF for their insightful comments. All remaining errors are our sole responsibility. The views expressed in the paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or its Management nor of the Federal Reserve Board or the Federal Reserve System.

Digital innovation and de‐branching in the banking industry: Customer perception and satisfaction

“…The model includes two main independent variables that are key to explaining the dependent variables. Firstly, in line with prior literature (Aldasoro et al., 2022; Dadoukis et al., 2021; Modi et al., 2022), we measure banks' digitalisation by relying on their spending on information technologies. This allows us to examine whether investment in technology leads to greater perceived innovation and satisfaction by customers.…”

“…Empirical studies have shown that banks are more likely to adopt a technology if their direct and geographically closer competitors have already done so (He et al, 2021;Hernández-Murillo et al, 2010). Similarly, Modi et al (2022) demonstrate how competition…”

“…Similarly, Modi et al. (2022) demonstrate how competition from FinTech lenders forces traditional financial intermediaries to boost their technology investments to compete with their digital counterparts. Banks' size and current level of efficiency may also explain why they are more likely to go digital (Dandapani et al., 2018).…”

“…This paper aims to address this gap by exploring the relationship between technological innovation in the banking industry and banking customers' perception and satisfaction, using a customer survey of 2100 Spanish bank customers to assess their perceptions of their main bank's digital innovativeness and overall satisfaction. Empirically, the digital transformation of banks has been measured based on their spending on information technologies (IT), as in other studies (Aldasoro et al, 2022;Dadoukis et al, 2021;Modi et al, 2022). Meanwhile, the de-branching process has been measured by computing the variation in the number of branches at the province level for each bank.…”

“…Empirically, the digital transformation of banks has been measured based on their spending on information technologies (IT), as in other studies (Aldasoro et al., 2022; Dadoukis et al., 2021; Modi et al., 2022). Meanwhile, the de‐branching process has been measured by computing the variation in the number of branches at the province level for each bank.…”