The Effect of Banks' IT Investments on the Digitalization of their Customers

Abstract

Banks all over the world are investing in new banking technologies at a time when bank customers are progressively going digital in several dimensions of their economic and social interactions. Together with their existing perceptions of digital services, new banking technologies may path the way to accelerate the digitalization of bank customers, thereby achieving private and social efficiency gains. This paper exploits the fact that banks' IT investments are mostly allocated to digital technologies to examine if such investments affect the digitalization of bank customers. The results show that banks' IT investments have a significant positive impact on the adoption of financial digitalization by customers. Banks' IT investments also increase the likelihood that bank customers undertake their financial transactions through digital channels rather than in the physical branch. This represents a change in the relationship banking channel. These findings shed light on the impact of banks' IT investments on end-users and not just on bank productivity and efficiency. Policy Implications• Regulators should consider the impact of banks' technological advances on financial digitalization. In the new digital financial era, which is driven by new banking technologies, regulators should be aware of the potential impact of technological changes driven by the banking industry.• Enhancers of technological transformations at companiesin both banking and other sectorsshould consider the impact of these changes on end-users and not on just on firm efficiency.• Since banks' IT investments in new technologies affect customers' digitalization, financial authorities should adopt policies that foster digitalization but also guarantee the highest level of security by protecting consumers from privacy violations and digital fraud.• The positive externalities of banks' investments in technology should prompt public authorities to consider classifying the amount spent as an investment rather than an expense, which would foster these technological investments and allow banks to free up capital.Over the past two decades, technological innovations have transformed individuals' lives and the economy. New terms, such as 'the technological revolution' and 'the new economy', have been coined in order to capture how innovations have given rise to new services, new job definitions and new managerial functions across various economic sectors. These innovations have occurred as a result of breakthrough technologies, such as artificial intelligence and blockchain, and also of incremental technologies, such as the diffusion and increased accessibility of digital channels. This process Global Policy (2020) 11:Suppl.1

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