Digital Transformation of

Banking Services

RELATIONSHIP BETWEEN BANKING SERVICES AND

TECHNOLOGY
 Introduction

 Information and communication Technologies (ICT) have influenced

in many ways in shaping the banking services.

 With the growth of ICT and associated applications software, banks

could continuously
 expand their operations
 introduce varieties of new products and
 improve operational efficiency
 Threat of new entrants
(Potential Competitors)

Bargaining Competition Bargaining

power of within banks power of
Investors customers

Threat of Substitute
services propelled
by IT

Five Competitive Forces that determine banking sector Competition. How

does these forces are influenced by technology?
Impact of Technological change and growth

Facilitates Globalization of banking operations

 Electronic payments have facilitated long-distance banking

 Physical distances between banks and their borrowers

have grown. IT developments have led to proliferation and
continuous improvements in transaction lending techniques
Technology help to Enhance profitability and
support services reach

 Greater and more diverse employment of various retail

payment technologies is positively related to bank profitability

 The amount of information available over the internet is vast.

Banks exchange information through credit bureaus and take into
account information available through media, credit-rating
agencies, and analysts
Technology help to Enhance customer
relations

 Effective payment technology spurs banks to form close,

long-term relationships with their customers

 Social media and related application packgges helps to

collect information about the customer, for the customer
and of the customer. Customer insights help to serve the
customer better leading customer satisfaction.
Empowered Customer in terms of flexibility
and choice

 On peer-to-peer lending platforms—such as Prosper

Marketplace, Lending Club, SoFi, and Stilt—consumers
can either act as borrowers or lenders and work to
evaluate creditworthiness and mitigate information
asymmetries on their own.
Increased capacity of information/data
storage and processing.

 Extraordinary increase in data storage capacity, in

electronic media helped to go for big data. Big data and
artificial intelligence helps reveal many unforeseen events
and trends of the bank’ operation.
Threat from new entrants in certain bank functions

 Banks are facing increased competition from FinTech start-ups

and established IT companies such as PayPal, Facebook, Apple,
Google, and Amazon that are entering traditional banking
businesses

 Payments is another typical banking business that FinTech

startups such as Stripe, Square, and established IT companies
such as PayPal are trying to disrupt. Facebook supports money
transfers. Apple Pay, Android Pay, and Google Wallet are building
on mobile payments
 Degree of innovativeness

Linkage of the technology with other

parts/components in the final product

Kind/purpose of Innovation

Innovation Impact on competence

10
 Competence-Enhancing and
Competence-Destroying Innovation

During the 1950s and 1960s

In the early 1970s, a new
Keuffel & Esser was the
innovation relegated the slide-
prominent slide-rule maker in
rule to collectors and
USA
museum!
(HP and Texas Instruments)
11
 Competence-Enhancing and
Competence-Destroying Innovation

 Radical new technology does not always undermine the

capabilities of incumbent firms

 Established firms are able to transition to a radical

technology when that technology is competence-
enhancing but fail to do so when it is competence-
destroying
Disruptive Technology
Is an innovation (technological or non-
technological) that helps create a new market
and value network, and eventually goes on to
disrupt an existing market and value network
(over a few years or decades), displacing an
earlier technology.

The term is used in business and technology

literature to describe innovations that improve
a product or service (usually same technology)
in ways that the market does not expect,
typically first by designing for a different set of
consumers in a new market and later by
lowering prices in the existing market.

13
 Disruptive Technology: How it works!

 In the beginning, it is inferior to existing technology in some

dimensions, and it has a value in one or two dimensions over
the existed technology
 Small segment of the market will value these one/two
dimensions
 In short time, the disruptive technology performance improves
so fast and overtake the existing technology
 The mainstream market move into the new disruptive
technology

14
 Why Established Firms Fail When
Facing Disruptive Technologies
Small Markets
Companies Depend Don’t Solve the
on Customers and Growth Needs of
Investors for Large Companies
Resources

Market that Don’t An Organization’s

Exist Can’t Be Capabilities Define
its Disabilities
Analyzed
(processes and
value)

Why some established companies were not able to

adopt the new technologies?
15