This study explores how IT investment impacts productivity in banking, revealing that while excessive IT spending can hinder productivity for BRICS banks, European banks benefit more from investing in research and development.
Authors
Navendu Prakash, Assistant Professor, Jindal School of Banking & Finance, O. P. Jindal Global University, Sonipat, Haryana, India
Shveta Singh, Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi, India
Seema Sharma, Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi, India
Summary
IT-driven productivity growth offers banks an intriguing opportunity to differentiate their offerings in a monopolistic market, introduce attractive products, enhance customer service, streamline back-office processes, and ultimately achieve the twin goals of cost minimization and profit maximization. However, there has been no convincing explanation for the observed divergence in the IT-productivity literature, raising doubts about whether IT can significantly improve performance in contemporary banking markets.
The article examines the role of IT-led productivity growth in governing the direction and magnitude of intra-industry and inter-country convergence by investigating the potential nonmonotonicity of IT in influencing frontier-based efficiency of the BRICS and European banking markets.
Findings reveal U-shaped associations between IT and cost (profit) efficiency, suggesting that excessive investment in IT may explain the productivity conundrum for BRICS nations. IT capital is not a significant driver of cost efficiency for European nations. Nevertheless, R&D spending significantly influences frontier efficiency, reinforcing that European banks can achieve frontier-level performance by investing in innovative solutions. Inter-regional comparisons reveal that BRICS banks are converging with their European counterparts by leveraging IT solutions, while diminishing marginal benefits for the latter reinforces the presence of a catch-up effect. Intra-industry comparisons reveal that size, age, and R&D intensity drive technological catch-up and convergence.
Published in: Economic Systems
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