Digitization of Financial Services and Firm Performance

This dissertation focuses on the digitization of financial services in financial institutions (FIs) and investigates whether and how digitization efforts can help firms improve their performance. We conduct two studies each answering key questions from a different angle. Study 1 starts with the increasing digital investments of FIs and investigates whether FIs can gain positive returns from their investment in emerging digital technologies. Given the lack of proper tools to measure how well FIs have utilized their digital investments, we propose a new approach using data envelopment analysis to capture returns on investment in digital technologies. Additionally, we adopt a two-stage analysis to further investigate the factors that could potentially improve the returns. Our findings show that FIs have had decreasing returns on investments in digital technologies over time. Particularly, it is the inefficient resource management, rather than the invested technologies themselves, that prevent FIs from realizing the benefits of digital investment. We suggest that it is essential for FIs to continuously assess and monitor the implementation of their digital investments and learn how to optimally deploy technological resources internally. Our study also shows that FIs can gain better performance by actively enhancing their innovation capability and collaborating with FinTech firms. Study 2 turns to the digitization of existing services that FIs provide to individual customers and examines whether elevating digitization capability would improve performance. We first define a new construct to capture the ability of FIs to actively utilize emerging digital technologies to digitize service offerings. We then propose a new theoretical model in which the drivers and outcomes of building digitization capability are linked together. To empirically test the model, we collect both primary data from a well-designed, web-based survey and secondary data from FI annual reports. We first show that elevating digitization capability is indeed beneficial for FIs to gain better performance. We also show that focusing on digital-savvy customers and aligning the front-office back-office process are two important drivers for FIs in the development of their digitization capability, and these efforts also indirectly help improve performance.