Business & Economics
Technological innovation has restructured the marketplace creating cost advantages in many industries. One industry that has experienced significant change is the banking industry. The widespread applications of Information Technology (IT) complemented with the adoptions of Automated Teller Machines (ATMs) have changed the face of the banking industry: by providing banks with the opportunity to improve certain operational efficiencies IT is giving them a competitive advantage in a consolidating industry. Brick and mortar banks are no longer an operational necessity. The banking industry through recent deregulations now has the ability to enter new and previously untapped markets with relatively low entry fees. Increased profits generated from processing efficiencies and rising revenues have created the climate for increasing competition.
There are arguments that the early adoption of these technologies has created a first move advantage for these firms driving forward the best-practice frontier. If this is true, we would expect that these best-practice frontier firms have achieved a higher range of production output due to the early adoption of technology, relative to other firms in their sector, where they have been able to lower per unit cost over a wider range of output and thereby gaining a competitive advantage.
This study investigates whether or not there is a competitive advantage to be gained in the banking industry due to an increasing level of IT. This will be measured through two distinct models that will identify any significant effect on the level of deposits and efficiency through changes in IT performance. If the model shows that higher levels of IT generate a greater total dollar amount of deposits then the argument can be formed that IT performance can shift the LAC curve creating a competitive advantage when setting prices.
Gulnac, John, "Profit Maximization in the Banking Industry: Early Adoption of Technology and its Effects on Efficiencies" (2003). Business and Economics Honors Papers. 20.