Complementarity of the Impact of Alternative Service Channels on Bank Performance

Faced with intense competition, banks have deployed information technology (IT) to serve customers more efficiently and effectively in diverse ways. The challenge bank managers face is in utilizing alternative service channels to win customers and retain competitive advantages. This study investigates the impact of banks’ use of channel mix strategy. We show strong complementarities between traditional branch channel and IT-based self-service channels on performance. The value provided by a channel depends both on its own level of investment and investments in other channels. It can be misleading to examine channels independently or simply view each channel as a substitute for other channels. Even though different channels do substitute each other to some extent, migration of transactions from traditional channels to the IT-based channels may change customers’ overall demand such that it increases demand for all channels by transforming traditional channels to perform more value-added services or serve more profitable customers.