Interdependence of Alternative Service Channels on Bank Performance

1. Introduction Facing continuously changing and highly competitive business environment, banks have invested heavily in information technology (IT) to enhance operating efficiency and sustain competitive advantage. Banks have deployed different IT to offer multiple service channels to serve customers and satisfy their needs. Strategically utilizing IT to optimize operating performance, banks have continued some functions with traditional branch-based channel, and enhanced their functionality by introducing alternative IT-based service channels, such as automated teller machines (ATMs) and internet banking. Relieving the pressure on branches enables banks to perform diverse financial transactions more efficiently and also attract high-end customers by providing more personalized services. IT-based service channel may significantly lower costs of serving customers. Internet banking allows customers to perform many banking functions anytime and anywhere, while ATMs provide some services not possible by internet banking, such as withdrawing money around the clock. This suggests that a bank's channel mix strategy may influence a customer's decision of who to bank with and how to use alternative channels, but in turn also impact the bank's financial performance. Much IS research in the banking industry has focused on examining the determinants of IT adoption from the customer perspective. There is very little empirical research that examines how multiple service channels (traditional service channels vs. IT-based service channels) impact bank performance, in particular the complementary relationship between channels. In this paper, we examine the impact of alternative service channels on bank performance simultaneously, from firm perspective. The examination of interdependence of alternative service channels further provide insights on how the utilization of channel mix strategy contributes to the improvement of a bank's short-term operating efficiency and long-term market value. This study contributes to the literature on the business value of IT by examining the impact of both traditional and IT-based service channels on firm performance while taking into account other competing firms' strategies in the market, and by investigating how these relationships are captured in different dimensions of performance in a competitive setting. 2. Hypotheses The use of alternative service channels has changed the traditional way of understanding and undertaking banking activities (Portela and Thanassoulis 2007). For short-term operation, utilization of alternative service channels contributes to the improvement of operating efficiency. For long-term operation, efficient channel mix strategy enhances a bank's market competition ability. In the following paragraphs, we hypothesize the impact of multiple service channels on bank short-term and long-term performance, respectively. Branch banking …