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Revolutionizing Banking: Neobanks’ Digital Transformation for Enhanced Efficiency

Author

Listed:
  • Riris Shanti

    (School of Business, IPB University, Bogor 16151, Indonesia)

  • Hermanto Siregar

    (Department of Economics, Faculty of Economics and Management, IPB University, Bogor 16680, Indonesia)

  • Nimmi Zulbainarni

    (School of Business, IPB University, Bogor 16151, Indonesia)

  • Tony

    (Indonesia Financial Services Authority, Jakarta 10350, Indonesia)

Abstract

Changes in customer behaviors after the COVID-19 pandemic have encouraged the transformation of banking systems. Neobanks have emerged as an innovation and entered the banking system to compete with traditional banks by offering new customer experiences. Neobanks transform traditional banking products and services which are delivered through physical interactions into those delivered via digital channels. This paper analyzes traditional banks that have transformed into neobanks, specifically their efficiency after digital transformation. Efficiency was measured using Stochastic Frontier Analysis (SFA), as it is highly accurate in estimating efficiency scores. This study also used a Pooled Mean Group (PMG) estimation of the Panel ARDL (Autoregressive Distributed Lag), as this approach is useful for analyzing the relationship between variables in panel data, to investigate digital transformation as a determinant of neobanks’ efficiency and examine the existence of short-term and long-term relationships between digital transformation and efficiency. We found that the efficiency of neobanks increases after digital transformation. Furthermore, it can be concluded that digital transformation is a determinant of efficiency and that there is long-term relationship between digital transformation and efficiency. In the short term, digital transformation has a significant negative correlation with efficiency, but in the long term, it has a significant positive relationship; this is because the cost of digital transformation initially decreases the profit efficiency, but afterwards, it increases the efficiency.

Suggested Citation

  • Riris Shanti & Hermanto Siregar & Nimmi Zulbainarni & Tony, 2024. "Revolutionizing Banking: Neobanks’ Digital Transformation for Enhanced Efficiency," JRFM, MDPI, vol. 17(5), pages 1-21, May.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:5:p:188-:d:1387561
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    References listed on IDEAS

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