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2023 | OriginalPaper | Chapter

10. The Digitalization of the European Banking Industry: Some Evidence

Authors : Santiago Carbó-Valverde, Pedro J. Cuadros-Solas, Cristina Gonnella, Francisco Rodríguez-Fernández

Published in: New Challenges for the Banking Industry

Publisher: Springer Nature Switzerland

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Abstract

The relevance of technology has increased for the banking industry. Improving banks’ technological skills is crucial to compete in a digital post-pandemic context. This chapter examines the digital transformation of the European banking industry by focusing on the annual banks’ expenses on information technology (IT). Using a representative sample of European banks from 2017 to 2021, we find that the ratio of IT expenses to total operating expenses and the ratio of IT expenses to total operating income have increased by 1.02 percentage points (+10.34%) and 0.95 percentage points (+15.82%), respectively. Moreover, becoming a high-IT bank is associated with some bank features. Less capitalized, riskier, more profitable, and less efficient and those banks that exhibit a lower growth of total assets spend more on IT. The chapter also reveals that banks are taking a step forward in critical IT areas such as artificial intelligence, blockchain, cloud computing, biometrics, and big data.

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Footnotes
1
The terms “expense” and “investment” are used interchangeably throughout the manuscript. The accounting standards consider all the economic resources employed for technological purposes as an expense. Specifically, they are part of the total operating expenses. However, from an economic point of view these IT expenses could be considered as an investment as they lead to growth. While accountants treat IT spending as an expense rather than as an investment, though there is continuous debate over whether this is the correct classification, the accounting distinction between an investment and an expense is not relevant for our purposes. As Beccalli (2007) states, the term “investment” does not assume any accounting qualification.
 
2
Most of the studies have used the one collected by the marketing intelligence company Aberdeen (previously known as Harte Hanks). This company provides this information for over 3,2 million establishments in the United States.
 
3
For example, Timmer et al. (2021) show that the correlation between the IT budget and the number of computers as a share of employees was 0.65 in 2016. Moreover, using data from 2016, they also show that there is also a positive correlation between PCs per Employee and the probability of adoption of cloud computing.
 
4
Banks tend to disclose this information as part of “Other administrative expenses”. Together with the technology-related expenses, banks also report information on expenses related to advertising, marketing and communication, consulting, professional services, and administrative and logistic services. To ensure that we are capturing the total IT expenses, following Kovner et al. (2014) and Modi et al. (2022), we classify an expense line as “IT expense” if its description contains any IT-related keyword such as “IT expenses”, “Technology and systems”, “Technology spend”, “Technology and system costs”, and/or “IT services”.
 
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Metadata
Title
The Digitalization of the European Banking Industry: Some Evidence
Authors
Santiago Carbó-Valverde
Pedro J. Cuadros-Solas
Cristina Gonnella
Francisco Rodríguez-Fernández
Copyright Year
2023
Book
New Challenges for the Banking Industry

Print ISBN: 978-3-031-32930-2

Electronic ISBN: 978-3-031-32931-9

Copyright Year: 2023

DOI
https://doi.org/10.1007/978-3-031-32931-9_10