Modeling the effect of electronic banking expansion on profitability using neural networks and system dynamics approach
Qualitative Research in Financial Markets
ISSN: 1755-4179
Article publication date: 5 June 2019
Issue publication date: 5 June 2019
Abstract
Purpose
The purpose of this study is to investigate the effects of electronic banking (e-banking) on the profitability of banks is an important subject. Although there are many studies in this area, the effect of using different e-banking instruments, such as internet banking, telephone banking, ATM and POS, was not investigated comprehensively, using a system dynamics approach. To fill this gap, the present study tried to develop an analytical model with a systematic approach through identifying the effects of different areas of e-banking services in a financial institution.
Design/methodology/approach
The income and cost of each transaction via different e-banking services were identified and the incomes and costs, number of transactions and other model variables were predicted for the next period using a single-layer neural network (perceptron). The proposed model was designed based on the system dynamics approach. Then, rates and auxiliary variables were introduced to the model based on the prediction data. Finally, the model was validated and different scenarios were examined.
Findings
Results showed that increased investment on e-banking can increase online customers, thereby boosting the bank’s incomes through raising transaction fees and acquiring additional resources. On the other hand, the need for physical branches and associated costs reduces with increasing the tendency of traditional customers toward using e-banking services. Simulation results showed that although the expansion of e-banking carries a huge financial burden on the bank, the costs reduce and profitability significantly increases with time.
Originality/value
This study can be used by senior managers of the bank throughout e-banking planning. This is because it systematically addressed the effects of e-banking expansion on different (banking) areas. The present study may also encourage researchers to conduct more extensive studies.
Keywords
Citation
Shahabi, V. and Faezy Razi, F. (2019), "Modeling the effect of electronic banking expansion on profitability using neural networks and system dynamics approach", Qualitative Research in Financial Markets, Vol. 11 No. 2, pp. 197-210. https://doi.org/10.1108/QRFM-11-2018-0117
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited