Distribution Cost Optimization in an Increasing Banking Business Model Digitization

Abstract

This study examined which distribution process of financial services result in cost optimization to influence managerial decision making. It examined the extent to which the cost and production functions of the banking business models are influenced by digitization and customer relationship management cost centres. The study hypothesizes that relationship management as a cost centre is under significant pressure on account of changing customer behaviors and cost ineffectiveness in an era of growing digitization and as such the changing banking business model warrants its exit. Using the Stochastic Frontier Analysis model, analyzing the cost and production function of the banking business model, with data on ten commercial banks in Ghana from 2010 to 2018, the study finds that digitization of banking process and operations results in cost optimization and improve efficiency relative to relationship management. The finding is arrived at based on four different simulated scenarios of the cost and production functions of the banking business model using digitization and relationship management as intensity variables. The study, therefore, concludes that financial institutions must rather invest in digitization rather than relationship management, as the disruptive nature of digitization is obviously writing the last chapter of relationship management within the banking business model.