Relationship Banking and Information Technology: The Role of Artificial Intelligence and FinTech
Forthcoming in Risk Management
31 Pages Posted: 26 Oct 2017 Last revised: 2 Apr 2018
Date Written: March 29, 2018
Banks have no time for complacency. They need to reevaluate their competitive advantages in light of profound changes driven by advances in information technology (IT) and competitive pressure from FinTech companies. This article emphasizes that banks should not abolish relationship banking, which nurtures close contact with bank customers. A long-term orientation of relationship banking streamlines incentives and supports the long-term needs of bank customers. However, banks might be lured into transaction banking due to the presence of IT-driven economies of scale and competition from FinTech start-ups and IT companies. In this light, the article evaluates the role of distances, artificial intelligence, and behavioral biases. Implications for stability in banking are explored. We argue that relationship banking can overcome its drawbacks, but it needs to adjust to the new reality in order to survive.
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