Impact of Customers’ Digital Banking Adoption on Hidden Defection: A Combined Analytical-Empirical Approach

Forthcoming, Journal of Operations Management

47 Pages Posted: 1 Oct 2019 Last revised: 20 Nov 2019

See all articles by Yoonseock Son

Yoonseock Son

University of Notre Dame - Mendoza College of Business - IT, Analytics, and Operations Department

Hyeokkoo Eric Kwon

Nanyang Business School, Nanyang Technological University, Singapore

Giri Kumar Tayi

SUNY at Albany - School of Business

Wonseok Oh

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Date Written: September 19, 2019

Abstract

The implementation of digital channels as avenues for economic transactions (e.g., online and mobile banking/FinTech) has shifted the paradigm of customer–bank interactions, providing unprecedented opportunities for both parties. The prevailing belief is that digital banking has several advantages, such as lower costs and higher information transferability for customers. These benefits can also promote competition between banks given customers’ predilection for “multi-homing,” or engagement with multiple banks. This study investigated the impact of customers’ digital banking adoption on hidden defection, in which customers purchase financial products from competing banks instead of their primary banks. To this end, we developed an analytical model to provide insights into the effects of digital banking adoption while taking customers’ multi-homing behaviors into consideration. We then conducted a series of empirical analyses using comprehensive individual-level transaction data to provide evidence of hidden defection. Our findings indicate that customers with higher loyalty exhibit greater hidden defection after digital banking adoption. Customers who engage primarily with personal-service channels (e.g., branches) show stronger hidden defection than do self-service channel (e.g., ATMs) users, and this effect is more prevalent among loyal customers. Our results provide valuable implications for omni-channel services in a market characterized by multi-homing behavior of customers.

Keywords: digital banking adoption, online and mobile banking, FinTech, customer defection, omni-channel strategy, multi-homing, transaction cost economics, information stickiness, panel data, econometric analysis, difference-in-differences model, analytical model

JEL Classification: D2, M1, M2

Suggested Citation

Son, Yoonseock and Kwon, Hyeokkoo Eric and Tayi, Giri Kumar and Oh, Wonseok, Impact of Customers’ Digital Banking Adoption on Hidden Defection: A Combined Analytical-Empirical Approach (September 19, 2019). Forthcoming, Journal of Operations Management, Available at SSRN: https://ssrn.com/abstract=3456769

Yoonseock Son

University of Notre Dame - Mendoza College of Business - IT, Analytics, and Operations Department ( email )

Notre Dame, IN 46556
United States

Hyeokkoo Eric Kwon (Contact Author)

Nanyang Business School, Nanyang Technological University, Singapore ( email )

S3 B2B-71, 50 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://sites.google.com/view/erickwon/

Giri Kumar Tayi

SUNY at Albany - School of Business ( email )

1400 Washington Ave.
Albany, NY 12222
United States
518-442-4947 (Phone)

Wonseok Oh

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro Dongdaemun-Gu
Seoul 02455
Korea, Republic of (South Korea)

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