“Digital banking impact on Turkish deposit banks performance”

Eyup Kahveci https://orcid.org/0000-0002-5941-1387

AUTHORS
Bert Wolfs https://orcid.org/0000-0001-8606-7182

Eyup Kahveci and Bert Wolfs (2018). Digital banking impact on Turkish deposit
ARTICLE INFO banks performance. Banks and Bank Systems, 13(3), 48-57.
doi:10.21511/bbs.13(3).2018.05

DOI http://dx.doi.org/10.21511/bbs.13(3).2018.05

RELEASED ON Wednesday, 01 August 2018

RECEIVED ON Thursday, 21 June 2018

ACCEPTED ON Thursday, 05 July 2018

LICENSE This work is licensed under a Creative Commons Attribution 4.0 International
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JOURNAL "Banks and Bank Systems"

ISSN PRINT 1816-7403

ISSN ONLINE 1991-7074

PUBLISHER LLC “Consulting Publishing Company “Business Perspectives”

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NUMBER OF REFERENCES NUMBER OF FIGURES NUMBER OF TABLES

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© The author(s) 2019. This publication is an open access article.

businessperspectives.org
Banks and Bank Systems, Volume 13, Issue 3, 2018

Eyup Kahveci (Turkey), Bert Wolfs (Switzerland)

Digital banking impact

on Turkish deposit banks
BUSINESS PERSPECTIVES
performance
Abstract
The technological developments in the banking sector have significant implications
for banks and are dramatically changing the way retail banks conduct their business.
LLC “СPС “Business Perspectives” Banks can invest in digital banking (DB) services either to acquire a strategic advan-
Hryhorii Skovoroda lane, 10, Sumy, tage or because doing so has become a strategic necessity. This study is organized to
40022, Ukraine examine if DB service channels have any positive or negative impact on Turkish de-
www.businessperspectives.org posit banks’ performance. With this aim in mind, in the first stage of the proposed DEA
model, physical assets are used. Then, in the second stage, DB service channels are
added to see if they have any impact on banks’ performance. The results show that the
banks are investing in DB services just to keep the competition as it is. In other words,
they invest in DB services as a strategic necessity. DB services do not provide any stra-
tegic advantage to any banks in terms of financial performance or efficiency since the
banks are already efficient. Investing in DB only helped to preserve their strategic po-
sitions. The Turkish deposit banking industry is very competitive and very profitable,
and it is necessary to invest in DB services just to keep the competition as it is.

Received on: 21st of June, 2018 Keywords digital banking, bank performance, strategic advantage,
Accepted on: 5th of July, 2018 competitive advantage, strategic necessity
Žƒ••‹ˆ‹…ƒ–‹‘ G21, L21, L25, O33


© Eyup Kahveci, Bert Wolfs, 2018
The technological developments in the banking sector, digital bank-
ing (DB) in particular, have significant implications for banks and are
Eyup Kahveci, Ph.D., Senior Lecturer,
SBS Swiss Business School, Turkey. dramatically changing the way retail banks are conducting their busi-
Bert Wolfs, Dr., Academic Dean, SBS ness. Over the last decade DB has had a major impact on customer
Swiss Business School, Switzerland. interfaces. The speed of change has increased because of the introduc-
tion of new technologies and evolution of customer needs. Telephone,
Internet and mobile banking have become major ways of delivering
multi and even omni-digital channel DB services to customers, a shift
that is challenging traditional banking services (Cortiñas, Chocarro,
& Villanueva, 2010). DB enables customers to conduct banking trans-
actions anytime and anywhere, faster and with lower fees, therefore
it is more attractive for customers compared to traditional banking
services (Sayar & Wolfe, 2007). Despite the fact that DB has important
and valuable advantages for customers, they have embraced DB ser-
vices to different degrees. Nevertheless, more and more basic banking
transactions are shifting from physical channels to digital channels,
leading to a major transformation of banks’ strategic positions. Most
banking institutions invest in IT to improve delivery of financial ser-
vices on digital channels to keep pace with global competition.
This is an Open Access article,
distributed under the terms of the
Creative Commons Attribution 4.0 All DB services have distinct advantages to both customers and banks
International license, which permits
unrestricted re-use, distribution, in terms of providing convenience, innovation, accessibility and user
and reproduction in any medium, friendly platforms, saving time and money, lowering transaction costs,
provided the original work is properly
cited. supporting customer relations, increasing and keeping a profitable

48
 Banks and Bank Systems, Volume 13, Issue 3, 2018

customer base, expanding the market share, decreasing the dependence on traditional banking services
and branches, and responding quickly and more accurately to the customer’s constantly changing needs
and expectations.

As customers’ behaviors and needs change and expectations increase, preserving the current ones and
gaining new ones at the same time as increasing profitability and decreasing costs becomes key, espe-
cially in a highly competitive and almost zero (even negative) interest rate global environment. In this
regard, DB enables banks to improve services for changing customer needs, minimize costs by reducing
physical transactions with customers in branches, reduce the gap between customer expectations and
delivered services (Japparova & Rupeika-Apoga, 2017), boost customer loyalty and satisfaction and gen-
erate revenue from different consumer segments.

The adoption of information technology (IT) in the banking sector has significantly changed the bank-
ing structure from the traditional banking system to the digital banking system. Advances in IT have
been the driving force of DB services for banks over the years. Advances in IT can affect the firms in
two ways. First, by investing in IT, firms can extend their business models, improve their business pro-
cesses, efficiency and effectiveness, and increase customer satisfaction. In this way they can acquire
competitive and strategic advantage by investing in IT. In this first way firms invest in IT deliberately
and proactively to gain strategic and competitive advantage. Goh and Kauffman (2013) define this view
as the strategic advantage perspective. Second, firms are forced to invest in IT by their competitors. As
technology becomes pervasive and more accessible, sustaining any strategic and competitive advantage
becomes a challenge. While competitors move rapidly to invest in IT, which enables them to gain a
competitive advantage, some of the firms can face sustained disadvantages in changing environments.
Goh and Kauffman (2013) define this view as strategic necessity. Since the market conditions force the
firms to invest in IT, in this case the firms are passive and reactive to the environmental conditions.
They have to invest in IT because the market conditions force them to. If they don’t invest in IT as their
competitors do, they can lose their market share, their current customer base and their opportunity to
gain new customers. In the first alternative, the firms who invest in IT define the market conditions. If
they invest in the appropriate technologies, which give them strategic advantage, they are the winners
in terms of customer satisfaction, market share and financial performance. Whatever the reason behind
the IT investment, in both cases, banks are trying either to gain the strategic advantage or strategically
to sustain their position by investing in DB services. But what would be the impact on the performance
or efficiency of the bank? Is it always profitable? Is it always efficient? In this study, DB services impact
on banks’ performance and efficiency is analyzed. Whatever the reason for adopting DB services, it is
essential to look at the impact on bank performance and efficiency. There is a large volume of research
into bank performance but much less on the impact of DB services on performance. Despite the impor-
tance of measuring bank performance based on the DB strategy, there is not enough empirical research
on this issue. Thus, this paper offers a new perspective on measuring bank performance by using Data
Envelopment Analysis (DEA) in terms of DB services and is providing a new insight into this issue in
terms of theoretical and practical results.

1.  as: customers’ perception about user friendliness

 and easy use, user interface quality, and Internet
and mobile banking service quality (Mbama &
 Ezepue, 2018).

The use of technology in DB and its impact on Some research shows that adoption of online bank-
meeting customer needs, increasing operational ef- ing technologies is a significant strategic choice for
ficiency and financial performance can be under- banks’ competitive position, since a wider range
stood by taking into account different factors such of online banking services plays a crucial role to

49
Banks and Bank Systems, Volume 13, Issue 3, 2018

influence the financial performance of a bank by new information technology adoption and online
providing more profit than for those with a lim- digital services offerings by community banks
ited online access (Acharya, Kagan, & Lingam, (Acharya et al. 2008; Chau & Lai, 2003; DeYoung
2008; Akhigbe & McNulty, 2003; DeYoung, Lang, et al., 2007).
& Nolle, 2007; Sayar & Wolfe, 2007).
It is vital to understand the channel preferenc-
Goh and Kauffman (2013) argue that there are es of the customers. Some of them prefer using
two reasons for IT investments: strategic advan- a single channel. They use only one channel at
tage and strategic necessity. In their case of the US a time, e.g. Branch or ATM or Internet banking.
commercial banking industry, strategic necessity Others prefer a multi-channel approach. Some
affects significantly IT investments and is more of them use more than one channel, e.g. Internet
critical than strategic advantage. Their research banking, call center, ATM and branches, etc.
indicates that (Goh & Kauffman, 2013): Therefore, banks are challenged to integrate all
banking services into an omni-channel which is
• Banks that have IT investments in Internet a multi-channel approach that seeks to provide
banking likely have better performance. the customer with seamless banking services
whether the customer is banking from a PC or
• IT investments are affected by bank transac- mobile device, or ATM, or in a branch, so that
tion cost and consumer deposits. customers experience the same level of service
regardless of how they are interacting with their
• IT investments that materialized to gain stra- banks. Thus, understanding this behavior and
tegic advantage seem to have been diminish- integrating all banking services channels con-
ing over the years, whereas IT investments sistently not only provide a strategic advantage
as a strategic necessity seem to have been but also are a competitive necessity for banks to
increasing. understand customer cross-channel transaction
behavior, provide a more robust and consistent
DeYoung (2005) mentions that Internet-only customer experience, and manage channels ef-
banking success primarily depends on attaining fectively (Liu, 2016).
necessary economies of scale and having neces-
sary skills to implement management processes. There are several different studies of the Turkish
However, some of the studies demonstrate that Banking Industry’s financial performance both
online banking as an alternative channel of bank- on a macro and micro level. Some of the papers
ing services has a favorable impact on retail bank- focus on individual banks (Atan, 2003; Atan &
ing performance (Acharya et al., 2008; DeYoung Catalbas, 2005; Çukur, 2005; Kahveci, Celen, &
et al., 2007). Ekşi, 2013; Kahveci, Ekşi, & Kaya, 2016), while
some of them focus on a bank as an indus-
Mbama and Ezepue (2018) analyzed the relations try (İskenderoğlu, Karadeniz, & Atioğlu, 2012;
between DB, customer experience and bank fi- Toraman, Ata, & Buğan, 2015; Tunay & Silpar,
nancial performance in the UK. To their findings, 2006).
quality of service and functions, value perception,
risk and usability perception and employee-cus- On the other hand, considerable research has
tomer relations are the determinants of customer been devoted to using DEA to measure the per-
experience in DB. They also found that custom- formance of banks (Çolak & Altan, 2002; Çukur,
er loyalty has a favorable impact on financial per- 2005; Kahveci, 2011; Kisielewska, Guzowska,
formance of UK banks and customer experience, Nellis, & Zarzecki, 2005), and the performance
satisfaction and loyalty are all significantly related of individual bank branches (Paradi, Rouatt, &
(Mbama & Ezepue, 2018). Zhu, 2011; Paradi & Schaffnit, 2004; Sherman &
Zhu, 2009; Yavas & Fisher, 2005). Therefore, in
The potential for increasing profitability by satis- this article, we have chosen DEA in order to eval-
fying customer expectations and decreasing re- uate the impact of DB on banks’ performance
lated costs is the primary driving force behind and efficiency.

50
 Banks and Bank Systems, Volume 13, Issue 3, 2018

Table 1. dŚĞďĂŶŬƐ͛ŵĂŝŶǀĂƌŝĂďůĞƐ
^ŽƵƌĐĞ͗ƵƚŚŽƌƐ͛ĐĂůĐƵůĂƚŝŽŶ͘ĂƚĂĨƌŽŵd͘

Total Total Total Net Number Number

Banks assets deposits capital profit of branches of employees

(Million TL) (Quantity) (Quantity)

dƺƌŬŝLJĞƵŵŚƵƌŝLJĞƟŝƌĂĂƚĂŶŬĂƐŦ͘b͘ 434,275 266,384 47,010 7,940 1,781 24,554
dƺƌŬŝLJĞ7ƔĂŶŬĂƐŦ͘b͘ 362,353 203,752 43,093 5,308 1,364 24,868
dƺƌŬŝLJĞ'ĂƌĂŶƟĂŶŬĂƐŦ͘b͘ 325,232 181,116 41,331 6,344 945 18,850
ŬďĂŶŬd͘͘b͘ 316,031 184,904 40,425 6,039 801 13,884
dƺƌŬŝLJĞ,ĂůŬĂŶŬĂƐŦ͘b͘ 305,351 193,227 25,377 3,725 969 17,851
zĂƉŦǀĞ<ƌĞĚŝĂŶŬĂƐŦ͘b͘ 297,810 169,347 30,098 3,614 866 17,944
YE&ŝŶĂŶƐďĂŶŬ͘b͘ 125,857 67,641 12,155 1,603 580 12,007
dŽƚĂů 2,166,908 1,266,372 239,489 34,574 7,306 129,958
/ŶĚƵƐƚƌLJƚŽƚĂů 3,095,039 1,713,185 345,031 47,083 10,550 193,504
ZĂƟŽ;dŽƚĂůͬ/ŶĚƵƐƚƌLJƚŽƚĂůͿ 70% 74% 69% 73% 69% 67%

2.  3. 

The aim of this article is to analyze the effects of
 
digital banking services on banks’ performance 
and efficiency by using DEA as an analytical
tool. DEA can be employed to analyze relative The output variables are related to the banks’
efficiency of organizations and/or parts of or- service and revenue, while the input variables
ganizations that are similar in terms of their re- measure the banks’ operating costs. In order
sources and their results. Multiple inputs and to evaluate deposit banks’ performance, used
multiple outputs can be utilized for efficiency models are shown in Figure 1 and Figure 2.
calculation. In the first model, three inputs that relate to
costs and physical banking: total assets (Nath,
In this regard seven deposit banks in Turkey have Nachiappan, & Ramanathan, 2010; Samad &
been chosen. The deposit banks’ second hand da- Patwary, 2003; Ulucan, 2000, 2002; Zhu, 2000),
ta and annual reports were obtained from their number of employees (Kahveci, 2011; Samad
web sites and from the Turkish Banks Association & Patwary, 2003; Ulucan, 2000, 2002; Yavas &
(TBA) web site. The seven deposit banks and their Fisher, 2005; Zhu, 2000) and number of branches
main variables are shown in Table 1. As shown, (Soteriou & Zenibs, 1999) in 2017; four outputs
these seven deposit banks make up 70% of assets, that relate to service and revenue: assets growth
74% of deposits and 73% of net profits of the total rate, total deposits, total credits (Kahveci et al.,
banking industry in Turkey. 2013); and net profit, in 2017 are used. Then, in

Asset Growth Rate

Input: Total Assets
Total Deposits
DMU: 7
Input: Number of Employees
Deposit Banks Total Credits

Input: Number of Branches Net Profit

Figure 1. &ŝƌƐƚƐƚĂŐĞŵŽĚĞů

51
Banks and Bank Systems, Volume 13, Issue 3, 2018

Input: Number of Branches

Asset Growth Rate
Input: Number of Employees

Input: Total Assets Total Deposits

Input: Number of POSs

DMU: 7
Deposit Banks
Input: Number of ATMs Total Credits

Input: Digital Banking

Market Share

Input: Number of Credit Cards Net Profit

Figure . ^ĞĐŽŶĚƐƚĂŐĞŵŽĚĞů

the second stage, DB service channel variables, 4. 

which are digital banking market share, number
of credit cards, number of ATMs (Thanassoulis, 4.1. Banking industry in Turkey
1999), and number of POSs, are included in cal-
culations as inputs. Obtained first and second The banking industry is a major part of the fi-
stage results are then analyzed to measure to nancial system in Turkey, accounting for 82% of
what extent DB service channels affect banks’ total assets. Deposit banks have 91% of all bank
performance. Therefore, it has been evaluated employees and 90% of all banks total assets as
how the DB services have impact on the bank’s of December 2017. There are 33 deposit banks in
efficiency scores. Efficiency calculations are Turkey, nine of them are privately owned, three
made by both MaxDEA and DEA-Solver LV state-owned, one bank is under the deposit insur-
software. Statistics on input and output data is ance fund and 20 foreign banks, according to the
given in Table 2. Turkish Banks Association (TBA).
Table . ^ƚĂƟƐƟĐƐŽŶŝŶƉƵƚĂŶĚŽƵƚƉƵƚĚĂƚĂ
Digital Banking

Total Deposits
Market Share,

Asset Growth

Total Credits
Credit Cards
Total Assets
(Million TL)

(Million TL)

(Million TL)

(Million TL)
Number of

Number of

Number of

Number of

Number of
Employees

Net Profit
Branches
Statistics

Rate, %
ATMs
POSs

Max 1,781 24,868 434,275 670,259 7,085 17.84 11,100,000 31.83 266,384 298,258 7,940

Min 580 11,854 125,857 112,000 2,817 4.79 524,554 14.36 67,641 82,672 1,603

Average 1,036 18,544 309,559 411,220 4,868 12.35 631,6679 20.27 180,910 211,178 4,939

SD 371 4,528 86,628 175,382 1,383 4.63 3,325,857 5.62 54,718 63,485 1,952

52
 Banks and Bank Systems, Volume 13, Issue 3, 2018

Banking services in Turkey were mainly delivered number of ATMs and POSs, call center employ-
in branches until 1987. Turkey Is Bank, Turkey’s ees and Internet and digital banking services has
largest private bank, was the first bank to intro- been increasing. On the other hand, the num-
duce digital (electronic) banking in Turkey in ber of bank branches where conventional bank-
1987 by establishing automatic teller machines ing transactions are conducted is either decreas-
(ATM) and Internet banking services in 1997, fol- ing or at least not increasing at the pace of DB
lowed by Garanti Bank the same year (Polatoglu services. Over the years, ATMs, POSs, Internet
& Ekin, 2001). Since 1997, digital banking services banking, call centers and mobile applications
in Turkey have been increasingly becoming part became a major part of all banking services,
of everyday life. Internet banking and ATMs were and total customers actively using digital bank-
the main digital banking services at the beginning ing services reached 35 million as of December
of the 2000s, and then call centers were added to 2017. Although, average credits per branch and
the digital banking services portfolio. After 2011, per population, and average deposits per branch
mobile applications emerged as a means of digital and per population have been constantly in-
banking. All these digital options offer different creasing over the years (Table 3), average pop-
interfaces and choices to customers. ulation per branch and average population per
bank employee have been pretty much same or
These technological advances and adoption of decreased over the years. This means that banks
DB services have shifted the banking industry’s have generated new channels (called alternative
historical reliance on branches. As a result, the distribution channels) to offer new products to
Table 3. dƵƌŬŝƐŚĚĞƉŽƐŝƚďĂŶŬƐŵĂŝŶǀĂƌŝĂďůĞƐ
^ŽƵƌĐĞ͗ĂƚĂĨƌŽŵd͛ƐǁĞďƐŝƚĞ͘

Variables 2010 2011 2012 2013 2014 2015 2016 2017

Number of 9,400 9,760 10,158 10,942 11,142 11,113 10,781 10,550

Branches
Number of
178,503 180,777 186,098 197,465 200,886 201,205 196,699 193,504
Employees
Number of Call
6,508 6,775 7,520 8,007 7,961 8,398 8,971 9,303
Center Employees
Number of ATMs 26,692 30,328 33,374 38,303 41,695 43,755 44,547 45,970
Number of POSs 2,102,585 2,224,032 2,441,597 2,443,514 2,611,571 2,481,688 2,499,320 2,169,471
Number of
1,698,510 1,898,431 2,044,851 2,232,009 2,402,150 2,605,680 2,553,167 2,449,900
Member Firms

Average Population
2,778 2,464 2,279 2,012 1,874 1,809 1,805 1,758
per ATM

Average Population 413 413 406 388 387 391 409 418
per Employee

Average Population
7,843 7,656 7,445 7,007 6,973 7,085 7,459 7,660
per Branch

Average Credits per

Branch (Thousand 47,928 62,079 70,967 87,592 103,397 124,623 151,609 195,236
TL)
Average Deposits
per Branch 59,521 66,720 71,294 80,618 89,219 105,503 129,698 162,387
(Thousand TL)
Average Deposits
per Population (TL) 7,589 8,714 9,576 11,506 12,795 14,890 17,389 21,200

Average Credits per 6,111 8,108 9,532 12,501 14,828 17,588 20,327 25,489
Population (TL)
Active Internet
Banking Customers 6,693,832 8,606,145 10,551,764 12,435,952 14,315,056 17,420,451 20,398,627 13,125,178

Active Mobile – 445,723 1,375,634 3,227,096 6,711,360 12,164,368 19,217,598 29,541,221

Banking Customesr

53
Banks and Bank Systems, Volume 13, Issue 3, 2018

meet the customer needs by DB services other while keeping the same outputs level, on the oth-
than branches. Banks shift their operations from er hand, the output oriented model aims to max-
conventional branches to DB services. imize outputs while keeping the same inputs lev-
el. In this study, the output oriented model is the
When we look at Table 1, it is evident that the most appropriate one since the main aim of the
number of ATMs, call center employees and active bank is to maximize deposits and credits and so
Internet and mobile banking customers have been profit (Kahveci, 2011, 2012).
constantly increasing. However, there was a very
significant change in 2017: while active Internet Although, the Constant Returns to Scale (CRS)
banking customers decreased sharply by 35%, ac- model, suggested by Charnes, Cooper, and
tive mobile banking customers increased rapid- Rhodes (1978), is used for technical efficiency, the
ly by 54%. Constantly increasing active Internet Variable Returns to Scale (VRS) model, suggested
banking customers over the years are shifting to by Banker, Charnes, and Cooper (1984), is used for
active mobile banking customers. Thus it is worth pure technical efficiency. An organization’s perfor-
examining the issue and searching for what DB mance defined by technical efficiency is described
services impact would be on banks’ performance by maximizing the produced level of outputs at
and efficiency. the given input level (Farrell, 1957). The technical
efficiency (CRS) score for a Decision Making Unit
4.2. Analysis of DEA scores (DMU) shows relative performance of particular
DMU compared to all other DMUs in that par-
Firstly, calculations are made for the first stage ticular sample. However, scale efficiency (SE) ex-
model by using banks’ physical assets, number of presses whether an organization is operating at its
employees, number of branches and total assets of optimal size. The relation between technical effi-
2017 as input; and asset growth rate, total depos- ciency and pure technical efficiency is defined by
its, total credits, and net profit of 2017 as output. the equation below (Kahveci, 2011, 2012; Ulucan,
Then, DB service channels, number of POSs, num- 2002).
ber of credit cards, number of ATMs and digital
banking market share are included in the model CRS VRS u SE. (1)
as inputs, and efficiency scores are recalculated
for the second stage model. Therefore, adding DB All the results for the first and second stage models
service channels to the model allows to determine are given in Table 4. When the results are analyzed,
how and to what extent DB service channels affect almost all the banks are efficient except Türkiye İş
banks’ efficiency scores. Bankası A.Ş. (Isbank) and Yapı ve Kredi Bankası
A.Ş. (YKB) in both stages. It is interpreted that
There are two traditional DEA models; first one is they are not efficient in terms of physical service
input oriented, second one is output oriented. The channels and digital service channels. Although
input oriented model aims to minimize inputs both banks are not efficient, they have over 0.9 in

Table 4. ĸĐŝĞŶĐLJƐĐŽƌĞƐŽĨDhƐŝŶďŽƚŚƐƚĂŐĞƐ
First stage Second stage
Technical Pure Technical Scale Technical Pure Scale
DMU Efficiency Efficiency Technical
Score Efficiency Efficiency Score Efficiency Efficiency
(CRS) Score (VRS) (SE) Score (CRS) Score (VRS) (SE) Score

dƺƌŬŝLJĞƵŵŚƵƌŝLJĞƟŝƌĂĂƚ
ĂŶŬĂƐŦ͘b͘ 1.00 1.00 1.00 1.00 1.00 1.00
dƺƌŬŝLJĞ7ƔĂŶŬĂƐŦ͘b͘ 0.91 0.93 0.98 0.91 0.91 1.00
dƺƌŬŝLJĞ'ĂƌĂŶƟĂŶŬĂƐŦ͘b͘ 1.00 1.00 1.00 1.00 1.00 1.00
ŬďĂŶŬd͘͘b͘ 1.00 1.00 1.00 1.00 1.00 1.00
dƺƌŬŝLJĞ,ĂůŬĂŶŬĂƐŦ͘b͘ 1.00 1.00 1.00 1.00 1.00 1.00
zĂƉŦǀĞ<ƌĞĚŝĂŶŬĂƐŦ͘b͘ 0.93 0.95 0.98 0.94 0.95 0.99
YE&ŝŶĂŶƐďĂŶŬ͘b͘ 1.00 1.00 1.00 1.00 1.00 1.00

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 Banks and Bank Systems, Volume 13, Issue 3, 2018

scores in both stages, it means that they are also terms of physical service channels and digital ser-
very close to the efficient frontier. YKB and Isbank vice channels. Although Isbank is not efficient in
are not efficient in the first stage. They would im- terms of CRS and VRS scores in both stages, it has
prove their efficiency and they would be efficient scale efficiency in the second stage. On the other
in the second stage with DB services, but their DB hand, the other five banks have also scale efficien-
services did not provide the necessary means for cy where YKB does not have scale efficiency at ei-
efficiency, yet. On the other hand, five other banks ther stage.
are efficient in both stages; they are all efficient in


This study is organized to examine if DB service channels have any positive or negative impact on Turkish
deposit banks’ performance. To the end, in the first stage of the proposed DEA model, physical assets were
just used. Then, in the second stage, DB service channels were added to the model to evaluate if they have
any impact on banks’ performance. In both stages all banks are efficient except two, Isbank and YKB. In
other words, with or without DB service channels the five banks are efficient and two banks are not effi-
cient. It can be concluded that the five efficient banks have competitive advantage in terms of physical and
DB service channels. These five banks invest enough in DB services to keep their high performance. In
other words, if they had not invested in DB as they did, their efficiency would be affected negatively and in
the second stage they could not be efficient. The banks are investing in DB services just to keep the com-
petition position as it is. It can be concluded that they invest in DB services as a strategic necessity. DB ser-
vices do not provide any strategic advantage to any banks in terms of financial performance or efficiency.
By investing in DB as they did, they have preserved their strategic advantage. Although YKB and Isbank
are not efficient in either stage, they have a high score of over 0.9. They can make some improvements by
arranging their assets to their outputs. They have to focus on both physical and digital service channels
and to transform their resources to the desired results. In terms of scale efficiency, YKB has to look into
the right scale in accordance with its inputs and outputs in both stages whereas Isbank does not have scale
efficiency in the first stage without DB services, but in the second stage, with DB services it does have scale
efficiency. The other five banks also have scale efficiency, so they do not need any scale arrangements.

Banks could invest in IT for DB services with two main concerns. The first one is saving costs and the
second one is satisfying customer experiences and expectations. A successful transformation process
should be both cost saving and satisfactory for customers. Either focusing solely on cost saving rather
than customer satisfaction or solely on customer satisfaction rather than cost saving could be disastrous
for the banks. In the first case, banks can invest in cost saving technologies that do not meet customer
needs. In the second case, they can invest in customer satisfactory technologies that are not profitable or
are costly. In both cases it results in non-efficient investments and the financial performance of banks
can be negatively affected. In Turkish deposit banks’ case, the two stages of DEA scores show that DB
service channels do not have any negative or positive impact on banks’ performance and efficiency. But,
overall, the Turkish deposit banks examined in this research are highly efficient in terms of physical
channels and DB channels since they are efficient in both stages. If the banks continue to invest in DB
services in the same way as in the past they will keep their position and their efficiency. Isbank and YKB
can increase efficiency by arranging DB services.

The Turkish deposit banking industry is very competitive and it is necessary to invest in DB services just
to keep the competition as it is. It could be concluded that in the Turkish case investing in DB services
is just a strategic necessity since the competition is fierce. The banking industry is already profitable and
all banks in this study have a good amount of profit. That is why almost all of them are efficient in both
stages. When we look at the capital/profit ratio, the average ratio of all seven banks is 14%, whereas YKB
and Isbank have a 12% capital/profit ratio, lower than the other five banks. Thus, this also explains why

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Banks and Bank Systems, Volume 13, Issue 3, 2018

those two banks are not efficient compared to the others.

Despite the importance of measuring bank performance based on the DB strategy, there is not enough
empirical research on this issue. Thus, this paper gives a new perspective on measuring bank perfor-
mance by using DEA in terms of DB services. For further research, with more detailed DB data, banks’
past performance could be compared and how well developed their DB performance was over time
could be analyzed. Besides, Turkish banks’ DB applications and strategies can be compared with other
countries’ banks, thus international comparisons could also be made by using the suggested DEA model.

 
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