Role of Digital Transformation on Digital Business Model Banks

Round 1

Reviewer 1 Report

I like your work on Digital Transformation Effects on Digital Business Model  Bank: Empirical Evidence from Indonesia’s Banking Sector. However, a few issues can be addressed to improve the quality of the paper;

(1) the title can be simplified by making changes, How about " Role of Digital Digital transformation on Digital Business Model of the Banks: A Study of Banking Sector.

(2) The research is based on panel data from 2006 to Feb 2023. it would be great to share the source and link of panel data availability.

(3) The study is focused on financial performance impact of digital transformation, therefore it becomes important to review what is happening in other Asian countries and these two articles will be helpful..

Dwivedi, R., Alrasheedi, M., Dwivedi, P. and Starešinić, B., 2022. Leveraging financial inclusion through technology-enabled services innovation: A case of economic development in India. International Journal of E-Services and Mobile Applications (IJESMA), 14(1), pp.1-13.

Dwivedi, P., Alabdooli, J.I. and Dwivedi, R., 2021. Role of FinTech adoption for competitiveness and performance of the bank: a study of banking industry in UAE. International Journal of Global Business and Competitiveness, 16(2), pp.130-138.

(4) it would be important to present useful and useless variables in the model and what data is not useful/useless for the study.

(5) Since the study at large affects Indonesian population, what are the policy implications and suggestions to goverment and banking sector to adopt to gain better customer services and better bank performance.

(6) Good Work and all the best

NA..minor editing 

Author Response

Dear Reviewer,

Thank you for giving us the opportunity to submit the response for our paper. We appreciate the time and effort that you dedicated in providing feedback on our manuscript and are grateful for the insightful comments on and valuable improvements to our paper. We have incorporated most of the suggestions made by the reviewers. Those changes are highlighted within the manuscript. We wrote in the paper with the blue highlight for your comments.

1. We take note your comment for the title “Role of Digital Transformation on Digital Business Model Bank: A Study of Banking Sector”
2. The source and link of panel data as follows:

Monthly balance sheet and income statement of individual digital bank and bank-specific factor:

Laporan Keuangan Perbankan (ojk.go.id)

Macroeconomics factor : Bank Indonesia (bi.go.id)

Supporting information financial data and non-financial data of the banks:

BNC - Bank digital yang membuat Anda lebih untung - Bank Neo Commerce (BNC)

Beranda — Bank Raya

blu | Mulai Langkahmu (blubybcadigital.id)

PT Bank SeaBank Indonesia | Bank Digital Bunga Tinggi | SEA Limited

Bank Jago - Kontak Kami

Allobank | All for One, One for All

Home (aladinbank.id)

3. Thank you for your additional references, we have put it at literature review section.
4. According to the result of variables operations in this study, the useful variables in this study which significantly support the digital bank profitability are bank-specific factors of Capital Adequacy Ratio and Net Interest Margin, and macroeconomic factor of Growth Domestic Product growth, also Digital Transformation. Other variables also significant but in negative relationship with profit, such as bank-specific factors of Non-Performing Loan, Operational Cost to Operational Income, and Loan to Deposit Ratio, as well as macroeconomic factor of foreign exchange rate. In the other side the useless factor is inflation because it has no significant role in this study.
5. The policy implications and suggestion to government and banking sector that we are thinking are (we have inserted it in Managerial Implications section):
   1. Bank’s management and regulator need to focus on minimizing the negative performance and shortening the negative performance period because economic value of digital transformation could strongly become visible until digital bank significantly changes their business model and organization.
   2. Digital banks need to build optimal digital transformation strategy in minimizing the negative performance and time lag to get expected impact on financial performance, and it is crucial to have concern on the scale of the bank.

Hopefully our response has adequately answered your comments.

Best regards,

Authors

Author Response File: Author Response.pdf

Reviewer 2 Report

This research uses Panel Autoregressive Distributed Lag (ARDL) and panel data applied to seven banks from January 2016 to February 2023.

The analysis results indicate the correlation between digital transformation and bank profitability, in the form of a U-shape.

1.       Please reconsider the analysis period for figure 1 and 2 to 2016-2022/2023 in accordance with the application study.

2.       Please update the numbers for the figures (Figure 2 appears three times).

3.       The Paragraph  (lines 377-381) must be placed after Table 2 > Before proceeding with the test of co-integration, we determine the order of the vector autoregression (VAR), which describes the number of lags to be used. Table 3 shows the optimum lags are automatically selected based on the Akaike Information Criterion (AIC). Model selection is chosen by the smallest value of AIC. From Table 3, we choose ARDL (5, 5, 5, 5, 5, 5, 5, 5, 5, 5) with the corresponding value AIC 49.84460.

4.       Table 5 is not mentioned in the text.

5.       Variable X9  is Exchange Rate (Rp/USD) (%) or Forex?? Forex is mentioned in the tables.

6.       I recommend the authors to convert the scientific numbers in the tables, to facilitate the understanding of the results.

7.       In defining the U-shape, it is not clear how the authors reached this conclusion. Additional explanation is needed to understand the transition from Figure 3 to Figure 4.

Author Response

Dear Reviewer,

Thank you for giving us the opportunity to submit the response for our paper. We appreciate the time and effort that you dedicated in providing feedback on our manuscript. We are grateful for the insightful comments on and valuable improvements to our paper. We have incorporated most of the suggestions made by the reviewers. Those changes are highlighted within the manuscript. We wrote it in the paper with grey highlight to respond your comment.

1. We take note your comment on Figure 1 and 2 as it showed the data trend from January 2016 – December 2022. We have revised it into January 2016 – Feb 2023.
2. We have revised the number for all figures from Figure 1 to Figure 4.
3. We have moved the paragraph that you mentioned (“Before proceeding … ) after Table 2.
4. Table 5 actually already mentioned in text, above the Table 5, with the explanation as follows:

“Table 5 presents the cointegration tests that indicates strongly reject the null hypothesis of no cointegration in the nine panels, which means there is evidence of a long-run relationship between the dependent and the explanatory variables for all nine panels and suggests that the estimates provide reliable short-run and long-run results. The estimates show that in the long run, digital transformation and other independent variables are statistically significant and have positive relationship with profit.”

5. Variable X9 is exchange rate is the same one with foreign exchange (forex) rate. We also revised the unit of USD/IDR from % to nominal.
6. We try to convert the scientific numbers in the tables to the common normal numbers, but the numbers are become too long up to 10 digits decimal. We are really sorry to keep it as it is.
7. We write additional explanation for the U-shape relationship between digital transformation cost and bank profitability, as well as the transition paragraph from Figure 3 to Figure 4.

Hopefully our response has adequately answered your comments.

Best regards,

Authors

Author Response File: Author Response.pdf

Reviewer 3 Report

Please refer to the attached file. I urge the authors to discuss the confounding factor I mentioned in the report.

Comments for author File: Comments.pdf

Just minor corrections may be needed.

Author Response

Dear Reviewer,

Thank you for giving us the opportunity to submit the response for our paper. We appreciate the time and effort that you and the reviewers dedicated in providing feedback on our manuscript and are grateful for the insightful comments on and valuable improvements to our paper. We have incorporated most of the suggestions made by the reviewers. Those changes are highlighted within the manuscript. I wrote it in the paper with yellow highlight.

First of all, thank you for your input regarding the role of international spillovers of monetary expansion. We put Indonesian case in our analysis regarding digital bank in section 3.4. Let we add the information here. The Quantitative Easing policies in Indonesia, in the sample period which comprises the COVID-19 pandemic, did not effects the digital bank performance since the QE policies launched by Bank Indonesia (the central bank) was a burden sharing policy between Central Bank as the monetary authority and Ministry of Finance as the fiscal authority, in handling the pandemic and economic recovery. In this burden sharing scheme, Central Bank supports the fiscal budget by buying the Government Bond and the funding directly send from Central Bank to Ministry of Finance as the state treasurer. Then the Treasurer allocates the funding for pandemic solutions based on priority needs. The impact of this conditions caused some implications as follows:

1. There is time lag before the proceed of QE money “can be enjoyed” or support bank’s performance because QE money firstly transferred to the Treasurer account, and secondly the Treasurer sent it to the state-owned banks as they are the state obligation payer to the private sector or real sector who served all the nation requirements during pandemic. Most of the private sector in Indonesia was companies which mostly using common existing bank, not digital bank because they start the business long time ago before the digital bank era.    
2. For Indonesia, only a very small amount of QE money entered the digital bank cash flow, as digital bank only a small number of banks in Indonesian banking sector. Mostly the QE money (total amount IDR 1.144 trillion) transferred to the state-owned banks as the payer bank of the state obligation in handling the pandemic, and to the big private banks whereas the corporates have their account.
3. Most of the sample banks had already started their digital transformation in 2019 (before Covid-19 pandemic), and they are still continuing the digital transformation in pandemic era even they have to suffer loss, because it is very important to become digital bank in the physical distancing period.         

We strongly agree with the statement of using DSGE methods to analyze the domestic and international effects of monetary expansion, but we consider that the DSGE methods do not need to accomplish in this study as we are not analyzing the monetary expansion. Our study basically intent to analyze the digital transformation in banking.  

Secondly, well noted and thank you for your additional relevant literature. I wrote it in the paper with yellow highlight.

Lastly, thank you for your corrective comment on the statement regarding “u-shape correlation”, it is typo in writing since in others 4 sentences in the paper we have already mentioned it as “u-shape relationship”.

Author Response File: Author Response.pdf

Reviewer 4 Report

Research on digital transformation in the banking sector has begun to emerge in many empirical studies with mixed findings. The comments and suggestions addressed below can be material for exploring further studies to obtain a wider reach and position of the research.

·         The statement of using digital banks as objects is new in this research, whereas previous research only focused on traditional banks needs clarification in the introduction. Much research has been carried out in various parts of the world and published in many scientific journals. Therefore, it is necessary to map broader and more recent empirical studies to obtain research gaps and research positions so that newness can be demonstrated

·         The literature review section, in principle, reveals two things, namely theoretical underpinning and work-related empirical studies, which end with developing research hypotheses. No data analysis is required, as described in Figures 1 and 2

·         Regarding the data, there needs to be an explanation regarding the operational definitions of research and measurement variables, especially regarding the different units between bank-specific factors and macroeconomic variables.

·         Discussion of research results is too general and can focus more on research variables and findings. Apart from the digital transformation factor, which gets a more significant proportion in the debate, other bank-specific factors and macroeconomic variables must be revealed more deeply, involving theoretical and empirical support. Distinguish between discussion of research results and managerial implications.

·         More valuable study limitations are needed, and new work-related ones are recommended for future studies with significant differences.

·         The number of references is adequate, but many need to be updated. Because the topic is still new, it is necessary to add the latest references. The following articles may be considered as additional references: Setiawati, R., Eve, J., Syavira, A., Ricardianto, P., Nofrisel., & Endri, E. (2022). The Role of Information Technology in Business Agility: Systematic Literature Review. Quality Access to Success, 23(189), 144-149. DOI: 10.47750/QAS/23.189.16

Comments for author File: Comments.pdf

Author Response

Dear Reviewer,

Thank you for giving us the opportunity to submit the response for our paper. We appreciate the time and effort that you and the reviewers dedicated in providing feedback on our manuscript and are grateful for the insightful comments on and valuable improvements to our paper. We have incorporated most of the suggestions made by the reviewers. Those changes are highlighted within the manuscript. I wrote it in the paper with green highlight.

1. We take note your comment and we want to clarify that we want to explore much on the profitability aspect on digital bank. and therefore, the sentence that you comment in your review paper will be revised as follow:

‘Using digital banks profitability as objects is new in this research, whereas previous research only focused on traditional banks profitability’

Based on our literature study, researcher from many countries have put their attention on digital banking, digital banking services, or digital financial services, which become part of traditional banks services or fintech business. Digital banking or digital banking services is different from digital bank. Digital banking or digital banking services is digital services from digital banking line business of a (basically) traditional bank. In this context, the traditional bank with their many branches develops their services by setting up a line business for digital banking services or develop their services with digital feature. While digital bank that we meant in our study is a single bank with pure digital business model which provides their services only by using digital channel.  

2. Thank you for your comment on literature review, we moved the data analysis in Figure 1 and 1 to the Results section.
3. We provided additional explanation regarding the operational definitions of research and measurement variables, including the different units between bank-specific factors and macroeconomic variables. We revised the unit of macroeconomic variables foreign exchange rate (USD/IDR) from % to nominal.
4. We have elaborated the results of our research by explaining the bank-specific factors and macroeconomic variables which is supported by theoretical and empirical support, but according to our literature research, the sample banks are non-digital business model bank. The object of the studies is traditional/ conventional bank, some of them with electronic banking services (not digital banking services). We also move the managerial implication paragraph to an independent section in this study, under Managerial Implications Section.
5. We have explained our study limitations and new work-related ones for the future studies by adding information under a dedicated section of Limitation and Future Research.
6. We put some additional literature for updating the references, including your suggested paper from Setiawati et al (2022) in the discussion section.

Hopefully our response has adequately answered your comments.

Best regards,

Authors

Author Response File: Author Response.pdf

Round 2

Reviewer 4 Report

Digital banking transformation studies show an increasing trend, including Indonesia as a developing country. China is also among the developing countries that do a lot of research, although everyone looks at it from the perspective of advanced economies. Current research trends include FinTech, blockchain, mobile financial services applications, artificial intelligence, mobile banking service platforms, and sustainable business models.

a.       A review of work-related digital banking transformation with a broader scope can get a complete picture of developing research trends.

b.      Digital transformation is not just a conceptual variable. Still, it needs a primary theoretical basis, new trends from related empirical studies, and this research's state of the art

.

c.       Operational definitions, indicators, and measurement data for variables in the empirical specification model should be tabular. The Profit variable uses Rupiah units, while Digital Transformation is in the form of Bank Expenses related to Digital Transformation, which is in LN. The Foreign Exchange Rate (USD/IDR) variable should be proxied by the percentage change or LN.

d.      Discussion of research results still needs empirical support, especially concerning new and increasing trends in digital transformation.

Author Response

Dear Reviewer,

Thank you for giving us the opportunity to submit the response for our paper. We appreciate the time and effort that you dedicated in providing feedback on our manuscript and are grateful for the insightful comments on and valuable improvements to our paper. We have incorporated all of the suggestions. Those changes are highlighted with track changes in the manuscript.

Please find attached our cover letter that explain point by point of your comments. Thank you.

Best regards,

Authors

Author Response File: Author Response.pdf

Round 3

Reviewer 4 Report

The revised paper has become more scientific and exciting for many readers regarding studying digital banking transformation in developing countries, including Indonesia. The review of digital banking transformation regarding work has covered a broader scope, including research trends in developing countries. Digital transformation is not just a conceptual variable supported by major theoretical foundations, new trends from related empirical studies, and contributions of empirical findings. Discussion of research results is supported by work related to further digital transformation trends and rapid developments.