A Systematic Comparison of Traditional and Emerging Banks

Abstract

This paper provides a comparative study between traditional banks and Internet banks. Decomposing them into four dimensions (core assets, profit models, service and product design, and operation efficiency), we quantitatively study the key differences. Our findings reveal that traditional banks’ competitive capabilities are founded upon core-assets that are tangible in nature (for example, physical branches, deposits, and capital-intensive balance sheets) and therefore, still carry profit models heavily reliant on net interest margin. The emerging banks, meanwhile, possess problem domains poised to leverage intangibles (such as fintech, and service marketing) and therefore have monetised profit models that are more diverse with higher coverage of the ‘long-tail’. Such emerging banks have also shown comparatively low per-account costs, quicker product design cycles, and better efficiency than traditional banks. This study not only provides insights into the way in which the banking sector is structurally changing, but also lays the groundwork for digital transformation of traditional banks and sustainable development of emerging banks.