Differential impacts of information technology on cost and revenue driver relationships in banking

Purpose – The purpose of this paper is to utilize a cost and revenue driver model for commercial banking to examine the differential effects of the drivers within and between banking functions, and to examine the role of information technology (IT) in moderating the relationship between costs and cost drivers and revenue and revenue drivers. Design/methodology/approach – The model is estimated on a cross‐sectional sample of 121 banks from the functional cost and profit analysis data set collected by the Federal Reserve Banks. Multivariate regression analysis with interaction terms is utilized to examine the differential impact of IT in two contrasting banking functions. Findings – The results document the role of transactional IT on the cost driver relationships in the labor cost models in both the demand deposit and commercial loan functions. The role of strategic IT in the revenue driver models is documented for the demand deposit function but not for the commercial loan function. Research limitations/implications – Only two banking functions are selected. Expanding the model and testing it on other banking functions may be useful. Practical implications – By disaggregating the IT variable and incorporating IT in a cost and revenue driver model managers can utilize the model to examine the impact of IT in banking. Originality/value – A model that disaggregates the IT variable by allocating support costs to functions and delineates links between IT variables and cost and revenue drivers in banking.