The Impact of Technological Development on the Productivity of UK Banks

Nour Mohamad Fayad, Ali Awdeh (), Jessica Abou Mrad, Ghaithaa El Mokdad and Madonna Nassar
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Nour Mohamad Fayad: Department of Economics, Faculty of Business Administration, Lebanese International University, Beirut P.O. Box 1464/04, Lebanon
Jessica Abou Mrad: Faculty of Business Administration, Modern University for Business and Science, Beirut P.O. Box 113/7501, Lebanon
Ghaithaa El Mokdad: Faculty of Business Studies, Arab Open University, Beirut P.O. Box 20584518, Lebanon
Madonna Nassar: General Directorate of the Presidency of the Council of Ministers, Beirut P.O. Box 3170/11, Lebanon

FinTech, 2025, vol. 4, issue 3, 1-32

Abstract: This study investigates the impact of digitalisation and intangible investment—specifically digital skills and software adoption—on productivity in the United Kingdom’s banking sector. Software adoption is captured through banks’ investment in enterprise systems (CRM/ERP, cloud computing, and related applications), rather than a single software version. Drawing on detailed bank-level data from six major UK banks over the period 2007–2022, this research provides empirical evidence that higher intensities of digital human capital and intangible assets are positively associated with improvements in both employee productivity and overall bank performance. A standard deviation increase in software specialist employment is associated with productivity gains of 10.3% annually, though this upper-bound estimate likely combines direct effects with complementary factors such as concurrent IT investments (e.g., cloud infrastructure) and managerial innovations. The findings also highlight substantial heterogeneity across banks, with younger institutions experiencing more pronounced benefits from intangible investment due to their greater flexibility and innovation capacity. Furthermore, this study reveals that the adoption of high-speed internet and investment in IT hardware have a strong positive effect on bank productivity, particularly in the wake of the COVID-19 pandemic, which accelerated digital transformation across the sector. However, the observational nature of the study and the limited sample size necessitate caution in generalising the findings. While the results have implications for digital workforce development and technology infrastructure, policy recommendations should be interpreted as preliminary, pending further validation in broader samples and diverse institutional settings. This study concludes by advocating for targeted strategies to expand digital skills, promote software diffusion, and modernise infrastructure to facilitate productivity convergence, while emphasising the need for future research to address potential endogeneity and external validity limitations.

Keywords: digital transformation; technological development; bank productivity; FinTech adoption (search for similar items in EconPapers)
JEL-codes: C6 F3 G O3 (search for similar items in EconPapers)
Date: 2025
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