The effect of digital transformation on the cost of China commercial banks

The enthusiasm for digital transformation has not faded. Digital transformation changes worldwide to compete in a tougher environment and foster sustainable development. However, high cost from conventional banks has enabled other financial businesses to steal many clients. Conventional banking must adapt to new models, expectations, and competitors. In order to investigate the issue, this study employs GMM with data collected from 116 Chinese banks between 2014 and 2021. It has been found empirically that bank digital transformation decreases bank expenses considerably and has a positive and significant interaction with bank size. Heterogeneity study reveals that interactions will only occur in the context of high-level digitalization in banks' digital transformation. As a result, the government must give financial assistance to lower the initial investment cost of digital transformation. Banks can lower some of the costs of digital transformation by encouraging cooperation and resource sharing.