Cost efficiency of commercial banks in Ethiopia: Does financial technology matter?

Tarekegn Tariku Ebissa; Deresse Mersha Lakew

doi:10.1371/journal.pone.0317226

Peer Review History

Original SubmissionAugust 15, 2024
25 Nov 2024 Decision Letter - István Tarrósy, Editor PONE-D-24-35072Cost Efficiency of Commercial Banks in Ethiopia: Does Financial Technology Matter?PLOS ONE Dear Dr. Ebissa, Thank you for submitting your manuscript to PLOS ONE. After careful consideration, we feel that it has merit but does not fully meet PLOS ONE’s publication criteria as it currently stands. Therefore, we invite you to submit a revised version of the manuscript that addresses the points raised during the review process. ==============================This is an interesting academic piece, which can offer detailed insight into the Ethiopian banking sector, but as Rev 1 points out - and I fully agree with that opinion -, a more thorough and "solid" literature review is requested on the adoption of financial technology by commercial banks, with a focus on impact, profitability, market capitalisation, etc. In addition, I also underscore that a more detailed and convincing methodological section is of utmost importance in order to secure the output of the research. Without these I do not recommend this piece for publication, but if the author/s can improve the manuscript in this way, I suggest that it gets published. ============================== Please submit your revised manuscript by Jan 09 2025 11:59PM. 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You also have the option of uploading the data as Supporting Information files, but we would recommend depositing data directly to a data repository if possible. We will update your Data Availability statement on your behalf to reflect the information you provide. 3. Please review your reference list to ensure that it is complete and correct. If you have cited papers that have been retracted, please include the rationale for doing so in the manuscript text, or remove these references and replace them with relevant current references. Any changes to the reference list should be mentioned in the rebuttal letter that accompanies your revised manuscript. If you need to cite a retracted article, indicate the article’s retracted status in the References list and also include a citation and full reference for the retraction notice. [Note: HTML markup is below. Please do not edit.] Reviewers' comments: Reviewer's Responses to Questions Comments to the Author 1. Is the manuscript technically sound, and do the data support the conclusions? The manuscript must describe a technically sound piece of scientific research with data that supports the conclusions. Experiments must have been conducted rigorously, with appropriate controls, replication, and sample sizes. The conclusions must be drawn appropriately based on the data presented. Reviewer #1: Yes Reviewer #2: Yes ******** 2. Has the statistical analysis been performed appropriately and rigorously? Reviewer #1: Yes Reviewer #2: Yes ****** 3. Have the authors made all data underlying the findings in their manuscript fully available? The PLOS Data policy requires authors to make all data underlying the findings described in their manuscript fully available without restriction, with rare exception (please refer to the Data Availability Statement in the manuscript PDF file). The data should be provided as part of the manuscript or its supporting information, or deposited to a public repository. For example, in addition to summary statistics, the data points behind means, medians and variance measures should be available. If there are restrictions on publicly sharing data—e.g. participant privacy or use of data from a third party—those must be specified. Reviewer #1: Yes Reviewer #2: Yes ****** 4. Is the manuscript presented in an intelligible fashion and written in standard English? PLOS ONE does not copyedit accepted manuscripts, so the language in submitted articles must be clear, correct, and unambiguous. Any typographical or grammatical errors should be corrected at revision, so please note any specific errors here. Reviewer #1: Yes Reviewer #2: Yes ****** 5. Review Comments to the Author Please use the space provided to explain your answers to the questions above. You may also include additional comments for the author, including concerns about dual publication, research ethics, or publication ethics. (Please upload your review as an attachment if it exceeds 20,000 characters) Reviewer #1: As we have little information on the Ethiopian banking sector in general, any paper with the aim of shedding light on issues of efficiency, operational costs, and profitability triggers attention in the international literature. Also, conducting research on the impact of financial technologies in emerging markets is of crutial importance. The aims, objectives, and the methodologies used in the paper are clear and easy to follow. The recommendations are indeed to be followed by the commercial banks. The weakest points of the paper are easy to be detected. Firstly, there is no solid literature review on the adoption of financial technology by commercial banks. A number of authors measure the impact, the effects on costs, profitability, earnings, market capitalisation, etc. It would be highly important to show the findings of these papers in order to better understand the Ethiopian room for manoeuvre in the overall transformation. It would be the best to compare the impacts in case of the advanced banking sector and in case of the emerging country banks. Secondly, the reviewer has to highlight that there is no overview of the methodologies used when measuring the impact. We have a clear view on the methods used in this paper but there is little information on what others use. With the help of a quick overview, we could get a better picture on why the authors use the method mentioned and how it differs from the methods used by others. All in all, the reviewer has a high opinion ot scientifiv contribution of the paper but corrections are need as it has been mentioned above. Reviewer #2: In my opinion, this is a very well researched piece of work and well written article. It is based on a solid amount of data and deals with interesting topic which is not suffuciently covered by existing literature. It also gives recommendations to how commercial banks in Ethiopia should work. Overall, I do not have any reservations and fully recommend this article for publication in PLOS One. ****** 6. PLOS authors have the option to publish the peer review history of their article (what does this mean?). If published, this will include your full peer review and any attached files. If you choose “no”, your identity will remain anonymous but your review may still be made public. Do you want your identity to be public for this peer review? For information about this choice, including consent withdrawal, please see our Privacy Policy. Reviewer #1: No Reviewer #2: No ******** [NOTE: If reviewer comments were submitted as an attachment file, they will be attached to this email and accessible via the submission site. Please log into your account, locate the manuscript record, and check for the action link "View Attachments". If this link does not appear, there are no attachment files.] While revising your submission, please upload your figure files to the Preflight Analysis and Conversion Engine (PACE) digital diagnostic tool, https://pacev2.apexcovantage.com/. PACE helps ensure that figures meet PLOS requirements. To use PACE, you must first register as a user. Registration is free. Then, login and navigate to the UPLOAD tab, where you will find detailed instructions on how to use the tool. If you encounter any issues or have any questions when using PACE, please email PLOS at figures@plos.org. Please note that Supporting Information files do not need this step. Attachments Attachment Submitted filename: Review_2.pdf https://doi.org/10.1371/journal.pone.0317226.r001
Revision 1
5 Dec 2024 Author Response Date: November 30, 2024 To: PlosOne Academic Editor and Reviewers Subject: Authors’ Response to reviewers and editor Dear all, I thank you very much for your constructive comments and suggestions. I appreciate the contributions of your comments, which are remarkable in our manuscript and academic quality. This is to present responses to reviewers’ and academic editor’s comments regarding our manuscript under review with a research topic of “Cost efficiency of commercial banks in Ethiopia: Does financial technology matter?” and manuscript number PONE-D-24-35072. Our responses focus on two comments forwarded during the manuscript review. Comment #1: “There is no solid literature review on the adoption of financial technology by commercial banks. A number of authors measure the impact, the effects on costs, profitability, earnings, market capitalization, etc.” Author's Response #1: On the basis of the comment provided above, we made a detailed revision to the theoretical and empirical sections of the manuscript by adding a new subtopic—adoption of fintech by commercial banks—that focuses on fintech development, adoption, and its effect on economic growth, profitability (financial performance), and financial stability of banks and the challenges, particularly in emerging economies. A passage presented in this section shows a revision made to the revised manuscript section. In addition, you may refer page 4-5 of the revised manuscript that submitted separately. Adoption of financial technology by commercial banks Commercial banks operating in developing and developed countries are adopting financial technology to facilitate and advance their banking operations. Fintech represents a way of providing automated financial services to end users via innovative technology and online electronic platforms by replacing traditional ways of transacting and marketing financial services in financial institutions. Commercial banks in Ethiopia are also adopting different fintech platforms that that allow customers to access financial services without distance and time barriers [63]. Fintech development in Ethiopia is improving customers’ financial service satisfaction [64], though, its acceptance is subject to customers’ awareness, ease of use, safety, attitudes and perceived usefulness [1, 26, 63]. Despite the challenges encountering financial services digitalization in Ethiopia, a rapid growth is recognized in fintech adoption by the financial sector of the country [5]. Similarly, [40] suggested that ATM deployment by Ethiopian commercial banks is rising significantly following the growth in bank size, profitability and deposit level; however, cost efficiency and bank branch expansion do not matter for the ATM deployment. Moreover, a study conducted on the impact of digital transformation on financial stability has suggested the presence of negative association between fintech adoption and financial stability of banking system in Ethiopia [22]. Empirical literature from other emerging economy is confirmed that fintech development adversely affects financial stability of banks [46]. In contrast, some scholars argue that fintech adoption boots financial stability [67] and economic growth [45] by enhancing financial inclusion [58] and financial performance of banks [25]. On the other hand, the findings of some studies argue the absence of strong empirical evidence regarding the significance of ATM transactions [9, 10] and information communication technology (ICT) expenditures [55] in the efficiency of commercial banks. Thus, controversial empirical analyses that not assessed from Ethiopian commercial banks’ perspectives are reflected in the literature. Furthermore, notable empirical findings that addressed the effects of financial technology (Fintech) on the efficiency and productivity of firms are presented in the literature. Fintech forces banks to change their business ideology in adopting new technology [27] and focusing on efficiency improvement in response to changes in the financial system [36]. In recent empirical studies, the shift in financial service provision because of fintech has fundamentally improved financial stability [52] and operational efficiency [36] and reduced the risk-taking of commercial banks [21]. Related empirical studies have also suggested significant improvements in the cost efficiency of commercial banks for those adopting electronic payments [9], IT-based transactions [41] and fintech-innovated platforms [35]. Innovation in fintech encourages the efficiency of commercial banks by reducing operating costs in borrower screening and monitoring, enhancing market service innovations [35], and strengthening quality service delivery [41]. However, some scholars have criticized the effects of fintech development in the financial industry from the viewpoints of its disruptive capability [60], demanding prudential regulation, barrier to new entry, vulnerability to cyber-attack and high operational risk [16, 47], and it has no real cost reduction advantage in bank operations [34]. Comment #2: “the is no overview of the methodologies used when measuring the impact. We have a clear view on the methods used in this paper but there is little information on what others use.” Author's Response #2: It is obvious that we have employed stochastic frontier approach (SFA) to assess the effects of fintech in cost efficiency of commercial banks in Ethiopia. The SFA is a parametric approach that has many advantages over nonparametric techniques, such as data envelopment analysis (DEA) and full disposable hull analysis (FDHA) in efficiency score estimation. The following paragraph presents the advantages and limitations of SFA over the nonparametric approaches (DEA, FDHA). In addition, you may refer page 8-9 of the revised manuscript that submitted separately. First, SFA enables the separation of inefficiency from actual operation and inefficiency due to other stochastic shocks, such as measurement error, bad luck and/or stochastic shocks [13]. Second, SFA allows the inclusion of control variables in the efficiency estimation model and provides a good comparison basis for efficiency between countries or firms [53]. Third, according to [13], the parametric technique yields a higher mean efficiency estimate, which implies that it accepts less dispersion in efficiency result estimation than the nonparametric technique does. This finding has been empirically tested and confirmed in most recent studies [10, 38]. However, the SFA is criticized for the functional form specification and normal distribution assumptions imposed on efficient fron¬tier models. According to [23], functional form misspecifications are subject to inaccurate efficiency score estimation. Best regards Tarekegn Tariku Corresponding author Attachments Attachment Submitted filename: Response to reviewers.docx https://doi.org/10.1371/journal.pone.0317226.r002
26 Dec 2024 Decision Letter - István Tarrósy, Editor Cost Efficiency of Commercial Banks in Ethiopia: Does Financial Technology Matter? PONE-D-24-35072R1 Dear Dr. Ebissa, We’re pleased to inform you that your manuscript has been judged scientifically suitable for publication and will be formally accepted for publication once it meets all outstanding technical requirements. Within one week, you’ll receive an e-mail detailing the required amendments. When these have been addressed, you’ll receive a formal acceptance letter and your manuscript will be scheduled for publication. An invoice will be generated when your article is formally accepted. Please note, if your institution has a publishing partnership with PLOS and your article meets the relevant criteria, all or part of your publication costs will be covered. Please make sure your user information is up-to-date by logging into Editorial Manager at Editorial Manager® and clicking the ‘Update My Information' link at the top of the page. If you have any questions relating to publication charges, please contact our Author Billing department directly at authorbilling@plos.org. If your institution or institutions have a press office, please notify them about your upcoming paper to help maximize its impact. If they’ll be preparing press materials, please inform our press team as soon as possible -- no later than 48 hours after receiving the formal acceptance. Your manuscript will remain under strict press embargo until 2 pm Eastern Time on the date of publication. For more information, please contact onepress@plos.org. Kind regards, István Tarrósy, PhD Academic Editor PLOS ONE Additional Editor Comments (optional): It was good to see that the author dealt with the reviewers' comments in a thorough manner and replied to all with care. The manuscript has been improved to the level the journal requires to publish a research piece of this kind. I now can support the publication of the paper. Reviewers' comments: https://doi.org/10.1371/journal.pone.0317226.r003
Formally Accepted
2 Jan 2025 Acceptance Letter - István Tarrósy, Editor PONE-D-24-35072R1 PLOS ONE Dear Dr. Ebissa, I'm pleased to inform you that your manuscript has been deemed suitable for publication in PLOS ONE. Congratulations! Your manuscript is now being handed over to our production team. At this stage, our production department will prepare your paper for publication. This includes ensuring the following: * All references, tables, and figures are properly cited * All relevant supporting information is included in the manuscript submission, * There are no issues that prevent the paper from being properly typeset If revisions are needed, the production department will contact you directly to resolve them. If no revisions are needed, you will receive an email when the publication date has been set. At this time, we do not offer pre-publication proofs to authors during production of the accepted work. Please keep in mind that we are working through a large volume of accepted articles, so please give us a few weeks to review your paper and let you know the next and final steps. Lastly, if your institution or institutions have a press office, please let them know about your upcoming paper now to help maximize its impact. If they'll be preparing press materials, please inform our press team within the next 48 hours. Your manuscript will remain under strict press embargo until 2 pm Eastern Time on the date of publication. For more information, please contact onepress@plos.org. If we can help with anything else, please email us at customercare@plos.org. Thank you for submitting your work to PLOS ONE and supporting open access. Kind regards, PLOS ONE Editorial Office Staff on behalf of Dr. István Tarrósy Academic Editor PLOS ONE https://doi.org/10.1371/journal.pone.0317226.r004

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