Financial performance is a concept that has been used over time by various scholars and researchers from organizational performance, strategic management and financial accounting
studies (Greve 2003; Hauser & Katz 1998). In the 1980s, non-financial performance (for example, efficiency and customer loyalty rate) has been used to explain business performance.
Various organization formworks developed like Balanced Score Card, Net Promoter Score and Service Profit Chain that measures internal and external organization performance by considering employee and customer satisfaction to reflect how they contribute to company financial performance (Reichheld & Sasser 1990; Evanschitzky & Wangenheim, F. V Wünderlich 2012;
Chi & Gursoy 2009). According to Greve (2003), companies pursue various objectives to accomplish their performance objectives. Subsequently, linking customer loyalty, experience and repurchase intention have increased among researchers (Keisidou et al. 2013; Mbama &
Ezepue 2018). These measures may reflect the casual effect, implying that outcomes obtained in business execution are related to specific determinants, consequently showing the need to measure financial performance drivers of financial technology performance in banking services.
These measures may assess to make organizations take a more balanced view while considering advanced strategies on products and services.
Several studies suggested that there is a positive relationship between customer satisfaction and firm financial performance (Reichheld & Sasser 1990; Evanschitzky & Wangenheim, F. V Wünderlich 2012; Chi & Gursoy 2009). There is no doubt that customer satisfaction is critical in the service industry because customers will recognize and value the service offered, and over time will exhibit loyalty behaviour and continued purchasing (Chi & Gursoy 2009). Hence, satisfaction, loyalty and repurchase intention variables have the potential to increase income, increase market share and lower costs, therefore higher financial returns (Liang et al. 2009). For example, loyal customers are will continue purchasing and willing to refer customers, therefore it requires from the company ongoing relationship at the start of the relationship and less ongoing relationship
effort to retain (Liang et al. 2009). The literature on service management, marketing, brand equity and customer satisfaction have evidence that loyal customer is more likely to pay premium prices, and attract potential customers and incur higher sales and lower costs (Reichheld & Sasser 1990).
Smith and Wright (2004) described the determinants of origination financial performance by linking several hypothesized variables to various performance measures. They used brand image, firm viability and service qualities to measure financial performance, which was found to have a measurable effect on customer loyalty and thus influences sales growth and ROA. Similarly, repurchase intention behaviour describes how customers perceive the company and the tendency to make another purchase attempt, and it generates value (Fathollahzadeh, Hashemi & Kahreh 2011). On the whole, the casual variables of financial performance detailing organizational characteristics are found in management, finance and marketing studies.
Researchers deemed that financial performance measures may vary using qualitative or quantitative elements or both depending on the ultimate objective of the research (Capon, Farley
& Hoenig 1990; Anderson, Fornell & Lehmann 1994; Smith and Wright, 2004; Keisidou et al.
2013). In the financial performance literature, Capon, Farley & Hoenig (1990), asserted that researchers tend to use both qualitative and quantitative measures to establish a comparison between variables. However, the results were difficult to interpret. Hence, it was suggested to have a specific examination either qualitative or quantitative (Capon, Farley & Hoenig 1990).
Capon, Farley and Hoenig (1990) analyzed 320 empirical studies from management studies conceptualizing holistic financial performance measurements by identifying strategy, environmental and organizational, as shown in the figure.
Figure 2.5: Financial Performance Measures (Source: Capon, Farley & Hoenig 1990)
Capon, Farley and Hoenig (1990) used the concept of BSC and the concept of strategic and organizational management theory to explain financial performance considering different perspectives primarily qualitative measures. They found that growth, products and service qualities, capital investment, firm advertising, market share, R&D, had a significant influence on firm financial performance. This research also ensured a balance measure of financial performance in terms of overall profitability. Although the research has not considered customer behaviour factors. Organizational behaviour literature suggests that the organization’s engagement, training and knowledge affect employees, which, in turn, affect firm performance. However, Keisidou et al. (2013) and Mbama and Ezepue (2018) used views of Capon et al (1990) on relating multiple organizational factors to measure the impact of customer experience, loyalty and satisfaction of online banking and how it impacts firm financial performance using (e.g. efficiency, market share, cost-to-income ratio, and sales growth).
Moreover, Venkatraman and Ramanujam (1986) developed a framework that emphasizes financial and operational performance as significant major groups to compose overall organizational performance. This model was used subsequently by Hult et al. (2008) differentiating both financial performance domains ‘financial and operational’. As shown in the Figure below, the financial performance domain was examined using quantitative figures such as sales growth, profitability, ROI, ROA, ROE, earnings per share to reflect upon the firm’s economic objectives. Various studies considered this approach like Chi & Gursoy (2009); Keisidou et al. (2013) and Mbama and Ezepue (2018) to include quantitative financial performance measurements in their studies. The financial and operational performance domain incorporates product and service quality, marketing strategies, business proficiency, market share, innovation. This domain is an important factor to structure overall organizational performance considering business attributes as well as receivers’
views. The operational performance measure includes the cost to income ratio, customer loyalty ratio, etc. that mainly can influence financial performance.
Multiple theories within marketing studies were used to link customer perception and organizational performance (e.g., Net Profit Score (NPS) Reichheld (2003), Service Quality (SERVQUAL), Parasuraman et al. (1988); and Service Profit Chain (SPC) Heskett et al. (2008).
SPC model was developed by Heskett et al. (1994) the model recognizes the relationship between profitability, customer loyalty and employee (satisfaction, loyalty and productivity). The model advocates that customer loyalty impacts organizational growth and profitability. Kanyurhi (2016) used the SPC model to study the relationship between multiple factors, internal marketing, employee job satisfaction and organizational performance in microfinance institutions. The study revealed a positive relationship between internal marketing and organizational performance.
The concept of the SPC model was considered in recent research conducted on digital banking Mbama and Ezepue (2018) to study the impact of customer experience in using digital banking on bank financial performance and marketing. The study was significant to digital bank marketing and financial performance. The study revealed that there is a significant relationship between customer experience, satisfaction and loyalty, which is related to financial performance. The major limitation of the study was the low response rate of 30% and lack of usage of developed technology theories, and the study focused on the marketing aspect to improve customer experience in using digital banking. Also, the paper focused on digital banking products only and ignored other developed Fintech products and services offered by financial institutions. Thus, this paper fills this gap in knowledge by studying fintech products and services.
Various discussions have occurred on financial performance measurements as its complex domain due to different use of financial ratios to evaluate banks. Keisidou et al. (2013) investigated customer experience in the Greek banking sector using financial ratios (i.e. Return on Equity (ROE), Return on Assets (ROA) or/and Return on Investment (ROI), Net Profit Margin (NPM).
The use of these ratios was criticized by Mbama & Ezepue (2018) claiming that some of the used ratio measures were not suitable for all banks. Mbama & Ezepue (2018) studied customer experience in using digital banking and financial performance. They used net interest margin (NIM), ROE and cost to income ratio to measure bank financial performance.
In service management research, the financial ratio is used to reflect the relationship between customer experience and firm financial performance. For instance. Mohammed and Ward (2006) explored the relationship between customer perception of service quality and bank financial performance in adopting the new automated banking services in Australia. They used ROA and ROE to measure bank financial performance. Likewise, a recent study by Eklof et al. (2017)
developed a model to examine the impact of customer perception of i.e. (product attributes, benefits, customer satisfaction, trust, commitment and customer behavioural loyalty) in firm financial performance. This study used profit margin, return on assets, return on operating net assets, and return on equity to measure financial performance. Hence, most practices are supported using ROA, NPM and ROE as a common measure for financial performance. It is an accounting- based measure. The studies above linked customer experience with customer satisfaction and loyalty, which supports the purpose of this research.
Although prior studies have investigated the impact of customer satisfaction and loyalty on a company’s financial performance, the constructs have been measured either quantitatively or qualitatively. However, Mbama and Ezepue (2018) asserted that there is no consistency among researchers on the measurement of financial performance and Keisidou et al. (2013) claimed that firm financial performance is not commonly measured and considered in the literature. Also, Keisidou et al. (2013) opted for service-offering providers. This is essential to examine the impact of provided products and services on a firm’s financial performance.
Scholars have recognized the importance of customer satisfaction and loyalty in determining the impact of financial performance (Heskett et al. 2008; Liang, Wang & Farquhar 2009; Reichheld et al. 2000). However, Smith and Wright (2004) argued that it should relate to firm financial performance to enable stakeholders to assess overall products and services and how potentially impact financial performance. Furthermore, Kohli & Grover (2008) noted that research requires focusing on the direct economic benefits for firms while measuring overall organizational success in terms of ROI, market share, profitability, etc. In a bank context, Change and Tseng (2010) emphasized the importance to measure the influence of service quality, perceived risk, customer values in banks’ financial performance. They argued that “the provision of value-added products
and quality services is key to the survival of several organisations since the value is considered to guide customers’ retention decisions as well generate better company growth”. Hence, it suggests that the overall economic value added of firm organizations needs to be examined by financial performance.
Hult et al. (2008) asserted that to measure financial performance either primary or secondary data, or both can be used. In their studies, they indicated that both sources were reliable for financial performance measurements; however, they stated the difficulty to collect primary data on financial performance due to confidentiality and issues on obtaining information. Whereas getting secondary data is more deemed to be an available source of data from company financial reports.
Hult et al. (2008) suggested using profitability, namely ROA and ROI, as they were the predominant constructs to measure organizational financial performance. Researchers claimed that financial performance measurement is a complex matter as it involves multidimensionality of financial performance concept, financial, operational and organisational effectiveness. However, it adds value to strategic and organization literature is considered by researchers (Keisidou et al.
2013; and Chi and Gursoy 2009).
Studies in Fintech have suggested exploring the impact of Fintech on bank financial performance (Sangwan et al. 2019). The path ahead of Fintech was explored to streamline the impact of Fintech on stakeholders namely, consumers, fintech supporters, market regulators and service providers.
On the one hand, fintech offers benefits to consumers; however, it has introduced challenges to consumers and producers since it threatens the established business models in terms of traditional financial services. Most recent studies recommended that researchers continue the study of Fintech and its impact on stakeholders (Sangwan et al. 2019; Milian, Spinola & Carvalho 2019; Ryu 2018).
As far as the researcher knows, Fintech researchers are slow to measure the effects of customer’s
experience of Fintech, customer satisfaction, loyalty and repurchase intention factors on the financial performance in the banking sector. Thus, the present research aims to fill this gap considering bank financial performance as the main outcome for this study.