“The level of digital transformation affecting the competitiveness of banks”

The article examines the competitiveness of Ukrainian banks influenced by economy digitalization, the dynamic spread of electronic payments and e-commerce, as well as innovative technologies aimed at providing digital services. When shifting to an Online Platform business model, a bank can expand its range of banking products, attract more customers, thereby forming a competition policy and gaining competitive advantages. The paper aims to assess the digitalization level affecting the general competitiveness of banks and its components based on Ukrainian banks. For this purpose, the following methods were used: standardized input statistical indicators, comparison and ranking, a cluster analysis, and a regression and correlation analysis. The cluster analysis confirmed the current role of digitalization as a competition driver that determines the competitive advantages of banks and creates additional opportunities to expand the customer base and the range of services. The correlation and regression dependence of the competitive position identified by the activity indicators of certain banks on the level of competitive digitalization confirmed a close direct impact on the competitive position of personal deposits arising from the development of digital banking technology; the pre-tax income, profiles of assets and personal loans, and corporate deposits are subject to a significant direct impact, while the weakest direct impact determines corporate loans. The foregoing substantiates the feasibility of large-scale introduction of innovative digital technologies by banks to maintain competitive positions in the banking sector of the economy. Applying the proposed approach based on certain regression equations, managers of Ukrainian banks will be able to assess the efficiency and make appropriate decisions concerning investing in digital tools and services.


INTRODUCTION
Since the banking sector is an integral part of the country's economy, it determines its financial and credit system and the potential for economic growth.Competition among banking institutions establishes market conditions in the sector through the use of more attractive banking tools and methods, as well as banking products for service consumers.
The economy digitalization process, which has become its critical factor over the last few years, has also appeared in banking operations through the active spread of electronic payments, e-commerce, and the introduction of innovative digital services that expand the range of banking products, assist in customer engagement and thus shape a competition policy and gain competitive advantages.Furthermore, the global spread of COVID-19 in 2020 necessitated the transition to a remote banking business model, namely, the Online banking platform.
It is clear from the study conducted by Accenture, an international consulting company, the future growth of banking institutions lagging behind in digital transformation is lower by 11 percent.At the same time, banking leaders are 20 percent ahead of the field while implementing the digitalization program, and 40 percent ahead with regard to the program introducing new FINTECH tools (Accenture, 2017).
According to the abovementioned, analyzing and assessing the competitive capacity of banks influenced by digital transformation make it possible to identify both obstacles to the effective functioning of banks and the drivers contributing to their effective performance.

LITERATURE REVIEW
A variety of approaches are used to assess and analyze the competitive capacity of banks.
The Panzar-Rosse test (Panzar & Rosse, 1987), which is the most common approach, offers a means for assessing the bank's competitive position in the banking service market.Some scientists (Shin & Kim, 2013) actively apply the proposed toolkit, whereas others supplement it with factors and conditions for diagnosing the results obtained by the Panzar-Rosse test.Thus, Shaffer and Spierdijk (2015) and Bikker et al. (2009) emphasized the need to consider the bank's operational life, its relative costs, strategy, banking product differentiation degree, and other determinants.
A considerable number of scientists and rating agencies assess the banks' competitive capacity relying on their financial indicators.The Banker (2021), a periodical that is well-known among the banking sector experts, forms the Top 1000 World Banks rating based on the bank's Tier 1 capital indicators, total assets, their growth rate, profitability, return on assets, and capital.Maochun  Certain models for assessing the bank's competitive capacity address marketing performance.For instance, Qing (2009) developed five indicators to assess the competitive capacity: uniqueness, strategic value, system integration, prevalence, and dynamics.Barbosa et al. (2015) argue that banks offering not only classic banking products but also financial services (including brokerage, insurance, and others) significantly predominate in terms of their competitiveness over banks that offer classic products only.Krasovskis et al. (2016) considered the analysis of the main characteristics peculiar to the competitive environment of the banking sector from a holistic perspective, namely, sector concentration, competition intensity, and financial indicators.
Financial indicators reflect both the result of competition (through a comparative assessment of the shaped assets, their profitability, acquired deposits, and existing loans) and the opportunities to finance innovative technologies for service delivery, updating the bank's business model and new products.However, the scientific literature does not explicitly attribute the digital transformation aspects in the banking sector to the competitive capacity assessment but determines them through the competitive capacity results in expanding the range and the customer base.A wide research range focuses on mobile banking as a digital tool for banking development.A. Ali and H. Ali (2014) applied the mobile banking factor to prove the prerequisites for the increasing use of banking services.Other researchers (Silva Bidarra et al., 2013) identify the relationship among customer trust, risk, banking service volume, and mobile banking.Jun and Palacios (2016) determined five criteria for customer satisfaction/ dissatisfaction with mobile banking: convenient mobile devices, accuracy, various functions offered by mobile applications, ease of use, and constant improvement.Dootson et al. (2016) studied the use of social networks by banking institutions and mentioned the customers' propensity to appreciate this digital tool in the case of maximizing the subjective value and benefits of banking products; as for banks, they also emphasized the improved dialog with banking service consumers.Koroleva and Kudryavtseva (2020) and Stoica et al. (2015) argue that digital banks are distinguished by higher efficiency, namely, return on assets, but leave undetermined the impact of digital transformation on the share of loans and deposits.Thus, the fragmentary representation of the digital transformation level taken into account as a factor applied while assessing the bank's competitive capacity can be found in the scientists' works.Therefore, given the current approaches and the urgent need to comprehensively consider the impact exerted on the banks' competitive capacity by digital transformation tools, it is advisable to prove the relationship between the established practices used to analyze and assess the competitive capacity, as well as the bank digitalization indicators.

AIMS AND METHODS
This paper aims to assess the impact exerted on the banks' competitive capacity by the level of dig-ital transformation in broad terms and its certain components as illustrated by Ukrainian banks.
The economic and mathematical methods used at the preparatory stage of the research allowed exploring the strength of relations and influence between objects and phenomena in the development of digital transformation processes, proposing approaches to the formation of improved methodological tools, which will further provide bank managers with reliable information about projected parameter values for certain types of banking activity, the bank's competitive positions and strategic development.
The following methods have been applied to achieve the research goal: standardization of input statistical indicators for nineteen Ukrainian banks, which makes it possible to compare and rank them; a cluster analysis used to group banks by the level of their competitive capacity and digital transformation; a regression and correlation analysis performed to determine the strength and direction of the digital transformation impact on the bank's competitive capacity and its certain indicators.
While conducting the study, it is proposed to quantify the competitive capacity level of nineteen Ukrainian banks by their financial indicators, namely, pre-tax income, assets, personal deposits, corporate deposits, personal loans, and corporate loans.With this objective in view, the research included the formation of a spatial series based on the banks' statistical data according to the Forinsurer international journal (Forinsurer, 2020) as of January 11, 2020 and their linear transformation by MINIMAX in the range [0…1], where the minimum and maximum scaled values corresponded to 0 and 1, respectively (Table 1).
The arithmetic average of six indicators was used to determine the complex indicator illustrating the competitive capacity of each bank.The bank's rating among the banks included in the research was established by the ranking method.
Similar analytical procedures were applied to consider the digital transformation indicators of banks (Table 2).

Table 1. Linear data transformation based on financial indicators designed to analyze the competitive capacity of Ukrainian banks
Source: Calculated based on Forinsurer's data (Forinsurer, 2020).

Bank
Pre

Popularity of the bank's websites (Similar Web
Traffic) By using the cluster analysis according to Ward's method and Euclidean distance, banks were divided into clusters based on the level of their competitive capacity by financial indicators and the level of their digital transformation.

RESULTS
By applying the method of correlation-regression analysis to build the dependence of the competitive capacity level by financial indicators (y) on the digital transformation level (x), it is now possible to establish the strength of this relationship and the feasibility of considering digital tools to achieve competitive advantages: The arithmetic average according to Tables 1 and  2 was used to determine the complex indicator illustrating the competitive capacity of each bank, and the bank's rating among the banks studied by financial indicators and the digital transformation level was established (Table 3).
Based on the results obtained from the cluster analysis of complex indicators illustrating the lev-el of banks' competitive capacity by financial indicators and the digital transformation level (Figure 1), five clusters were identified.Table 4 shows the characteristics of these clusters.
The relationship between the creditworthiness by financial indicators (y) and the digital transformation level (x) is determined by forming a regression equation: The calculated value of the relationship strength (with the linear correlation coefficient equal to 0.8462) indicates its high level and the direct impact of digital transformation on the banks' competitive capacity.
Figure 2 presents an illustrated graphical interpretation of the cluster characteristics.
The determination coefficient R 2 = 0.7157, i.e. in 71.57% of cases the change in the digital transformation level determines the change in the bank's competitive capacity.
According to Fisher's criterion F > F table , therefore, the determination coefficient is statistically signifi-      cant and the estimation of the regression equation is statistically reliable.
The regression dependence is illustrated in Figure 3.
Table 5 shows the formed regression equations that allow determining the dependence of the competitive position by certain financial indicators of banks' activity on the competitive level of digital transformation.

DISCUSSION
The results of the cluster analysis have confirmed the potential of digital transformation to become a competition driver under current conditions; it determines the competitive advantages of banks and creates additional opportunities to expand their customer base and range of services.
The conducted cluster analysis allowed identifying the most competitive Ukrainian banks both by the financial indicators and the digital transformation level: PrivatBank and Oschadbank, as well as those that actively use the tools of social networks and mobile banking (Raiffeisen Bank Aval, PUMB, Alfa-Bank, and UkrGasbank).
PrivatBank and Oschadbank offer a wide range of banking products to legal entities and individuals through the Internet and mobile applications.PrivatBank has 11 mobile applications, an informative website, uses the modern technologies of Apple Pay, Google Pay, Face Pay, provides means for remote payments of utility charges, buying electronic tickets, mobile phone top-up, making payments by QR-code, and receiving an online payment card.Oschadbank offers three mobile applications, the technologies of Apple Pay, Google Pay, a digital card; it is presented on the popular social networks Facebook, Instagram, and TikTok.The high digital transformation level of both banks displays the basis for the highest amounts of pre-tax income in the Ukrainian banking sector.Both in terms of the complex indicator of the competitive capacity by financial indicators and in terms of the digital transformation level, PrivatBank and Oschadbank are prominent leaders with a rating of 1 and 2.
The active development of online services (though less significant than in the first cluster), in particular, the popularity of banks' mobile applications represents a feature of the second cluster.
The average pre-tax income of the third and fourth clusters is almost the same within the sector, but the third sector banks (OTP Bank, UkrSibbank, Credit Agricole Bank, and Ukreximbank) focus on the supply of banking products mostly in the traditional way, while the fourth sector (Pravex Bank, Kredobank, Pivdenny Bank, and Tascombank) applies a more aggressive policy of online platforms and services.The cumulative effect of the traditional business model on the large third-cluster banks and the digital model of the fourth-cluster banks considered smaller in terms of their activity is balanced by the banks' financial results.
Procredit Bank, Sberbank, Universal Bank, A-Bank, and Bank Sich, which represent the fifth cluster, appear to be the most passive in implementing digital technologies.Their online platforms offer quite limited Internet banking, and their mobile banking is almost not applied.Given the volume of transactions and financial results, this cluster is among the credit rating outsiders.
As can be seen from the above, the qualitative research of the results obtained from the cluster analysis proves that digitalization is becoming a competition driver in modern conditions; it determines the banks' competitive advantages and expands their customer base as well as the range of services.
Using the regression analysis results, it becomes possible to substantiate the hypothesis and prove the close connection between the digital transformation of banks and their competitive capacity.
Determining the dependence of the competitive position by certain financial indicators of banks' activity on the competitive level of digital transformation suggests that the bank's digital technologies have the greatest and direct impact on the competitive position of personal deposits and a significant impact on the pre-tax incomes, assets and personal loans.A moderate impact is observed with regard to corporate deposits, and a weak one -for corporate loans.
The research findings can thoroughly demonstrate that digital transformation is a driving factor for the increasing competitive capacity of domestic banks, mainly those focused on providing services to private customers.The formulated position fills the gap found while studying the impact exerted on some of the bank's competitive positions by digital transformation, which determines the focus of banking products under the digital transformation conditions. http://dx.doi.org/10.21511/bbs.16(1).2021.08

CONCLUSION
In the context of the Ukrainian economy, the development of the banking sector and its competition scale force banks to search for effective tools aimed at managing the range of banking products and disseminating innovative services.
This paper represents a study directed at a new object field, namely, assessing the impact exerted on the banks' competitive capacity by the level of digital transformation in broad terms and its certain components, as illustrated by Ukrainian banks.
According to the results obtained from the cluster and regression analysis, it can be considered proven that in the digital economy, the influence of Internet banking and mobile banking technologies initiates the transformation of competitive factors found in ensuring the banks' competitive capacity through revolutionary changes from a traditional model to an online platform model with a wide outreach of customers and tools.The banking service market leaders in Ukraine (PrivatBank and Oschadbank) also hold leading positions when being assessed with regard to their digital technologies.
The implementation of these methods at the research stage made it possible to substantiate the significance of the factor of digital transformation level considered when assessing the competitive capacity of a bank.
The relationship between the level of bank's competitive capacity and the level of digital transformation was close and direct.Digital transformation influences all significant indicators of the bank's activity: income, assets, volumes of deposits and loans.The foregoing identifies an effective tool for competition, determines the direction and opportunities for the development of banking institutions.
The most significant impact of digital transformation is noticeable in the increasing amount of personal deposits and loans, income, and assets.At the same time, the analyzed digital transformation level of Ukrainian banks testifies to a moderate impact on the involvement of legal entities.
In conclusion, it is worth noting that banks should thoroughly aim to introduce innovative digital technologies in their activities to maintain a competitive position in the banking sector.When applying the proposed approach based on certain regression equations, they will be capable of assessing the efficiency and making appropriate management decisions about investing in digital tools and services.
Further research should be aimed at developing a methodological approach to a comprehensive assessment of the bank's digital transformation and its effectiveness.
and Zhixu (2013) added a description of the bank's activity scale to the indicators specified above.Pruteanu-Podpiera et al. (2016) investigated the dependence of competitive capacity on the banking efficiency.

Figure 1 .
Figure 1.Dendrogram by complex indicators illustrating the competitive capacity level by financial indicators and the digital transformation level

Figure 3 .
Figure 3. Dependence of the competitive capacity of banks on the digital transformation level

Table 2 .
Linear data transformation based on the digital transformation indicators designed to analyze the competitive capacity of Ukrainian banks Source: Calculated based on Banker's data (Banker, 2020).

Table 3 .
Assessment of the competitive capacity of Ukrainian banks

Complex indicator of the competitive capacity by the financial indicators Complex indicator of the competitive capacity by the level of digital transformation Rating by the financial indicators Rating by the level of digital transformation
(1)p://dx.doi.org/10.21511/bbs.16(1).2021.08

Table 4 .
Characteristics of bank clusters by the level of competitive capacity

Table 5 .
Dependence of the competitive position by certain financial indicators of banks' activity on the competitive level of digital transformation (x)