The impact of digitalization on the profitability of large US banks.

We propose a model according to knowledge-based theory to explain how digitalization impacts bank performance. We identify four resources and capabilities from the digitalization process that create sustainable competitive advantage: Digital market-learning capabilities, Digital organizational capabilities, Digital technical capabilities and Digital industry forces. For a sample of 96 large listed US banks from 2007-2017, we create a unique multisource new dataset (Annual reports, Bloomberg, World Bank, and OECD EMI) that allows mapping of the digitalization of the US banking industry and testing of the proposed model. The results from empirical analysis demonstrate that digitalization positively affects bank profitability; specifically, digitalization leads to sustainable competitive advantages for banks through Digital market-learning capabilities, Digital organizational capabilities and Digital technical capabilities. Furthermore, we provide evidence that banks replace employees and branches with digitalization.