How asset transformation matters for the fate of technology-led banks?

This paper examines the efficiency of technology-led banks (i.e. internet banks, mobile banks or FinTech startups offering banking services) in a simple theoretical model using conventional banks as a competitive benchmark. We show that the fate of technology-led banks crucially relies on their level of asset transformation. We identify two critical thresholds of asset transformation in a general contractual setting. The first determines whether technology-led banks are feasible to set up, while the second determines when technology-led banks are at least as attractive as conventional banks.