In the Iron Grip of Tradition: The Impact of Technological Changes on the Legitimacy of Banks in Iceland.

Abstract

The fourth industrial revolution has brought significant technological advancements, including blockchain, artificial intelligence, and digital solutions. These advancements come with an increased demand for implementation, driven by competition and efficiency. This demand presents challenges for organizations that rely on legitimacy and stability. Institutional theories have demonstrated that organizations constantly navigate the tension between efficiency and legitimacy, a tension that only intensifies when new institutional logics threaten the legitimacy of the dominant logic. Banks, in particular, base their existence on legitimacy, perhaps even more so than other organizations. This paper focuses on Icelandic banks and their response to the challenges of the digital revolution. The aim of the research is to explore whether the prevailing institutional logics hinder technological development within Iceland’s banking system. A qualitative methodology was employed, involving semi-structured interviews with 11 individuals from five banks, both legacy and newer banks that rely more on digital solutions. Respondents were chosen through purposive sample from both the business and information technology departments of the banks. The data were analyzed using grounded theory methods. The results revealed that prevailing institutional logics have a hindering effect on technological development within the banking system. The banking logic, supported by the information technology logic, conflicts with the new digital logic. The emphasis of the former on stability and legitimacy reduces the ability to rapidly and securely adopt new technologies. Older banks also face challenges due to outdated information technology systems. While newer banks distinguish themselves with a digital approach, they too face pressure to conform to the more traditional banking logic. The study sheds light on the complex interplay between institutional logics, isomorphic forces, and legitimacy in the technological evolution of banks. It’s crucial for banks to be aware of these barriers and seek ways to integrate different ideologies so that adopting new technology does not compromise their legitimacy. Further research is necessary to gain a deeper understanding of how legitimacy is formed and maintained within the banking system in the face of technological changes.