Banking

Innovation And Performance Of European Banks Adopting Internet

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Executive Summary

Ebanking has been a bit of a fad. Virtual banks were believed to challenge traditional banks. The burst of the internet bubble brought down this first generation of internet banks. Traditional branch banks have gone online since. Existing banks started to buy up some failed internet banks; some have set up an internet bank of their own. It seems this second generation of online banks performs better (DeYoung et al., 2007). However, other traditional banks have started to complement branch banking with simpler online facilities, like an internet portal. This paper examines the reasons for banking groups to either own an internet bank or provide an internet portal. On a panel of the 60 largest EU banking groups over the period 1995-2005, this paper finds that banks with a heavy cost structure and a large market share in client deposits and noninterest activities are more likely to introduce internet banking.

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