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The financial performance of pure play Internet banks

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  • Robert DeYoung
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    Abstract

    In theory, banks that conduct all their business over the Internet will have low overhead expenses. If these saving materialize, Internet banks could use them to fuel fast growth while still earning normal profits. This article analyzes a small sample of "pure lay" Internet banks launched during the late 1990s. Compared with young branching banks, these young Internet banks have low physical overhead and grow fast--but they earn low profits due to high labor expenses, low noninterest income, and low core deposits.

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    File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2001/1qepart4.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

    Volume (Year): (2001)
    Issue (Month): Q I ()
    Pages: 60-78

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    Handle: RePEc:fip:fedhep:y:2001:i:qi:p:60-78:n:v.25no.1

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    Related research

    Keywords: Internet ; Payment systems ; Electronic commerce;

    References

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    1. DeYoung, Robert & Hasan, Iftekhar, 1998. "The performance of de novo commercial banks: A profit efficiency approach," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 565-587, May.
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    Cited by:
    1. Hernández-Murillo, Rubén & Llobet, Gerard & Fuentes, Roberto, 2010. "Strategic online banking adoption," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1650-1663, July.
    2. Robert DeYoung, 2001. "Learning-by-doing, scale efficiencies, and financial performance at Internet-only banks," Working Paper Series WP-01-06, Federal Reserve Bank of Chicago.
    3. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," Working Paper 2009-10, Federal Reserve Bank of Atlanta.
    4. Robert DeYoung & William C. Hunter, 2001. "Deregulation, the Internet, and the competitive viability of large banks and community banks," Working Paper Series WP-01-11, Federal Reserve Bank of Chicago.
    5. Thorsten Beck & Tao Chen & Chen Lin & Frank M. Song, 2012. "Financial Innovation: The Bright and the Dark Sides," Working Papers 052012, Hong Kong Institute for Monetary Research.
    6. Bernardo Batiz-Lazo & Douglas Wood, 2002. "Information technology innovations and commercial banking: A review and appraisal from an historical perspective," Economic History 0211001, EconWPA.
    7. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    8. Arnold, Ivo J.M. & van Ewijk, Saskia E., 2011. "Can pure play internet banking survive the credit crisis?," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 783-793, April.
    9. Francesca Arnaboldi & Peter Claeys, 2008. "Internet Banking in Europe: a comparative analysis," IREA Working Papers 200811, University of Barcelona, Research Institute of Applied Economics, revised Sep 2008.
    10. Gagnon, Stephane, 2003. "E-business Model Innovation and Capability Building," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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