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Is the internet delivery channel changing banks' performance? The case of Spanish banks

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  • Ignacio Hernando

    ()
    (Banco de España)

  • María J. Nieto

    ()
    (Banco de España)

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    Abstract

    In spite of the conspicuous use of the Internet as a delivery channel, there is a relative dearth of empirical studies that provide a quantitative analysis of the impact of the Internet on banks´ financial performance. This paper attempts to fill this gap by identifying and estimating the impact of the adoption of a transactional web site on financial performance using a sample of 72 commercial banks operating in Spain over the period 1994-2002. The impact on banks´ performance of transactional web adoption takes time to appear. The adoption of the Internet as a delivery channel involves a gradual reduction in overhead expenses (particularly, staff, marketing and IT). This effect is statistically significant after one and a half years after adoption. The cost reduction translates into an improvement in banks´ profitability, which becomes significant after one and a half years in terms of ROA and after three years in terms of ROE. The paper also concludes that the Internet is being used as a complement to, rather than a substitute for, physical branches.

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0624e.pdf
    File Function: First version, September 2006
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    Bibliographic Info

    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0624.

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    Length: 28 pages
    Date of creation: Sep 2006
    Date of revision:
    Handle: RePEc:bde:wpaper:0624

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    Web page: http://www.bde.es/
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    Keywords: commercial banks; internet banking; profitability; cost and income structure;

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    1. W. Scott Frame & Lawrence White, 2002. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Working Papers 02-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Richard J. Sullivan, 2000. "How has the adoption of Internet banking affected performance and risk in banks?," Financial Industry Perspectives, Federal Reserve Bank of Kansas City, issue Dec, pages 1-16.
    3. Bauer, Keldon & Hein, Scott E., 2006. "The effect of heterogeneous risk on the early adoption of Internet banking technologies," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1713-1725, June.
    4. Carbo Valverde, Santiago & Fernandez, Francisco Rodriguez, 2005. "New evidence of scope economies among lending, deposit-taking, loan commitments and mutual fund activities," Journal of Economics and Business, Elsevier, vol. 57(3), pages 187-207.
    5. Robert DeYoung, 2005. "The Performance of Internet-Based Business Models: Evidence from the Banking Industry," The Journal of Business, University of Chicago Press, vol. 78(3), pages 893-948, May.
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