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Consumer Adoption of Online Banking: Does Distance Matter?

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  • Beethika Khan

    (Department of Economics, University of California, Berkeley)

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    Abstract

    This paper tests whether consumer adoption of online banking is affected by the distance to one's bank branch. During the last decade, rapid diffusion of the Internet has dramatically changed the ways consumers conduct every-day businesses. An important trend in the rapid increase of Internet use among U.S. households is the use of the Internet for accessing financial accounts and paying bills. I estimate a logit model for online banking use with household level data from the U.S. for 1998 and 2001. In order to correct for the possible endogeneity of distance to one's bank, I use instrumental variables in a logit framework by following the control function approach suggested by Petrin and Train (2002). I find that distance to the closest bank branch does not affect the likelihood of online banking use by a household. The type of financial account that one has with her financial institution, however, is a significant predictor of online banking use, implying that households are likely to use the online provision more for some accounts than others. The results suggest that online channels may be viewed as a supplement to other more traditional channels. I also find that the impacts of various individual and bank-specific characteristics on online banking use have changed from 1998 to 2001. This is not surprising given the rapid diffusion of the Internet in the late 1990s, and the corresponding rise in the availability, acceptance and familiarity of the Internet as an additional business channel.

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    Bibliographic Info

    Paper provided by EconWPA in its series Development and Comp Systems with number 0407002.

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    Length: 37 pages
    Date of creation: 02 Jul 2004
    Date of revision:
    Handle: RePEc:wpa:wuwpdc:0407002

    Note: 37 pages, Acrobat .pdf
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    Web page: http://128.118.178.162

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    Cited by:
    1. Robert Clark & Jason Allen & Jean-Francois Houde, 2008. "Market Structure and the diffusion of electronic banking," 2008 Meeting Papers 1015, Society for Economic Dynamics.
    2. Guido De Blasio, 2006. "Does the Internet Kill the Distance? Evidence From Navigation, E-Commerce, and E-Banking," ERSA conference papers ersa06p440, European Regional Science Association.

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