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Do European Primarily Internet Banks Show Scale and Experience Efficiencies?


  • Javier Delgado
  • Ignacio Hernando
  • María J. Nieto


"Empirical evidence shows that Internet banks worldwide have underperformed newly chartered traditional banks mainly because of their higher overhead costs. European banks have not been an exception in this regard. This paper analyses, for the first time in Europe, whether this is a temporary phenomenon and whether Internet banks may generate scale economies in excess of those available to traditional banks. Also do they (and their customers) accumulate experience with this new business model, allowing them to perform as well or even better than their peers, the traditional banks? To this end, we have generally followed the same analytical framework and methodology used by""DeYoung (2001, 2002, 2005)""for Internet banks in the USA although the limitations in the availability of data, as well as the existence of different regulatory frameworks and market conditions, particularly in the retail segment, in the 15 European Union countries have required some modifications to the methodology. The empirical analysis confirms that, as is the case for US banks, European Internet banks show technologically based scale economies, while no conclusive evidence exists of technology based learning economies. As Internet banks get larger, the profitability gap with traditional banks shrinks. To the extent that Internet banks are profitable, European authorities may encourage a larger number of consumers to use this delivery channel, by tackling consumers security concerns. This would allow Internet banks to capture more of the potential scale efficiencies implied in our estimations." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Suggested Citation

  • Javier Delgado & Ignacio Hernando & María J. Nieto, 2007. "Do European Primarily Internet Banks Show Scale and Experience Efficiencies?," European Financial Management, European Financial Management Association, vol. 13(4), pages 643-671.
  • Handle: RePEc:bla:eufman:v:13:y:2007:i:4:p:643-671

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    Cited by:

    1. David VanHoose, 2009. "Internet Banking," NFI Policy Briefs 2009-PB-12, Indiana State University, Scott College of Business, Networks Financial Institute.
    2. W. Scott Frame & Lawrence J. White, 2009. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers 09-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    3. Donal G. MCKILLOP & Barry QUINN, 2015. "Web Adoption By Irish Credit Unions: Performance Implications," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 86(3), pages 421-443, September.
    4. 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.
    5. JM. Sahut, 2014. "e-Business Models for Financial Services and Internet Banks," Working Papers 2014-217, Department of Research, Ipag Business School.
    6. Adela Luque, 2005. "Skill mix and technology in Spain: evidence from firm level data," Working Papers 0513, Banco de España;Working Papers Homepage.
    7. Tariq Abbasi & Hans Weigand, 2017. "The Impact of Digital Financial Services on Firm's Performance: a Literature Review," Papers 1705.10294,

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