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How has the adoption of Internet banking affected performance and risk in banks?

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  • Richard J. Sullivan

Abstract

Analysis of banks in Tenth District states that have adopted Internet banking shows an adoption rate that is similar to the rate for the United States. Community banks, especially in rural areas, are lagging behind other banks in introducing Internet banking. ; Banks that have adopted Internet banking have introduced it in markets with demographic and economic characteristics that help to ensure customer acceptance. They have also used the Internet in a way that complements their business strategy. Banks who offer Internet banking rely more on non-core funding, and are developing the Internet to tap another non-traditional source of funds. Large banking organizations in the region have a strong retail orientation, and they have tailored their Internet offerings to appeal to retail customers. Community banks have a business orientation, and offer online services that appeal to their business customers. ; Performance of banks with Internet banking in general is similar to those without Internet banking. Profits for banks with Internet banking have not suffered, despite some relatively high expenses. These banks generate comparatively more non-interest income, which may help to overcome additional expenses. Measures of risk are also similar for banks with and without Internet banking. ; Among banks that do offer Internet banking, newly chartered banks have particularly poor performance characteristics. Community banks that are under two years old and who offer Internet banking have extraordinarily high expenses and, as a consequence, large losses.

Suggested Citation

  • 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.
  • Handle: RePEc:fip:fedkfi:y:2000:i:dec:p:1-16
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    File URL: http://www.kansascityfed.org/PUBLICAT/FIP/prs00-1.pdf
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    References listed on IDEAS

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