Internet banking in the U.K.: From new distribution channel to new business models

The Internet is shaking the foundation of the banking industry. Simply deploying the Internet as a more efficient distribution channel will not bring sustainable strategic advantages. To compete effectively, banks will need to embrace a new set of strategic thinking, based on the ‘unbundling’ of banking services and processes and the ‘deconstruction’ of the integrated banking model. Based on my research of Internet banking in the personal banking area in the U.K. since the late 1990's, this paper explores a series of emerging issues, such as the adoption of various strategies and business models, channel development and coordination, and product and service offering through the Internet. As a new distribution channel for financial services, the Internet has lowered barriers to entry, allowing new players, often equipped with new technologies and business models, to enter the market. These new players are posing a serious threat to existing banks by changing the rules of competition and raising the general expectation of customers for services from all financial companies. Established banks and building societies must radically overhaul their business strategies to maintain their competitive position, and indeed, to survive in the long-term.