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

Author

Listed:
  • Ignacio Hernando

    () (Banco de España)

  • María J. Nieto

    () (Banco de España)

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.

Suggested Citation

  • Ignacio Hernando & María J. Nieto, 2006. "Is the internet delivery channel changing banks' performance? The case of Spanish banks," Working Papers 0624, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:0624
    as

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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
    Download Restriction: no

    References listed on IDEAS

    as
    1. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, pages 116-144.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Lavinia Mihaela Gutu, 2014. "The impact of Internet technology on the Romanian banks performance," Proceedings of International Academic Conferences 0702397, International Institute of Social and Economic Sciences.

    More about this item

    Keywords

    commercial banks; internet banking; profitability; cost and income structure;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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