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Internet banking: an exploration in technology diffusion and impact

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  • Richard Sullivan
  • Zhu Wang

Abstract

This paper studies the diffusion and impact of a cost-saving technological innovation—Internet banking. Our theory characterizes the process through which the innovation is adopted sequentially by large and small banks, and how the adoption affects bank size distribution. Applying the theory to an empirical study of Internet banking diffusion among banks across 50 U.S. states, we examine the technological, economic and institutional factors governing the process. The empirical findings allow us to disentangle the interrelationship between Internet banking adoption and change in average bank size, and explain the variation in diffusion rates across geographic regions.

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Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 13-10.

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Date of creation: 2013
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Handle: RePEc:fip:fedrwp:13-10
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  1. Massoud Karshenas & Paul L. Stoneman, 1993. "Rank, Stock, Order, and Epidemic Effects in the Diffusion of New Process Technologies: An Empirical Model," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 503-528, Winter.
  2. Rodolfo Manuelli & Ananth Seshadri, 2003. "Frictionless Technology Diffusion: The Case of Tractors," NBER Working Papers 9604, National Bureau of Economic Research, Inc.
  3. Zhu Wang, 2006. "Learning, diffusion and the industry life cycle," Payments System Research Working Paper PSR WP 04-01, Federal Reserve Bank of Kansas City.
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  5. Roberto Fuentes & Rubén Hernández-Murillo & Gerard Llobet, 2007. "Strategic online-banking adoption," Working Papers 2006-058, Federal Reserve Bank of St. Louis.
  6. Zhu Wang, 2007. "Technological Innovation and Market Turbulence: The Dot-com Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 78-105, January.
  7. Allen N. Berger & Loretta J. Mester, 2001. "Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation and Dynamic Changes in Competition," Center for Financial Institutions Working Papers 01-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
  8. 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.
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  11. Allen N. Berger & Robert DeYoung, 2002. "Technological progress and the geographic expansion of the banking industry," Working Paper Series WP-02-07, Federal Reserve Bank of Chicago.
  12. Comin, D. & Hobijn, B., 2003. "Cross-Country Technology Adoption: Making the Theories Face the Facts," Working Papers 03-04, C.V. Starr Center for Applied Economics, New York University.
  13. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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  16. Richard Sullivan, 2004. "Payment services and the evolution of Internet banking," Payments System Research Briefing, Federal Reserve Bank of Kansas City, issue Aug.
  17. Courchane, Marsha & Nickerson, David & Sullivan, Richard, 2002. "Investment in internet banking as a real option: theory and tests," Journal of Multinational Financial Management, Elsevier, vol. 12(4-5), pages 347-363.
  18. Zhu Wang, 2008. "Income Distribution, Market Size and the Evolution of Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 542-565, July.
  19. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
  20. 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.
  21. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
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  23. Allen N. Berger & Robert DeYoung, 2002. "Technological progress and the geographic expansion of the banking industry," Proceedings 817, Federal Reserve Bank of Chicago.
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Cited by:

  1. Orviska, Marta & Hudson, John, 2009. "Dividing or uniting Europe? Internet usage in the EU," Information Economics and Policy, Elsevier, vol. 21(4), pages 279-290, November.
  2. James McAndrews & Zhu Wang, 2008. "The economics of two-sided payment card markets: pricing, adoption and usage," Research Working Paper RWP 08-12, Federal Reserve Bank of Kansas City.
  3. Gerard Llobet & Rubén Hernández-Murillo & Roberto Fuentes, 2008. "Strategic Online-Banking Adoption," Working Papers wp2008_0813, CEMFI.
  4. Zhu Wang, 2006. "Technology Innovation and Market Turbulence: A Dotcom Example," 2006 Meeting Papers 508, Society for Economic Dynamics.
  5. Zhu Wang, 2005. "Technological innovation and market turbulence: the dot-com experience," Payments System Research Working Paper PSR WP 05-02, Federal Reserve Bank of Kansas City.
  6. Hudson, John, 2012. "Internet Banking and the Marginal Internet User," Department of Economics Working Papers 32980, University of Bath, Department of Economics.
  7. James McAndrews & Zhu Wang, 2006. "Microfoundations of two-sided markets: the payment card example," Payments System Research Working Paper PSR WP 06-01, Federal Reserve Bank of Kansas City.
  8. Sullivan, Richard J., 2013. "The impact of debit card regulation on checking account fees," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 59-93.
  9. John Goddard & Donal McKillop & John Wilson, 2009. "Which Credit Unions are Acquired?," Journal of Financial Services Research, Springer, vol. 36(2), pages 231-252, December.
  10. David VanHoose, 2009. "Internet Banking," NFI Policy Briefs 2009-PB-12, Indiana State University, Scott College of Business, Networks Financial Institute.
  11. Zhu Wang, 2008. "Income Distribution, Market Size and the Evolution of Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 542-565, July.

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