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Do Better Customers Utilize Electronic Distribution Channels: The Case of PC Banking


  • Lorin M. Hitt
  • Frances X. Frei


Firms are increasingly implementing electronic distribution strategies to augment existing physical infrastructure for product and service delivery. However, to date there has been little systematic study on how these distribution channels affect customer profitability. In this study, we explore the revenue enhancement potential for electronic delivery in retail banking by comparing customers who utilize personal-computer based home banking ("PC Banking) to other bank customers. Our results, based on case studies and detailed customer data from four institutions, suggest that while PC banking customers appear to be more profitable, most of the differences are due to unobservable characteristics of these customers that were present before PC banking was adopted. Demographic characteristics and changes in customer behavior following the adoption of the product account for only a small fraction of the overall differences. We conclude that, at least to date, the primary potential value of the product is in the retention of high value customers rather than cost savings or incremental sales. Our results also suggest that it is important to distinguish behavioral changes from pre-existing customer characteristics when evaluating the impact of added electronic delivery channels.

Suggested Citation

  • Lorin M. Hitt & Frances X. Frei, 1999. "Do Better Customers Utilize Electronic Distribution Channels: The Case of PC Banking," Center for Financial Institutions Working Papers 99-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
  • Handle: RePEc:wop:pennin:99-21

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    Cited by:

    1. Van den Poel, Dirk & Lariviere, Bart, 2004. "Customer attrition analysis for financial services using proportional hazard models," European Journal of Operational Research, Elsevier, vol. 157(1), pages 196-217, August.
    2. Christian Pfeil & Thorsten Posselt & Nils Maschke, 2008. "Incentives for sales agents after the advent of the internet," Marketing Letters, Springer, vol. 19(1), pages 51-63, March.
    3. Loretta J. Mester, 2000. "The changing nature of the payments system: should new players mean new rules?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-26.
    4. Eric K. Clemons & Lorin M. Hitt, 2000. "The Internet and the Future of Financial Services: Transparency, Differential Pricing and Disintermediation," Center for Financial Institutions Working Papers 00-35, Wharton School Center for Financial Institutions, University of Pennsylvania.
    5. Frances X. Frei & Patrick T. Harker, 1999. "Value Creation and Process Management: Evidence from Retail Banking Diversity of Opinion and Financing of New Technologies," Center for Financial Institutions Working Papers 99-16, Wharton School Center for Financial Institutions, University of Pennsylvania.
    6. Vinayak Deshpande & Morris A. Cohen & Karen Donohue, 2003. "An Empirical Study of Service Differentiation for Weapon System Service Parts," Operations Research, INFORMS, vol. 51(4), pages 518-530, August.

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