New Horizons in Money and Finance series
Edited by Luisa Anderloni, David T. Llewellyn and Reinhard H. Schmidt
Chapter 5: Financial Innovation in Internet Banking: A Comparative Analysis
* Francesca Arnaboldi and Peter Claeys INTRODUCTION 1 Internet banking has attracted increasing attention since the 1990s. Partly fostered by technological advance, banks started to use the internet as an innovative payment method and as a way to reduce costs, enhance proﬁts and increase customer convenience. Online banks have been promoted basically by ﬁnancial groups, organised by both banks and insurance companies. In some cases commercial incumbents decided to enter the market. In our study we have focused on ﬁnancial groups since the market share held by incumbent competitors does not seem to be relevant.1 Two main business models may be identiﬁed in the use of banking portals online. The ﬁrst one consists in cross-selling bank products via a website, thus new clients are reached and distribution channels are diversiﬁed, as opposed to the original bank based one (mixed business model). A second model is the creation of a pure internet/online bank (IB), which implies the absence of physical branches (pure business model). Usually pure online banks are created by banking groups to target price-sensitive clients whom they would not be able to reach via traditional distribution channels (DeYoung, 2005). Nearly half of US banks were using transactional websites at the beginning of 2002.2 However, only a few of them have adopted a pure online business model, gaining rather diverse results. Some exited the market via liquidation or acquisition; others developed a mixed model and opened physical branches. Only a few pure online banks were able to achieve...
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