Do European Primarily Internet Banks Show Scale and Experience Efficiencies?

Abstract

"Empirical evidence shows that Internet banks worldwide have underperformed newly chartered traditional banks mainly because of their higher overhead costs. European banks have not been an exception in this regard. This paper analyses, for the first time in Europe, whether this is a temporary phenomenon and whether Internet banks may generate scale economies in excess of those available to traditional banks. Also do they (and their customers) accumulate experience with this new business model, allowing them to perform as well or even better than their peers, the traditional banks? To this end, we have generally followed the same analytical framework and methodology used by""DeYoung (2001, 2002, 2005)""for Internet banks in the USA although the limitations in the availability of data, as well as the existence of different regulatory frameworks and market conditions, particularly in the retail segment, in the 15 European Union countries have required some modifications to the methodology. The empirical analysis confirms that, as is the case for US banks, European Internet banks show technologically based scale economies, while no conclusive evidence exists of technology based learning economies. As Internet banks get larger, the profitability gap with traditional banks shrinks. To the extent that Internet banks are profitable, European authorities may encourage a larger number of consumers to use this delivery channel, by tackling consumers security concerns. This would allow Internet banks to capture more of the potential scale efficiencies implied in our estimations." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Influence of internet and social media presence on small, local banks’ market power

“…At the same time, they had problems controlling overhead expenses. In contrast, Delgado et al (2007), who analyse a sample of European, newly established, primarily Internet banks and newly chartered traditional (clicks and mortar) banks of similar age and size, establish that Internet banks showed strong evidence of scale economies in terms of ROA and ROE. The primary source of technology-based scale effects was the Internet banks' ability to control operational expenses more efficiently than new traditional banks.…”

“…The published studies can be roughly categorized into two groups. The first group of studies analyses the determinants of Internet banking adoption (Bauer & Hein, 2006;Courchane, Nickerson, & Sullivan, 2002;Hernández-Murillo, Llobet, & Fuentes, 2010;Santouridis & Kyritsi, 2014), and the second group of studies addresses the consequences of Internet banking introduction (Hitt & Frei, 2002;Delgado, Hernando, & Nieto, 2007;DeYoung, Lang, & Nolle, 2007;Ciciretti, Hasan, & Zazzara, 2009;Onay & Ozsoz, 2013). However, the existing evidence concerns mainly developed markets.…”

“…First, as we indicated above, it supplements still incomplete knowledge on the consequences of I&SMP for banks and their market power in emerging economies. Second, it documents that the benefits signalled in the literature for banks that embraced early Internet technologies (Ciciretti et al, 2009;Delgado et al, 2007;DeYoung et al, 2007;Onay & Ozsoz, 2013) might be unavailable for banks that adopted Internet banking relatively late, such as, for example, an average SLB in Poland. Third, it also complements the literature on cooperative banks' performance drivers in Poland (Jackowicz & Kozłowski, 2016;Miklaszewska & Kil, 2013;Skała, 2015).…”

Characterization of Adopters and Non Adopters of Credit Cards in Indian Banking Industry

“…In the line of this, Hasan et al (2002), Nieto (2005), De Young et al (2006), Malhotra and Singh (2009) also share the same views by analyzing the banks of Italy, Spain, US and India respectively. However, Sullivan (2000) and Delgado et al (2004) envisaged the contrary results by reporting lower profitability and poorer performance for internet banks. ISSN 2377-4622 2017 Hence, performance of banks providing services through plastic cards is the untouched research issue of the banking sector.…”

“…However, Furst et al (2000Furst et al ( , 2002, Sullivan (2000), De Young (2001, 2005, Hasan et al (2002), Delgado et al (2004) , Hernando and Nieto (2005) Furst et al (2000Furst et al ( , 2002, by taking the sample of US banks, found that internet banks are having better performance than non internet banks and thus outperformed non internet banks. In the line of this, Hasan et al (2002), Nieto (2005), De Young et al (2006), Malhotra and Singh (2009) also share the same views by analyzing the banks of Italy, Spain, US and India respectively.…”