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Working Paper
Financial innovation, strategic real options and endogenous competition : theory and an application to Internet banking
Innovations in financial services continuously influence the scope of financial intermediation and the nature of competition between intermediaries. This paper examines the optimal exercise of strategic real options to invest in such an innovation, Internet banking technology, within a two-stage game, parameterized by the distribution of bank size and uncertainty over the profitability of investment, and empirically tests the results on a novel data set. Unlike traditional options, in which the distribution of the future value of the underlying asset is exogenous and the timing of exercise ...
Conference Paper
The determinants of consumers’ adoption of Internet banking
Bills have traditionally been paid by writing checks and sending them with statements by U.S. mail. Increasingly, bills are being paid by automated clearinghouse debits. More recently, the Internet has created new bill payment methods such as online banking and online credit card payments. These new options offer consumers convenience, speed, and the ability to better control payment timing. How do consumers decide whether or not to adopt different forms of bill payment? Are the same consumers using different methods depending on the type of bill or the amount? Will check ever disappear as a ...
Working Paper
Internet banking: an exploration in technology diffusion and impact
This paper studies endogenous diffusion and impact of a cost-saving technological innovation -- Internet Banking. When the innovation is initially introduced, large banks have an advantage to adopt it first and enjoy further growth of size. Over time, as the innovation diffuses into smaller banks, the aggregate bank size distribution increases stochastically towards a new steady state. Applying the theory to a panel study of Internet Banking diffusion across 50 US states, we examine the technological, economic and institutional factors governing the process. The empirical findings allow us to ...
Journal Article
U.S. consumers and electronic banking, 1995-2003
The availability and variety of electronic banking technologies in the marketplace has greatly expanded in recent years. For financial institutions, e-banking technologies can speed processing, reduce costs, and help attract and retain customers. For consumers, they can save time and money and may be more convenient than more traditional ways of banking. This article draws on data from two nationwide surveys to look at consumer use of such products and services as debit cards, pre-authorized debits, and computer banking, particularly as use relates to consumer demographic characteristics and ...
Discussion Paper
Account-to-account electronic money transfers: recent developments in the United States
This paper reviews recent developments in online and mobile banking in the United States that provide bank account holders with low-cost interfaces to manage account-to-account electronic money transfers. The paper analyzes the emerging decentralized market in which A2A money transfers are becoming available in the United States and compares it with the A2A market in other countries. The paper constructs analytical examples to explain and evaluate the structure of the emerging U.S. market and discusses possible policy actions that may enhance the use of A2A money transfers in the United ...
Journal Article
How has the adoption of Internet banking affected performance and risk in banks?
Analysis of banks in Tenth District states that have adopted Internet banking shows an adoption rate that is similar to the rate for the United States. Community banks, especially in rural areas, are lagging behind other banks in introducing Internet banking. ; Banks that have adopted Internet banking have introduced it in markets with demographic and economic characteristics that help to ensure customer acceptance. They have also used the Internet in a way that complements their business strategy. Banks who offer Internet banking rely more on non-core funding, and are developing the Internet ...
Conference Paper
Old-fashioned banking in a high-tech medium: Internet-only banks
Working Paper
Strategic online-banking adoption
In this paper we study the determinants of banks? decision to adopt a transactional website for their customers. Using a panel of commercial banks in the United States for the period 2003-2005, we show that although bank-specific characteristics are important determinants of banks? adoption decision, competition plays a prominent role. The extent of competition is related to the geographical overlap of banks in different markets and their relative market share in terms of deposits. In more competitive markets banks are more likely to adopt earlier. Even more importantly, banks adopt earlier ...
Journal Article
Performance and operation of commercial bank web sites
This article reviews banker experience with Internet banking based on responses to the 2001 Survey of Commercial Banks in the Tenth Federal Reserve District. The performance of bank Web sites (measured by customer enrollment, usage rate, fee revenues, and generation of new customers) has been modest but is similar to experience of most U.S. banks. Developing policies, working with vendors, regulatory requirements, security, and marketing and promotion head the list of activities that challenge banks when installing and operating Web sites. Long-term strategic factors, such as remaining ...