How the Internet Affects Output and Performance at Community Banks
University of Kansas School of Business
William W. Lang
Federal Reserve Bank of Philadelphia
Daniel E. Nolle
Office of the Comptroller of the Currency
Journal of Banking & Finance, Vol. 31, pp. 1033-1060, 2007
Internet web sites have become an important alternative distribution channel for most banking institutions. However, we still know little about the impact of this delivery channel on bank performance. We observe 424 community banks among the first wave of US banks to adopt transactional banking web sites in the late-1990s, and compare the change in their 1999-2001 financial performance to that of 5175 branching-only community banks. Whereas today virtually all viable community banking franchises offer he Internet banking channel, studying this earlier time period allows us to make clean comparisons between subsamples of "brick-and-mortar" and "click-and-mortar" community banks. We find that Internet adoption improved community bank profitability, chiefly through increased revenues from deposit service charges. Internet adoption was also associated with movements of deposits from checking accounts to money market deposit accounts, increased use of brokered deposits, and higher average wage rates for bank employees. We find little evidence of changes in loan portfolio mix. Our findings suggest that these initial click-and-mortar banks (and their customers) used the Internet channel as a complement to, rather than a substitute for, physical branches.
Number of Pages in PDF File: 28
Keywords: Internet Banking, Community Banks, Banking System, Bank Branching
JEL Classification: G2, G20, G21, G28, L2Accepted Paper Series
Date posted: January 20, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.312 seconds