How the Internet Affects Output and Performance at Community Banks

Journal of Banking & Finance, Vol. 31, pp. 1033-1060, 2007

28 Pages Posted: 20 Jan 2012

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

William W. Lang

Promontory Financial Group

Daniel E. Nolle

affiliation not provided to SSRN

Date Written: 2007

Abstract

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.

Keywords: Internet Banking, Community Banks, Banking System, Bank Branching

JEL Classification: G2, G20, G21, G28, L2

Suggested Citation

DeYoung, Robert and Lang, William W. and Nolle, Daniel E., How the Internet Affects Output and Performance at Community Banks (2007). Journal of Banking & Finance, Vol. 31, pp. 1033-1060, 2007, Available at SSRN: https://ssrn.com/abstract=1988510

Robert DeYoung

University of Kansas School of Business ( email )

Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States
785-864-1806 (Phone)

William W. Lang

Promontory Financial Group ( email )

1201 Pennsylvania Avenue, NW
Suite 617
Washington, DC 20004
United States

HOME PAGE: http://www.promontory.com

Daniel E. Nolle (Contact Author)

affiliation not provided to SSRN

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