Learning-by-Doing, Scale Efficiencies, and Financial Performance at Internet-Only Banks

56 Pages Posted: 10 Sep 2001

See all articles by Robert DeYoung

Robert DeYoung

University of Kansas School of Business

Date Written: June 2002

Abstract

This study introduces a general intuitive framework for analyzing start-up firms with innovative business plans, and uses it to investigate the performance of Internet-only banks and thrifts in the U.S. Internet-only banks historically have underperformed branching banks, leading some to conclude that the business model is not viable. But the automated production and distribution methods used by Internet-only banks are likely to exhibit substantial scale economies, and most Internet-only banks are still small. The empirical analysis confirms this proposition, and demonstrates that profitability gaps shrink as Internet-only banks get larger. In general, the results suggest that the Internet-only banking model may well be viable when executed efficiently.

Keywords: Banks, Innovation, Internet, Learning, Scale Economies

JEL Classification: G21, L86, O30

Suggested Citation

DeYoung, Robert, Learning-by-Doing, Scale Efficiencies, and Financial Performance at Internet-Only Banks (June 2002). FRB Chicago Working Paper No. 2001-06. Available at SSRN: https://ssrn.com/abstract=282721 or http://dx.doi.org/10.2139/ssrn.282721

Robert DeYoung (Contact Author)

University of Kansas School of Business ( email )

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

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