Is the Internet Delivery Channel Changing Banks' Performance? The Case of Spanish Banks

28 Pages Posted: 16 Sep 2006

Date Written: September 14, 2006

Abstract

In spite of the conspicuous use of the Internet as a delivery channel, there is a relative dearth of empirical studies that provide a quantitative analysis of the impact of the Internet on banks' financial performance. This paper attempts to fill this gap by identifying and estimating the impact of the adoption of a transactional web site on financial performance using a sample of 72 commercial banks operating in Spain over the period 1994-2002. The impact on banks' performance of transactional web adoption takes time to appear. The adoption of the Internet as a delivery channel involves a gradual reduction in overhead expenses (particularly, staff, marketing and IT). This effect is statistically significant after one and a half years after adoption. The cost reduction translates into an improvement in banks' profitability, which becomes significant after one and a half years in terms of ROA and after three years in terms of ROE. The paper also concludes that the Internet is being used as a complement to, rather than a substitute for, physical branches.

Keywords: commercial banks, Internet banking, profitability, cost and income structure

JEL Classification: G21, O32, O33

Suggested Citation

Hernando, Ignacio and Nieto, Maria J., Is the Internet Delivery Channel Changing Banks' Performance? The Case of Spanish Banks (September 14, 2006). Banco de Espana Research Paper No. WP-0624. Available at SSRN: https://ssrn.com/abstract=930563 or http://dx.doi.org/10.2139/ssrn.930563

Ignacio Hernando (Contact Author)

Banco de España ( email )

Madrid 28014
Spain
+34 91 338 5186 (Phone)
+34 91 338 5678 (Fax)

Maria J. Nieto

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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