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The Performance of Internet-Based Business Models: Evidence from the Banking Industry

Robert DeYoung
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Robert DeYoung: Federal Reserve Bank of Chicago

The Journal of Business, 2005, vol. 78, issue 3, 893-948

Abstract: The initial Internet bank startups tended to underperform branching bank startups. This suggested that Internet-only business models were not economically viable for banks. However, firms that pioneer new business models may benefit substantially from experience as they grow older, and firms that use automated production technologies may benefit from scale effects as they grow larger. Econometric analysis of Internet-only bank startups finds strong evidence of the latter, but not the former, effect. The results suggest that Internet-only banking success depends on attaining sufficient scale and strong management practices.

Date: 2005
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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:3:p:893-948