Do european primarily internet banks show scale and experience efficiencies?

Javier Delgado, Ignacio Hernando and María Nieto ()
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María Nieto: Banco de España

No 412, Working Papers from Banco de España

Abstract: To date, Internet banks worldwide have underperformed newly chartered traditional banks mainly because their higher overhead costs. This paper analyses whether this is a temporary phenomenon and whether Internet banks may generate scale economies in excess of those available to traditional banks and/or they (and their customers) may accumulate experience with this new business model, which may allow them to perform as well or even better than their peers, the traditional banks. To this end, we have followed the same analytical framework and methodology used by DeYoung (2001, 2002, forthcoming) for Internet banks in the United States although the limitations in the availability of data as well as the existence of different regulatory frameworks and market conditions, particularly in the retail segment, in the fifteen European Union countries have required some modifications to such methodology. The empirical analysis confirms that Internet banks show technologically based scale economies, while no conclusive evidence exists of technology based learning economies. As Internet banks get larger, the profitability gap with traditional banks shrinks. To the extent that Internet banks are struggling to prove themselves a viable business model, European authorities may encourage a larger number of consumers to use this delivery channel, by tackling consumers' security concerns. This would allow Internet banks to capture more of the potential scale efficiencies implied in our estimations.

Pages: 35 pages
Date: 2004-06
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Citations: View citations in EconPapers (1)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/04/Fic/dt0412e.pdf First version, June 2004 (application/pdf)

Related works:
Journal Article: Do European Primarily Internet Banks Show Scale and Experience Efficiencies? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0412

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