The Research on the Impact of Internet Banking on Demand Deposit and Bank Profitability (in Korean)

Bong Geul Chun () and Dong Gyu Lee ()
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Bong Geul Chun: Department of Economics, University of Seoul
Dong Gyu Lee: Payment & Settlement Systems Department, The Bank of Korea

No 2014-6, Working Papers from Economic Research Institute, Bank of Korea

Abstract: The proliferation of internet banking has been expected to contribute to the profitability of commercial banks by saving their customer management costs. However, researches on the effects of internet banking in Korea so far have failed to provide coherent conclusions. This paper tries to analyze the relationships among internet banking, demand deposit and profitability of banks with the method which explicitly considers endogeneity problems. According to our findings, the widespread use of internet banking has enhanced the efficiency of banking business by reducing the reliance of banks on profit from interest and increasing the share of non-interest revenue of banks such as fees. It is, however, found that internet banking does not have significant impacts on the profitability of individual banks. The analysis also shows that internet banking has contributed to an increase in the share of demand deposit. However, the increased share of demand deposit has not affected the profitability of each banks. In conclusion, while the broad use of internet banking has led to a rise in the share of demand deposit, it has had no significant impacts on the profitability of individual banks. These results indicate that banks should develop appropriate measures to make the full use of electronic payment services such as internet banking. Further in-depth researches on the effects of internet banking on the profitability of banks need to be done using accumulated appropriate data in the future.

Keywords: internet banking; bank profitability; demand deposit; electronic financial service; electronic payment service (search for similar items in EconPapers)
JEL-codes: C13 E44 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014-04-05
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