Financial innovation in internet banking : a comparative analysis

We compared the performance of different online banking models over the 1995–2004 period in Finland, Spain, Italy and the UK. Groups with Internet banks are not performing worse in terms of average returns to assets (or equity), and do not seem to run higher operational costs for the little income they generate. From the fuzzy cluster analysis we found that IBs are hard to distinguish from banks that adopt both click and mortar strategies. Country-specific features appear to be more important in explaining differences across banks. We therefore explain the performance of banks by a group of selected bank-specific features, but also add country-specific macroeconomic indicators and IT-related ratios. We find that the strategy of banking groups to incorporate IBs reflects some competitive edge that these banks have in their business models.