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The financial performance of pure play Internet banks

Author

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  • Robert DeYoung
Abstract
In theory, banks that conduct all their business over the Internet will have low overhead expenses. If these saving materialize, Internet banks could use them to fuel fast growth while still earning normal profits. This article analyzes a small sample of "pure lay" Internet banks launched during the late 1990s. Compared with young branching banks, these young Internet banks have low physical overhead and grow fast--but they earn low profits due to high labor expenses, low noninterest income, and low core deposits.

Suggested Citation

  • Robert DeYoung, 2001. "The financial performance of pure play Internet banks," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q I), pages 60-78.
    • Handle: RePEc:fip:fedhep:y:2001:i:qi:p:60-78:n:v.25no.1
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    References listed on IDEAS

    as
    1. Robert DeYoung, 2000. "Mergers and the changing landscape of commercial banking (Part II)," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Feb.
    2. DeYoung, Robert & Hasan, Iftekhar, 1998. "The performance of de novo commercial banks: A profit efficiency approach," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 565-587, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Robert DeYoung, 2001. "Learning-by-doing, scale efficiencies, and financial performance at Internet-only banks," Working Paper Series WP-01-06, Federal Reserve Bank of Chicago.
    2. Bernardo Batiz-Lazo & Douglas Wood, 2002. "Information technology innovations and commercial banking: A review and appraisal from an historical perspective," Economic History 0211001, University Library of Munich, Germany.
    3. Del Gaudio, Belinda L. & Porzio, Claudio & Sampagnaro, Gabriele & Verdoliva, Vincenzo, 2021. "How do mobile, internet and ICT diffusion affect the banking industry? An empirical analysis," European Management Journal, Elsevier, vol. 39(3), pages 327-332.
    4. Stéphane Gagnon, 2003. "E-business Model Innovation and Capability Building," WIDER Working Paper Series DP2003-40, World Institute for Development Economic Research (UNU-WIDER).
    5. Hernández-Murillo, Rubén & Llobet, Gerard & Fuentes, Roberto, 2010. "Strategic online banking adoption," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1650-1663, July.
    6. Beck, Thorsten & Chen, Tao & Lin, Chen & Song, Frank M., 2016. "Financial innovation: The bright and the dark sides," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 28-51.
    7. W. Scott Frame & Lawrence J. White, 2009. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers 09-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. Elisa Di Febo & Eliana Angelini, 2022. "Internet banking, age, gender, and performance: Which connections in Italy?," Bank i Kredyt, Narodowy Bank Polski, vol. 53(3), pages 295-324.
    9. Arnold, Ivo J.M. & van Ewijk, Saskia E., 2011. "Can pure play internet banking survive the credit crisis?," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 783-793, April.
    10. Imola Drigă, 2014. "Online Banking in The Romanian Banking System," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 14(2), pages 85-92.
    11. Pennathur, Anita K., 2001. ""Clicks and bricks":: e-Risk Management for banks in the age of the Internet," Journal of Banking & Finance, Elsevier, vol. 25(11), pages 2103-2123, November.
    12. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    13. Francesca Arnaboldi & Peter Claeys, 2008. "Internet Banking in Europe: a comparative analysis," IREA Working Papers 200811, University of Barcelona, Research Institute of Applied Economics, revised Sep 2008.
    14. Purohit, Sonal & Paul, Justin & Mishra, Rikee, 2021. "Rethinking the bottom of the pyramid: Towards a new marketing mix," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    15. Sang Joon Ahn & Seong Ho Lee, 2019. "The Effect of Consumers’ Perceived Value on Acceptance of an Internet-Only Bank Service," Sustainability, MDPI, vol. 11(17), pages 1-9, August.
    16. Robert DeYoung & William C. Hunter, 2001. "Deregulation, the Internet, and the competitive viability of large banks and community banks," Working Paper Series WP-01-11, Federal Reserve Bank of Chicago.
    17. Jiao, Zhilun & Shahid, Muhammad Shehryar & Mirza, Nawazish & Tan, Zhixiong, 2021. "Should the fourth industrial revolution be widespread or confined geographically? A country-level analysis of fintech economies," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    18. Gu, Jianqiang & Gouliamos, Kostas & Lobonţ, Oana-Ramona & Nicoleta-Claudia, Moldovan, 2021. "Is the fourth industrial revolution transforming the relationship between financial development and its determinants in emerging economies?," Technological Forecasting and Social Change, Elsevier, vol. 165(C).
    19. Fatima Chalabi, 2020. "The Impact of Innovation on Banking Performance: Evidence from Lebanese Banking Sector," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(6), pages 1-9.
    20. Campanella, Francesco & Serino, Luana & Battisti, Enrico & Giakoumelou, Anastasia & Karasamani, Isabella, 2023. "FinTech in the financial system: Towards a capital-intensive and high competence human capital reality?," Journal of Business Research, Elsevier, vol. 155(PA).
    21. Arnold, Ivo J.M., 2020. "Internet search volumes of UK banks during the crisis: The role of banking structure and business model," Global Finance Journal, Elsevier, vol. 45(C).

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