The Diffusion of Internet Banking in Western Europe

Abstract

Although the Internet has been a fast‐adoption medium, even banking which is particularly suited to online applications has witnessed slow customer adoption. This paper models transactional Internet banking diffusion for a unique sample of the largest 100 Western European banks for last 5 recent years (1997–2001 inclusive). The model explicitly uses a logistic form to replicate the S‐curve shape that is typical of adoption behaviour of new technologies. Furthermore, the reduced form includes both supply and demand factors from the theoretical literature to analyse shifts in adoption and ‘push’ behaviours. We discover that Internet literacy (as measured by the penetration of Internet usage in a country) is the major factor underlying online banking penetration in Western Europe. However, bank‐specific variables also play a significant role in determining a bank's success with online banking penetration. Among others, factors such as bank size, or its overall cost efficiency help explain a large part of the differences currently observed in online banking diffusion in Europe. Finally, our model estimates that the maximum conversion of Internet users to online banking seems to peak at 50%, i.e., the online reach of transactional banking is likely not to be mass‐market with the current state of dial‐up Internet technology.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 23 citations exist upstream.