Documente Academic
Documente Profesional
Documente Cultură
MARCH 2001
NUMBER 163
number
12,500
Banks
(right scale)
10,000
200,000
7,500
150,000
ATMs
(left scale)
100,000
5,000
Branches
(left scale)
50,000
Transactional websites
2,500
(right scale)
0
1991
0
93
95
97
99
Farther
Distance to customer
As a banks mix of de
Drive-through
livery channels shifts
vertically from the top
of the figure toward the
bottom, there are benATM
efits for both the customer and the bank:
convenience increases
Internet
Telephone
because customers
dont have to travel as
Wireless
far to perform transactions, and bank expensLess
Person-to person contact
More
es tend to fall because
less physical overhead
is necessary to facilitate the transacbetween customer convenience and
tion. According to some recent estiin-person quality by allowing custommates, branch banking costs about
ers to choose the mix of delivery chan$1.07 per transaction, telephone
nels that works best for them. The
banking costs about $0.55 per transac- click and mortar strategy has been
tion, ATM banking costs about $0.27
adopted by all of the largest U.S.
per transaction, and Internet banking
banks. An increasing number of full
costs about $0.01 per transaction.2
service community banks are also imBut there is a tradeoff: Shifting to a
plementing this strategy, chiefly as a
more convenient, lower cost mix of
defensive move aimed at retaining
delivery channels also tends to reduce high-value customers who want to use
person-to-person contact with the custhe Internet for some of their banktomer. As a banks mix of delivery
ing transactions.
channels shifts horizontally from right
Another potentially successful strategy
to left in figure 2, some customers
is to occupy only the bottom left corwill experience a reduction in (either
ner of figure 2. An Internet-only or pure
actual or perceived) service quality.
play Internet bank operates no brick
Note that the data displayed in figure 1 and mortar branches. With the excepindicate that the mix of bank delivery
tion of arrangements for customers to
channels has been shifting from the
get cash and deposit checks at ATM
top right corner of figure 2 toward
machines, banks using this distribution
the bottom left corner of figure 2.
strategy deliver all of their products
Does the resulting increase in cusand services over the Internet. The
tomer convenience offset the decline
very nature of this delivery channel
in service quality? This shift may or
precludes person-to-person customer
may not be a profitable move for any
service, and although this can limit
given bank, depending on the nature
the ability of a pure play Internet bank
of the financial services it sells, the
to charge premium prices, reduced
preferences of its customers, and the
spending on physical overhead may
amount of cost savings from the new
potentially offset these revenue limitadistribution strategy.
tions. Internet-only banking is often regarded as a niche strategy that focuses
One potentially successful distribuonly on the most Internet-savvy banktion strategy is to occupy the entire
ing customers and/or delivers only a
space in figure 2. A click and mortar
limited array of financial services.
bank augments its existing brick and
mortar branches, ATM locations, and A final strategy is to occupy only the
other delivery channels with a transtop right corner of figure 2. A brick
actional Internet website. This apand mortar bank does not operate a
proach arguably avoids the tradeoff
transactional website, but may operate
Closer
However, some of the financial services that banks offer over the Internet
are new. For example, some banks are
using the Internet to offer account
aggregation, which organizes in one
place all the data from a customers
multiple relationships with banks, insurance companies, and brokerage
firms. (Prior to financial deregulation,
customers tended to have relationships
with fewer financial institutions, so account aggregation was less necessary.
And prior to the Internet, the logistics
of collecting data and mailing it to
customers made this a less cost-effective service.) Another example is the
business-to-business marketplace, where
banks use the Internet to bring together prospective buyers and sellers of
standardized business inputs (e.g.,
chemicals or paper products). If these
markets are constructed efficiently,
buyers and sellers benefit from better
prices and more timely delivery, and
banks can benefit by providing financing for the deals that result.
number of banks
20
40
60
80
percent of business over Internet
100
1
Currently, wireless devices are used most often
for a limited array of brokerage (e.g., monitoring
financial markets, executing trades) and banking
(e.g., transferring funds, checking account
balances) transactions.
2
See Luxman Nathan, 1999, Community banks
are going online, Communities and Banking, Federal Reserve Bank of Boston, Fall, No. 27, pp.
28. Also see The Economist Newspaper Limited,
2000, Branching out, The Economist: A Survey of
Online Finance, May 20, pp. 1923.
3
For example, see Dow Jones & Company, 2001,
Online banks fail to realize cyber-goals, Wall
Street Journal, January 10, p. C18.
4
5
Robert DeYoung, 2001, The financial performance of pure play Internet banks, Economic
Perspectives, Federal Reserve Bank of Chicago,
Vol. 25, No. 1, First Quarter, pp. 6076.
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