First-Generation Internet Banking - Bankers' Perceptions of the Threat

Abstract

This paper is based on contemporaneous surveys of the banking industry in the UK and eurozone during the period 1999-2001. The study looks at the development of first-generation standalone Internet banks and the threat they represented to the established industry. The paper shows that bankers were clearly concerned by the impact of Internet banking and the potential it generated for increased levels of new entrants into the industry. However, the concern was not necessarily that the market structure would be irrevocably changed, but that the Internet banking revolution would change competition between established players. While entrepreneurs (both from outside the industry and within established institutions) grabbed the opportunity to create mould breaking businesses, the established competitors believed that such new players would not survive in the long run. The Internet would cause change, but the ultimate competitive landscape would be little changed. This indeed proved to be the case. Nevertheless, the industry did recognise that the new players were changing the nature of channel delivery in the financial services sector and the way it communicated with customers.

Keywords: internet banks, multi-channel, e-banking.