By Karen Furst, William W. Lang, and Daniel E. Nolle
Center for Information Policy Research
Harvard University
April 2002

Executive Summary

This report addresses significant gaps in knowledge about the Internet banking landscape. Using information drawn from a survey of national bank examiners, the authors find that although only 20 percent of U.S. national banks offered Internet banking in the third quarter (Q3) of 1999, these transactional Internet banks accounted for almost 90 percent of national banking system assets and 84 percent of the total number of small deposit accounts. All the largest national banks offered Internet banking, but only about 7 percent of the smallest banks offered it. Among institutions offering Internet banking, large banks are more likely than small ones to offer a broad range of services on the Internet. Matching call report data to examiner survey information, the authors found that banks in all categories of size offering Internet banking tended to rely less on interest-yielding activities and deposits than non-Internet banks do, and institutions with Internet banking outperformed non-Internet banks in profitability. An exception to the superior performance of Internet banks versus non-Internet banks were de novo Internet banks, which were less profitable and less efficient than non-Internet de novos. Projections based on banks’ plans as of Q3 1999 indicated that 45 percent of all national banks would offer Internet banking by the beginning of 2001. Although most of the growth in new Internet banking will be due to small banks coming on line, as of Q3 1999, almost half of all national banks had no plans to offer Internet banking. Large banks have more aggressive plans to offer business Internet banking services in the future than small institutions.

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