New information technologies and emerging business forces have triggered a new wave of financial innovation - electronic banking (e-banking). This study utilizes an innovation model to analyze the impact of e-banking on the incumbent banks. The results indicate that the nature of e-banking innovation is disruptive, leading to drastic changes in both technological knowledge and business model. We further identify eight core capabilities that are necessary for the banks to cope with the change, each appearing to address either technical or business aspects of e-banking transformation. The findings have the potential to contribute to the understanding of impacts occurring in the change associated with e-banking and offer rich insights for the incumbent banks to exploit e-banking opportunities.
Keywords: e-banking, bricks-and-mortar banking, core capabilities, innovation
The banking and financial industry (BFI) is transforming itself in unpredictable ways [Crane and Bodie 1996], powered in an important way by advances in information technology [Holland and Westwood 2001]. Since the 1980s, commercial banking has continuously innovated through technology-enhanced products and services, such as multi-function ATM, tele-banking, electronic transfers, and electronic cash cards. Over the past decade, the Internet has clearly played a critical role in providing online services and giving rise to a completely new channel. In the Internet age, the extension of commercial banking to the cyberspace is an inevitable development [Liao and Cheung 2003]. Both researchers and practitioners in the BFI have highlighted the need for banks to broaden their branch-based delivery channels by embracing electronic banking (e-banking).
E-banking creates unprecedented opportunities for the banks in the ways they organize financial product development, delivery, and marketing via the Internet. While it offers new opportunities to banks, it also poses many challenges such as the innovation of IT applications, the blurring of market boundaries, the breaching of industrial barriers, the entrance of new competitors, and the emergence of new business models [Saatcioglu et al. 2001, Liao and Cheung 2003]. Now, the speed and scale of the challenge are rapidly increasing with the pervasiveness of the Internet and the extension of information economy [Holland and Westwood 2001].
However, to successfully cope with the challenge of the e-banking innovation, the incumbent banks must understand the nature of the change and capability barriers that it presents [Southard and Siau 2004]. Without this understanding, attempts to migrate to e-banking may be doomed to failure. Banks that are equipped with a good grasp of the e-banking phenomenon will be more able to make informed decisions on how to transform them into e-banks and to exploit the e-banking to survive in the new economy [Southard and Siau 2004]. Given the e-banking is a financial innovation [Liao and Cheung 2003], the change may render the organizational capabilities of the traditional banks obsolete. From the resource-based view [Grant 1991, Mahoney and Pandian 1992], in such a context, the banks must constantly reconfigure, renew, or gain organizational capabilities and resources to meet the demands of the dynamic environment. Developing core capabilities can help the banks redeploy their resources and renew their competences to sustain competitive advantages and to achieve congruence with the shifting business environment.
Therefore, the purposes of this paper are to: (1) evaluate the key differences in technological and business features between bricks-and-mortar banking and e-banking; (2) explore the potential impacts occurring in the change derived from e-banking, (3) identify the core capabilities that are necessary for banks to exploit e-banking. This study utilizes the Abernathy and Clark's  model, with secondary data analysis and comparative analysis to examine the differences in technological and business model, so as to explore the core capabilities in these two dimensions of e-banking innovation. …