Internet Banking in the U.S., Japan and Europe

By Pyun, Chong Soo; Scruggs, Les et al. | Multinational Business Review, Fall 2002 | Go to article overview

Internet Banking in the U.S., Japan and Europe


Pyun, Chong Soo, Scruggs, Les, Nam, Kiseok, Multinational Business Review


Information technology is fundamentally changing the banking industry worldwide, altering traditional definitions of product, market and customer base. Internet banking has significantly reduced barriers to entry, accelerating financial disintermediation. Competitive impacts of e-- banking are more pronounced in the U.S., where non-bank financial service providers have made significant inroads into banks' traditional turf. Yet, U.S. banks are sitting on the sidelines, embracing online banking largely as a defensive strategy. Online banking in Japan has been largely confined to the domestic customer base. European banks have leveraged Internet banking for cross-border expansion, consolidation and competition. However, e-banking in the European Union with a single currency raises regulatory and technical issues.

Businesses worldwide are being reinvented and reengineered with the advent of the World Wide Web. In particular, Internet technology is fundamentally changing the global banking industry, blurring the traditional lines that define product, market and customer base. Today, the click of the mouse empowers consumers with unprecedented freedom in choosing vendors for their financial service needs. Despite the bursting of the Nasdaq dot-com bubble, Internet banking is growing and maturing at home and abroad.

Banks perform a critical role in financial intermediation, and society benefits as banks bear risk in leveraging their liabilities, customer deposits. But the revolution in information processing has lowered entry cost, thereby increasing competition among banks, and competition between banks and other financial institutions, such as security brokers. The less efficient have been forced to merge and consolidate. In short, technology has fundamentally altered the creation, delivery, reception, and utilization of financial products, and advances in computing and telecommunication have eroded economic and regulatory barriers to competition, de facto (Greenspan 1997).

During the first half century of the information era, the U.S. dominated innovation and standardsetting in technology related to the Internet. However, when it comes to wireless technologies, Japanese and European companies are far ahead on the learning curve. According to Beck and Morrison (2001), penetration, use and integration of mobile phones into normal activities are much greater in Northern Europe than in the U.S. Europe leads in palm organizers and mobile web-browsers and perhaps in the innovations based on wireless information technology.

This paper is a progress report on the state of Internet retail banking in the U.S., Japan and Europe. Why have banks embraced cybertechnology? How have they responded in their e-commerce strategy? What regulatory issues arise from electronic and Internet banking in the European Union when national currencies convert into Euro?

The remainder of the paper is organized as follows. Section One (1) presents an overview of the effect of technology on Internet banking, while Section Two (2) discusses the current state of online consumer banking. Section Three (3) examines the e-bank strategies pursued by banks and non-bank financial service providers in the U.S., while Sections Four (4) and Five (5) discuss dominant e-bank strategies in Japan and Europe, respectively. Regulatory and payment system issues relevant to electronic and Internet banking in the European Union are described in Section Six (6). Summary remarks are found in the last section.

INTERNET REVOLUTION

The average consumer has accepted the Internet and e-commerce with phenomenal intensity and speed. According to Good (1998), electricity was invented in 1873, and it took 46 years for mass adoption of this technology throughout the world. It took 35 years for telephones, 22 years for radio and 16 years for PC's. For the World Wide Web, it has taken only 6 years.

As late as January 1998, only 770 banks in the U. …

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