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

Multinational Business Review, Fall 2002 by Pyun, Chong Soo, Scruggs, Les, Nam, Kiseok

Another serious threat to banks are Internet portals, such as Yahoo, Quicken, and CNBC.com, which, through joint ventures, provide consumers not only online brokerage, but also facilities for bill payment, certificate of deposit investment, mortgage, insurance and consumer loans. In general, European banks have a stronger propensity to use Internet portals, such as Yahoo and Lycos as their main cyberbanking venues than their American counterparts. For instance, the largest bank in France, BNP Paribas I, uses Yahoo Europe as its portal.

At present, banks, for the most part, are watching from the sidelines while their primary role as the premier financial intermediary is being diminished by online brokers and other financial service providers. As recently as two years ago, many leading banks were preoccupied with merger and acquisition aimed at expanding networks of brick-and-mortar branches rather than creating or pursuing virtual branches in cyberspace. In truth, bankers' main motive to implement Internet banking was, and still is, to prevent the defection of their customers to other Internet banks or other financial service providers.

EU banks, like their American counterparts, must grapple with ongoing deregulation and technological advances. They also face the blessing and curse of a single currency, euro. Eventually, they will benefit from the economic efficiency of borderless single currency. But, for now, they must strive to overcome the loss of their banking franchises, which have been protected by bureaucracies of sovereign nations. And they face significant system modifications and capital investments to integrate diverse and often incompatible computer architectures. Little wonder that large European banks are attracted to American markets.

Buffeted by bad loans and weak balance sheets, Japanese banks have not been able to play a significant role in the international banking markets in recent years. While European banks forayed into overseas markets, Japanese banks focused their Internet banking strategies on domestic customers. Japan's Internet bank, Sony Bank, may be the preview of a new paradigm in globalization of e-business by large multinational corporations.

Internet banking is still in a stage of growth through experiment. It was once a challenge for the banking industry to create technology that would help automate its labor-intensive backoffice operations. Now, banks around the world are hard pressed to keep up with Internet technology itself, while competing with other banks and non-bank financial institutions for new products and new delivery systems. Technological innovations will continue in the financial industry, and they will surely test the ability of banks to manage their competition with other financial service providers in a complex and dynamic e-commerce environment.

Acknowledgments: The authors are grateful to Aaron Haynes and Jonathan Jackson for research assistance. An earlier version of this paper was presented at the Conference on Bank Restructuring and Cyber-banking, the Korea Institute of Finance, Seoul, Korea, May 2000.